Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell sharply during the session, reaching the 4090s so far as the downtrend that began on April 18 began to show its energy. Today’s decline is a 3rd wave within a larger 3rd wave within the 1st wave of the downtrend. A 3rd wave is usually the most dramatic of the five waves that make up a trend, and a 3rd within a 3rd doubly so. The present decline is just a preview, since the 3rd waves are happening within a still larger 1st wave within the downtrend. The still larger 3rd wave that lies ahead will make the decline in today’s session look small in comparison.

The waves: The present decline is wave 3{-11} within wave 3{-10} within wave 1{-9} within the downtrend, which is wave 3{-8}. The larger 3rd wave that lies ahead will be wave 3{-9}. Ultimately, the downtrend, wave 3{-8}, will fall below 3839.25, the end of the preceding 1st wave.

All of which is a long way of saying that there is no change from this morning’s analysis. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures declined overnight to 4130 and then rose slightly.

What does it mean? The downtrend that began on April 18 continues and internally is nearing the end of its first leg, which will be followed by an upward correction and then a smaller downtrend that will pick up the pace of the decline. The larger downtrend will eventually carry the price below the end of the preceding 1st wave, which is also the start of the upward correction that ended on April 18.

What are the alternatives? There are the same two that have been with us for a week.

Alternative #1: The upward correction is still underway. The downward movement from the April 18 peak is still in its early stages, and it remains possible that the decline is part of the final waves of the correction. The further the decline, the less likely this scenario becomes.

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. This scenario will be eliminated entirely only by a fall below 3839.25, the end of the preceding 1st wave.

Reading the chart. I’ve moved the chart to a closer view in order to see the details of the 3rd wave decline from April 18. There is a degree of ambiguity. The downtrend is in its early phases, and it is impossible to know for sure what degree the internal waves are. I’ve labeled the degrees based on the number of days it has taken similar earlier waves to complete their work, but there may be a need to adjust the degrees before the downtrend is complete. Or perhaps not. The patterns on the chart will be our guide.

As usual, there is also a degree of complexity within the price movement. 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.

For a broader view, showing the upward correction that preceded the present downtrend, and also a chart showing the entire expanding Diagonal Triangle that began in 2018 and that encompasses everything that has happened sense, I refer the reader to the Trader’s Notebook for April 21.

[S&P 500 E-mini futures at 3:30 p.m., 15-minute bars, with volume]

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

Principal analysis:

  • The downtrend that began on April 18 is wave 3{-8}.
  • Within it, wave 1{-9}, the first of five waves, is underway.
  • Wave 1{-9} internally is in its final wave, 5{-10}.
  • Wave 5{-10} in turn is in its middle wave, 3{-11}.
  • Wave 3{-11} will be followed by a small upward correction wave 4{-11}, and then a push to the end as wave 5{-11}
  • The end of wave 5{-11} will also be the end of waves 5{-10} and 1{-9}
  • The most energetic part of the downtrend, wave 3{-9}, lies ahead.
  • Wave 3{-8} will carry the price below the starting point, 3830.25, of wave 2{-8}, the upward correction that began on March 13 and ended on April 18. Most likely the price will decline significantly below that level.

Alternative Analysis #1:

  • Wave 2{-8}, an upward correction that began on March 13, is underway.
  • 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.

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 25, 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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