3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures worked their way up to the 4170s during the session, and then swiftly dropped back to the 4130s, below the April 14 low, 4138. That’s sufficient to promote this morning’s Alternative #1 scenario to Principal Analysis: The upward correction that began on March 13 ended on April l8. An energetic downtrend, wave 3{-8}, has begun. Alternative #2 from this morning — a compound correction — is still a possibility.

More in Friday morning’s analysis. This switched kicked in five minutes before I post, so it’s rushed. I’ve updated the chart.

2:55 p.m. New York time

FDX options exit. I’ve exited my short bear call options spread on FDX, a day plus change before expiration, for a loss, and have updated the trade analysis with details.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell very slightly overnight, to 4143.

What does it mean? The upward correction that began on March 13 continues. Drill down through three degrees of subwaves, and they’re all in their final movements. I expect the correction to end soon and a downtrend to begin that will carry the price into the 3800s and perhaps lower.

What are the alternatives? There are two, and to regular readers, they will look familiar.

Alternative #1: The upward correction ended at 4198.25, the high attained on April l8. Under this scenario, the downtrend has begun, although very tentatively.

Alternative #2: The correction is forming a compound pattern, linking several corrective patterns together. Under this scenario, the correction is nearing the end of its first corrective pattern but not of the correction itself. The first corrective 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., 90-minute bars, with volume]

What does Elliott wave theory say? Here’s a technical description of the waves that underly the analysis.

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.

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 20, 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.