Trader’s Notebook

9:35 a.m. New York time

Market holiday. Stock and option markets in the United States will be closed today in observance of the Christian Good Friday holiday. Bond markets will close early, at noon. The S&P 500 E-mini futures continued to trade overnight.

What’s happening now? The S&P 500 E-mini futures traded sideways overnight until the release the monthly employment situation report, when price rose sharply, moving in four minutes from 4121 to 4146.75. The price then pulled back slightly, settling in the 4130s.

What does it mean? The final leg of the present upward correction continues and has covered 234.25 points since beginning on March 24.

The market continues to search for the bottom of the next-to-the-last subwave within that final leg. When it comes to bottom-fishing, proportionality is key.The pullback that began from the April 4 peak, 4171.25, has so far covered 50.25 points. That’s a 17.5% retracement, which seems overly small to be the entire pull back before the final upward push that will end the correction. For that reason, I’m retaining yesterday’s analysis.

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 9:35 a.m., 180-minute bars, with volume]

What does Elliott wave theory say? The decline that began on April 4 is wave D{-10} within rising wave C{-9}, the last leg of the upward correction, wave 2{-8}, that began on March 13. In analyzing the chart, wave D{-10}’s 17.5% retracement of the preceding wave, C{-10}, seems disproportionally small. It doesn’t break any rules of Elliott wave analysis. It could indeed be the entirety of wave D{-10} and wave E{-10} might well have begun from the April 6 low. But it seems more likely to me that the upward reversal lis a subwave within wave D{-10} and that the downward movement will soon resume.

Here’s a rundown of other waves that underly the analysis.

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 7, 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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