3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures have fallen during the session, reaching a low so far of 4105.50. The lower the price goes, the more likely it becomes that the upward correction that began on October 13, 2022, wave 2{-6}, ended at the May 1 high, 4206.25. That scenario, however, is not yet a certainty, and for now I shall continue to mark the chat showing wave 2{-6} as still being underway. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell overnight, reaching into the 4160s at the opening bell.

What does it mean? The upward correction that began on October 13 last year continues and is in its final leg, which in turn is in its final subwave. The correction, a 4th wave, has retraced beyond the 78.6% Fibonacci level and is in a position where it could end at any time, although there’s no requirement that it end quickly. Indeed, it could linger for quite some time under the rules of Elliott wave analysis, since a 4th wave, unlike a 2nd wave, has no boundary limiting how far it can proceed.

I’ve superimposed a Fibonacci retracement ladder on the chart, in red, to make it easier to track the progress of the correction’s last leg.

The upward correction will be followed by a 5th wave decline that I expect to bring the price back into the low 3500s at the least, and possibly significantly lower.

What are the alternatives? There are two.

Alternatie #1:

• The upward correction ended at 4206.25, the high set before yesterday’s opening bell.
• The 5th wave decline has begun.

Alternative #2:

• The upward correction is forming a compound structure, linking two or three corrective patterns together.
• The present “last leg” of the correction, under the principal analysis, won’t be the end of the analysis under this alternative but only the end of the first corrective pattern.
• The first pattern will be followed by a declining connector wave and then a second corrective pattern.

[S&P 500 E-mini futures at 9:35 a.m., 8-hour bars, with volume]

What does Elliott wave theory say? Here are the waves that underly the revised analysis.

Principal analysis:

• An upward correction, wave 4{-6}, began on October 13, 2022 and is underway.
• Wave 4{-6} is in its final subwave wave, C{-7}, which began on March 13, 2023.
• Wave C{-7} is in its final subwave, wave E{-8}.
• As a 4th wave, wave 4{-6} has no upper limits under Elliott wave theory.
• Wave 4{-6} will be followed by downtrending wave 5{-6}, which, like all 5th waves, might match one of a number of different patterns, all based on the downtrend’s relation with the end of the preceding 3rd wave, at 3502.
• Usually, a 5th wave will move past the preceding 3rd wave’s end point.
• Some 5th waves are truncated, and on this chart that means wave 5{-6} would end before reaching 3502.
• Some 5th waves are extended, that would mean wave 5{-6} would have nine waves internally rather than the usual five, and would cover a greater than expected distance over a greater than expected period of time.

Alternative #1:

• Wave 4{-6} ended on May 1 at 4206.25.
• Wave 5{-6} is underway.

Alternative #2:

• Wave C{-7} may have ended on May 1 but that is not the end of the wave 4{-6} correction.
• Wave 4{-6} is forming a compound structure and wave C{-7} ends the first corrective pattern.
• Wave C{-7} will be followed by a declining connector, wave X{-7}, and then by a second corrective pattern.

Bigger structures:

• This is all happening within downtrending wave 1{-5}, which began on January 4, 2022 from 4808.25.
• Wave 1{-5} is a subwave of a nested series of larger subwaves, from wave 1{-4} to wave 1{-2}. which also began on January 4, 2022.
• Wave 1{-2} is a subwave of wave 4{-1}, 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.25, and back to the upper boundary of the triangle, which gets higher continually and is in the 6140s.

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)
• 4{-6} Submicro, 10/13/2022, 3502 (up)
• C{-7} Minuscule, 3/13/2023, 3830.25 (up)

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.

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, May 2, 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.