3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures continued to fall during the session, reaching 4164.50 and then bouncing a slightly. The further the price drops, the more likely it is that Alternative #1 is correct: The upward correction ended at the overnight high, 4198.25, and the long-anticipated downtrend has begun. Or not. If the price reverses to the upside and moves above the overnight high, then this morning’s principal analysis is correct.

I give the two possibilities equal odds at this point. I’ve updated this morning’s chart, leaving the principal analysis intact. And I’ve added a very short-term chart showing the futures since yesterday’s market close. And we shall see if tomorrow will allow a choice between the two possibilities. (Alternative #2, a compound correction, is also still in the mix.)

[S&P 500 E-mini futures, 5-minute bars, with volume]

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight to 4198.25 as the opening bell approached.

What does it mean? There is very little upside left for the correction that began on March 13. This correction is a 2nd wave correction within a five-wave downtrend. Under the rules of Elliott wave analysis, a 2nd wave correction cannot move beyond the start of the 1st wave of the trend, which is 4208.50. If the price moves above that level, then the chart will be reanalyzed to eliminate the discrepancy. Ultimately, the chart is always right.

Internally, the correction is in its 3rd and final segment, which in turn in within its final subwave. So the end is very near.

The correction will be followed by an energetic downtrend that will carry the price below 3839.25 — the correction’s starting point — and most likely significantly lower.

What are the alternatives? There are two.

Alternative #1. For awhile now we’ve been in a situation where any high within the correction might be its end. The overnight high on today’s chart is no exception.

Alternative #2: Under this scenario, the overnight high marked the end of the corrective pattern but not of the correction, which is forming a compound structure, linking two or three corrective patterns together. If that’s the case, then the decline since Friday’s peak is a downward linking wave, which will be followed by a second corrective pattern.

Reading the chart. I’ve placed two red arrows on the chart, one showing the 4208.50 starting point of the 1st wave of the downtrend that began on February 2 and the other showing the overnight peak within the 2nd wave correction within the downtrend. Those two points define the possibilities of the S&P 500 futures.

Under the principal analysis, the 2nd wave correction cannot rise above that point. If it does, I’ll reanalyze the chart. When such surprises occur, it’s usually because the degrees used in the analysis don’t match the reality of the chart. The degrees of waves are difficult to assess until after a structure is complete. Before that, it’s an educated guess.

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.

[S&P 500 E-mini futures at 9:35 a.m., 150-minute bars, with volume]

What does Elliott wave theory say? The analyses described above rely on these waves.

Principal analysis:

• The upward correction that began on March 13 is wave 2{-8}.
• Within it, wave C{-9}, the correction’s final wave of that degree, is in its final wave, rising wave E{-10}.
• Under a rule of Elliott wave analysis, wave E{-10} cannot move above the starting point of the preceding wave 1{-8}, 4208.50.
• Wave E{-10} is in its final subwave, E{-11}.
• If wave 2{-8} and its subwaves, C{-9} and E{-10}, move above 4208.50, the starting point of wave 1{-8}, then then analysis will have broken a rule of Elliott wave analysis and a new analysis will be done.
• 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 #1:

• Wave E{-10}, its child, wave E{-11}, and its parent, wave C{-9}, ended at the April 18 peak, bringing the upward correction, wave 2{-8} to an end.
• Downtrending wave 3{-8} is underway.

Alternative analysis #2:

• Wave 2{-8}, the upward correction, is forming 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.

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 18, 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.