SP500 Analysis

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 rose during the day, reaching 4329 on the futures, 4336.84 on the index, remaining about 50 points or a little less below the July 14 peak of 4384.50. No change to the analysis. I’ve updated the chart.

9:45 a.m. New York time

What’s happening now? In overnight trading, the S&P 500 E-mini futures reversed from Monday’s low, 4224, in a small-degree correction within the downtrend that began July 14 from 4384.50.

What does it mean? The decline that began on July 14 is a first small step in a downtrend that will eventually fall by 2000 points and more. The July 14 high marks the end of an uptrend that began February 23, 2020.

What’s the alternative? If the price reversal continues to rise and exceeds the high of July 14 — 4384.50 on the futures, 4393.68 on the index — then the uptrend that began in February 2020 is still underway, and the entire decline since July 14 has been a correction within that uptrend.

[S&P 500 E-mini futures at 3:30 p.m., 250-minute bars, with volume]

What does Elliott wave theory say? Under the principle analysis, the July 14 peak ended wave 3 of Minor degree, the 3rd leg of an expanding Diagonal Triangle that began on December 26, 2018 as wave 5 of Intermediate degree. Prices in diagonal triangles bounce between the boundaries of a price channel that grows wider every day. The channel low today is about 2030, and in the time it takes the price reach that level, the boundary will have moved further down. So it’s a chase, of sorts. At the lower boundary the price can be expected to to reverse and begin a trip back up to the upper boundary as wave 4 of Minor degree, and after that, wave 5 will chase back down to the lower boundary, bringing the Diagonal Triangle to an end.

Nearer term, the decline from the July 14 peak will take the form of sets of five waves, three in the direction of the trend, separated by two corrections. The waves in the direction of the trend will in turn contain five waves internally, and those contrary to the trend will have three internal waves. That’s ignoring for now the complexities that can make Elliott wave analysis a challenge. Presently, I count the decline as being in wave 4 of Minuscule degree within wave 1 of Submicro degree — the first baby steps of what will be a long process.

In the alternative analysis, if the price rises above the end of wave 3 of Minor degree, 4384.50 on the futures, then Minor wave 3 is still underway and the decline that began on July 14 is a correction within Minor 3.

Learning and other resources. See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, July 20, 2021


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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