Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures have moved a step closer to the end of the upward correction that has dominated the markets since last October.

To locate the We-Are-Here marker, we must drill down three levels from the correction wave, 4{-6}. Wave 4{-6} is a Zigzag with three waves internally, and it is in wave C{-7}, the 3rd wave. Wave C{-7}, in turn, will have five waves internally and is in the 5th wave, E{-8}. That 5th wave will also have five internal waves. It became clear today, as the price rose into the 4160s, that the 3rd of those waves, C{-9}, began yesterday from 4067.25.

Wave C{-9} typically would rise higher than wave A{-9}, which ended on May 1 at 4206.25. Looking forward, decling wave D{-9} will follow, and will in turn be followed by the final upward push: wave E{-9} within E{-8} within wave C{-7} within the upward correction, wave 4{-6}. The end of wave E{-9} will be the end of the correction.

The downtrend, wave 5{-6}, will follow and, if typical, will carry the price below the start of the correction, from 3502. Fifth waves are quirky beasts, and the price could move significantly below 3502, or it could come up short. After wave 5{-6} is complete, an even larger upward correction, wave 2{-5}, will begin.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures whipsawed between the 4090s and the 4110s after the employment report was released, an hour before the opening bell. The price stayed well above yesterday’s session low, 4067.25

What does it mean? The upward correction continues. It began on October 13, 2022 and is now nearing its end. It will be followed by a final downtrend that will wrap up the larger downtrend that began on January 4, 2022, one of a series of nested downtrending waves of increasing size.

What are the alternatives? There is one.

  • The upward correction is forming a compound structure, linking two or three corrective patterns together.
  • The present “last leg” of the correction, under the principal analysis, won’t be the end of the analysis under this alternative but only the end of the first corrective pattern.
  • The first pattern will be followed by a declining connector wave and then a second corrective pattern.

[S&P 500 E-mini futures at 3:30 p.m., 105-minute bars, with volume]

What does Elliott wave theory say? Here are the waves that underly the principal analysis.

Principal analysis:

  • An upward correction, wave 4{-6}, began on October 13, 2022 and is underway.
  • The correction’s first subwave, wave A{-7}, had five subwaves, meaning the correction is taking the form of a Zigzag
  • Wave 4{-6} is in its final subwave wave, C{-7}, which began on March 13, 2023.
  • Wave C{-7} is in its final subwave, wave E{-8}.
  • Wave E{-8} is in its second subwave, declining wave B{-9}.
  • Wave E{-8} will have five subwaves altogether once it is complete.
  • As a 4th wave, wave 4{-6} has no upper limits under Elliott wave theory.
  • Wave 4{-6} will be followed by downtrending wave 5{-6}, which, like all 5th waves, might match one of a number of different patterns, all based on the downtrend’s relation with the end of the preceding 3rd wave, at 3502.
  • Usually, a 5th wave will move past the preceding 3rd wave’s end point.
  • Some 5th waves are truncated, and on this chart that means wave 5{-6} would end before reaching 3502.
  • Some 5th waves are extended, that would mean wave 5{-6} would have nine waves internally rather than the usual five, and would cover a greater than expected distance over a greater than expected period of time.

Alternative analysis:

  • Wave C{-7} may have ended on May 1 but that is not the end of the wave 4{-6} correction.
  • Wave 4{-6} is forming a compound structure and wave C{-7} ends the first corrective pattern.
  • Wave C{-7} will be followed by a declining connector, wave X{-7}, and then by a second corrective pattern.

Bigger structures:

  • This is all happening within downtrending wave 1{-5}, which began on January 4, 2022 from 4808.25.
  • Wave 1{-5} is a subwave of a nested series of larger subwaves, from wave 1{-4} to wave 1{-2}. which also began on January 4, 2022.
  • Wave 1{-2} is a subwave of wave 4{-1}, the next-to-the-last wave within a large expanding Diagonal Triangle, wave 5{0}, that began on December 26, 2018.
  • When wave 4{-1} is complete, wave 5{-1} will begin and will carry the wave above the January 4 high.25, and back to the upper boundary of the triangle, which gets higher continually and is in the 6140s.

We Are Here.

These are the waves currently in progress under my principal analysis. Each line on the list shows the wave number, with the subscript in curly brackets, the traditional degree name, the starting date, the starting price of the S&P 500 E-mini futures, and the direction of the wave.

  • S&P 500 Index:
  • 5{+3} Supercycle, 7/8/1932, 4.40 (up)
  • 5{+2} Cycle, 12/9/1974, 60.96 (up)
  • 5{+1} Primary, 3/6/2009, 666.79 (up)
  • 5{0} Intermediate, 12/26/2018, 2346.58 (up)
  • S&P 500 Futures and index:
  • 4{-1} Minor, 1/4/2022, 4808.25 (down) (futures), 4818.62 (down) (index)
  • S&P 500 Futures:
  • 1{-2} Minute, 1/4/2022, 4808.25 (down)
  • 1{-3} Minuette, 1/4/2022, 4808.25 (down)
  • 1{-4} Subminuette, 1/4/2022, 4808.25 (down)
  • 1{-5} Micro, 1/4/2022, 4808.25 (down)
  • 4{-6} Submicro, 10/13/2022, 3502 (up)
  • C{-7} Minuscule, 3/13/2023, 3830.25 (up)

Reading the chart. Elliott wave analysis views the chart as a complex structure of smaller waves nested within larger waves, which in turn are nested within still larger waves. My labeling system assigns numbers to the subwaves of trending waves, and letters to the subwaves of corrections. Each number or letter is followed by a subscript, in curly brackets, showing the waves position within the complex structure, called its “degree” in Elliott wave parlance. The smaller the number, the lower the degree. On this chart we’re dealing with relatively small waves, so the degree numbers are negative.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, in the ever-changing markets, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, May 5, 2023


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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