3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose during the session, reaching into the 4130s, well below the high set so far by the upward correction that began on March 13. It’s possible that the overnight low, 4096.50, was the end of wave D{-10}, the downward next-to-the-last leg of the final wave, C{-9}, within the correction, wave 2{-8}. The low came on the third day since wave D{-10} began, which is proportional to what has come before.

If that low is indeed the end of wave D{-10}, then wave E{-10}, the final wave within wave C{-9}, has begun. I’m not at all certain that E{-10} has begun, so for now I’m sticking with this morning’s analysis: Wave D{-10} continues its journey within wave C{-9} within wave 2{-8}.

I’ve updated the chart.

10:20 a.m. New York time

MKC options play exercise and exit. I’ve exited my short bear call options spread on MKC after the short calls were exercised as the stock went ex-dividend. I’ve updated the trade analysis with details.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures remained above the April 5 low, 4099, in overnight trading.

What does it mean? From smaller to larger, the next-to-the-last subwave, which is declining, within the final wave of an upward correction that began on March 13 is fishing for its end point. Once it is complete, the subwave will be followed by the rising final wave that will bring the correction to an end.

A tendency and a rule govern how high the final wave within the correction will go.

First, within that final wave, the last of five subwaves will tend to move above the prior high within the final wave, which means above 4171.25. It’s a tendency not a rule, so the final rise might come up short.

Second, the upward correction, a 2nd wave, cannot move above the start of the preceding 1st wave, which sets a maximum of 4208.50.

So under the principal analysis, the correction’s peak must be no higher than 4208.50 but might go higher than 4171.25. If the rule is violated, then I’ll redo the analysis. If the tendency is violated, no action required.

What are the alternatives? It’s possible that the third wave within the correction will be the end of a corrective pattern but not of the correction itself. Some corrections form a compound structure, linking two or three corrective patterns together. The present correction is the 2nd of five waves in a downtrend. Compound corrections are far more common in 4th waves. Nonetheless, 2nd-wave compound corrections aren’t unheard of.

[S&P 500 E-mini futures at 3:30 p.m., 180-minute bars, with volume]

What does Elliott wave theory say? Here’s the Elliott wave terminology.

Principal analysis:

• The upward correction that began on March 13 is wave 2{-8}.
• Down one degree, wave C{-9} is the final wave within that correction.
• Within that final wave, declining wave D{-10} is underway, It will be followed by wave E{-10}, which likely will carry the price above the April 4 high, 4171.25.
• If wave 2{-8} moves above the starting point of wave 1{-8}, from 4208.50, then then analysis will have broken a rule of Elliott wave analysis and will be redone.
• Wave 2{-8} will be followed by a downtrend, wave 3{-8}, that will carry the price below the correction’s starting point, 3839.25, and most likely significantly below that level.

Alternative analysis:

• Wave 2{-8}, the upward correction, will form a compound structure, linking together two or three corrective patterns.
• Under that alternative, if it should occur, the present rising wave C{-9} will be followed by a declining connector wave, X{-9}, and then the first wave of a second corrective pattern.
• The correction is a 2nd wave, and compounding is seen less often in 2nds. However, they do happen on occasion.

Bigger structures:

• This is all happening within downtrending wave 3{-7}, which began on February 2.
• Wave 3{-7} is a subwave of downtrending wave 3{-6}, which began on August 16, 2022.
• Wave 3{-6} is encompassed by a series of larger declining waves, the smaller within the larger, stretching up five degrees to wave 4{-1}, which began on January 4, 2022.
• Wave 4{-1} is 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, 4808.25, and back to the upper boundary of the triangle, which gets higher continually and is in the 6090s.

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.

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)
• 3{-6} Submicro, 8/16/2022, 4327.50 (down)
• 3{-7} Minuscule, 2/2/2023, 4208.50 (down)

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, April 6, 2023

Disclaimer

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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.