Trader’s Notebook

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose during the session into the 4150s so far, moving past the 61.8% Fibonacci retracement level. That is, the upward correction is close to taking back two-thirds of the 129.50 decline between April 18 and April 26. The 61.8% Fibonacci level is at 4148.78 on this retracement.

The present rise is the first subwave, wave A{-10}, within the upward correction, wave 2{-9}, that began on April 26. It will be followed by a downward wave B{-10}, and then a final rising wave C{-10}.

The correction will remain below 4198.25, the start of the preceding 1st wave, a firm rule of Elliott wave analysis. If the correction price goes above that level, then the analysis no longer matches the chart and will be revised.

I’ve superimposed the Fibonacci retracement ladder on the chart, in red, to better track the retracement. Upward corrections often reverse around Fibonacci retracement levels, and 61.8% is a major level, so I wouldn’t be surprised to see wave A{-10} come to an end soon. On the other hand, there are many retracements that move well beyond that level, so the length is the retracement is uncertain.

This morning’s analysis is unchanged. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight to 4105.75 and then fell sharply into the 4080s, the decline coinciding with the release of new Gross Domestic Product statistics. The price then rose again, almost reaching the overnight peak.

What does it mean? Yesterday’s low (April 26) marked the end of the 1st wave of the downtrend that began on April 18. The rise that followed is the first leg of a 2nd wave upward correction that will remain below 4198.25, the start of the preceding 1st wave. The correction will be followed by an energetic 3rd wave downtrend.

What are the alternatives? None at present. I’m sure some ambiguities will develop, as they always do.

Reading the chart. I adjusted the chart numbering to avoid a rule of Elliott wave analysis that forbids a 3rd wave being the shortest downward wave in a downtrend, changing the endpoint of waves 1{-10} and 2{-10} to earlier, and the end of waves 3{-10} and 4{-10} to later. The prior numbering can be seen in yesterday’s Trader’s Notebook.

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 3:30 p.m., 20-minute bars, with volume]

What does Elliott wave theory say? Here are 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, ended on April 26 and wave 2{-9} began and is underway..
  • Wave 1{-9} internally is in its final wave, 5{-10}.
  • Wave 2{-9} will be followed by the most energetic part of the downtrend, wave 3{-9}.
  • The parent wave, downtrend 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.

Revision in wave labeling:

I’ve made the following changes to wave endpoints on the chart, within wave 1{-9}.

  • Wave 1{-10} moved from 4/20 to 4/19.
  • Wave 2{-10} from 4/20 to 4/19
  • Wave 3{-10} from 4/23 to 4/25
  • Wave 4{-10} from 4/23 to 4/25

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 27, 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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