Trader’s Notebook

3:30 p.m New York time

Half an hour before the closing bell. The S&P 500 futures declined during the session, to the 4190s, slightly below the overnight peak. The decline came close to reaching a Fibonacci retracement level, 38.2%.

The form of the decline is that of an impulse wave, the familiar five-wave pattern found within the 1st, 3rd and 5th subwaves of trends, and the 1st. subwave of all three-wave corrections.

By one interpretation, the final subwave of the low-degree wave I’m tracking, rising wave E{-9} on the chart, ended at today’s peak, and the decline is a low-degree component of the 1st wave within a downtrend, which will be numbered wave 5{-6} on the chart.

By a second interpretation, the peak today was the end of the 3rd subwave within wave E{-9} and the 4th subwave is underway.

I’m sticking with the second interpretation on the chart for now, awaiting some clarity in Monday’s trading. At this point I’m expecting a bit more upside from wave E{-9} before it reaches its end.

I’ve updated the upper chart, showing the S&P 500 futures.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight, reaching 4227.25, the highest point in the upward correction that began on October 13, 2022.

What does it mean? The new correction high increases the likelihood that the correction is nearing it’s end, and that any higher high could in fact be the completion of the correction. We’re fishing for a top.

The final low-degree rising wave that I’m tracking will have five internal waves. The final wave is in its 4th subwave, and with the new high may have begun its 5th and final subwave.

When the rising subwave is complete, it will also be the end of the correction. A downtrend will follow. It will carry the price below 3502, the start of the correction, and most likely significantly below that level.

This is all happening within a much larger downtrend that began on January 4, 2022, the 4th subwave of an expanding Diagonal Triangle that began on December 26, 2018.

See the “We Are Here” section, below, for a list of the current waves that enclose the shorter-term chart.

What are the alternatives? The principal analysis assumes that the correction will take a simple struture, containing one three-wave corrective pattern. If the correction forms a compound structure, then the present corrective pattern won’t complete the correction. Instead, it will be followed by a declining connecting wave and then a second corrective pattern. Compound corrections can be formed from as many as three corrective patterns.

Chart talk. I’ve pulled the chart back from yesterday in order to show the upward correction of the futures in its entirety, and I’ve added a second chart, showing the S&P 500 index back to the beginning the Diagonal Triangle that encloses all that has happened since late 2018.

Reading the chart. Price movements — waves – – in Elliott wave analysis are labeled with numbers within trending waves and letters with corrective waves. The subscripts — numbers in curly brackets — designate the wave’s degree, which, in Elliott wave analysis, means the relative position of a wave within the larger and smaller structures that make up the chart. R.N. Elliott, who in the 1930s developed the form of analysis that bears his name, viewed the chart as a complex structure of smaller waves nested within larger waves, which in turn are nested within still larger waves. In mathematics it’s called a fractal structure, where at every scale the pattern is similar to the others.

[S&P 500 E-mini futures at 3:30 p.m., 480-minute bars, with volume]

[S&P 500 index at 9:35 a.m., 3-day bars, with volume]

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

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 taking the form of a Zigzag and as expected, has already exceeded the peak of the first subwave of the correction, wave A{-7}, which ended on December 13, 2022 at 4180.
  • Wave C{-7} is in its final subwave, wave E{-8}.
  • Wave E{-8} is in its final subwave, rising wave E{-9}. It is in its next-to-the-last subwave, wave 4{-10}.
  • The end of wave E{-9} will cascade up the wave degrees, marking the end of waves E{-8}, C{-7} and of the correction, wave 4{-6}
  • 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.
  • Almost always 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, compound correction:

  • The end of wave C{-7} may won’t be the end of the wave 4{-6} correction.
  • Wave 4{-6} will form 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.

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)

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 19, 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.

Creative Commons License

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