3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures continued to fluctuate narrowly during the session, between an early low in the 4120s and the session high in the 4150s. This morning’s analysis stands 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 into the 4150s after trading resumed overnight, and then fell, reaching into the 4130s so far.

What does it mean? The upward correction that began on October 13 continues to work through its final movements. The correction is in its last leg. Internally, that final upward movement is in the final subwaves two degrees down, and at the lowest level I track, is in its next-to-the-last subwave, a downward movement that began on May 10.

The end of that smallest wave will also be the end the correction, which will be followed by a downtrend that will fall below the correction’s starting point, 3502, and most likely quite a distance below that level.

What are the alternatives? There are two, unchanged from week. The first is likely to remain with us as a possibility until after the final wave of the correction is complete; the second until the smallest wave in my analysis, the one that began on May 10, reaches its end.

Alternative #1

If the correction forms a compound structure, then the present corrective pattern won’t complete the correction. Instead, it will be followed by a declining wave and then a second corrective pattern. Compound corrections can be formed from as many as three patterns.

Alternative #2

For the second alternative, I’ll need to se the jargon of Elliott wave analysis that is used on the chart. See the “Reading the Chart” section below for an explainer.

In the nearer-term, we’re wading through the ambiguities of which low point marks the end of the downtrending low-degree wave, D{-9}, and the final uptrending wave, E{-9}, that will bring the correction to an end. Identifying turning points means navigating the ambiguity inherent in Elliott wave analysis. So, rule of thumb: Each low since the May 10 peak could be the end of the D{-9}. Or not. Each high could mean the final wave, E{-9}, has begun. Or not.

Reading the chart. Price movements — waves – – in Elliott wave analysis are labeled with numbers within trending waves and letters with corrective waves. The subscripts — numbers in curly brackets — designate the wave’s degree, which, in Elliott wave analysis, means the relative position of a wave within the larger and smaller structures that make up the chart. R.N. Elliott, who in the 1930s developed the form of analysis that bears his name, viewed the chart as a complex structure of smaller waves nested within larger waves, which in turn are nested within still larger waves. In mathematics it’s called a fractal structure, where at every scale the pattern is similar to the others.

[S&P 500 E-mini futures at 3:30 p.m., 120-minute bars, with volume]

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

Principal analysis:

• An upward correction, wave 4{-6}, began on October 13, 2022 and is underway.
• The correction’s first subwave, wave A{-7}, had five subwaves, meaning the correction is taking the form of a Zigzag
• 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}.
• Wave E{-8} is in its next-to-the-last subwave, falling wave D{-9}.
• 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.
• Almost always 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 analysis #1, compound correction:

• The end of wave C{-7} may won’t be the end of the wave 4{-6} correction.
• Wave 4{-6} will form 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.

Alternative analysis #2, turning points

• At some point, wave D{-9} will end and wave E{-9}, the final wave that will end the upward correction, will begin.
• It won’t be obvious when that happens.
• A move below the prior low point of wave D{-9} will confirm that the wave has been underway, and it may or may not end at that new low.
• A move above the wave C{-9} peak will confirm that wave D{-9} has ended and wave E{-9} has begun.

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)

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 15, 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.