SP500 Analysis

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued its slow rise, climbing by only a few points during the day. No change in the analysis. I’ve updated the the top chart.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to rise in overnight trading, reaching a new high of 4460.50 in the minutes after the opening bell. The index also reached a new high, 4466.77, in early trading.

What does it mean? The upper boundary of a price channel that began on March 4 is about 200 points away from the current price, and since that boundary itself is rising, it will be above 4700 if it takes a month for the price to reach that boundary.

What’s the alternative? At this point I have no alternative. The big ambiguity is how long it will take the price rise from March 4 to reach completion. Haven’t a clue, but I discuss the question in the Elliott wave theory section.

[S&P 500 E-mini futures at 3:30 p.m., 6-hour bars, with volume]
[S&P 500 index at 9:36 a.m., 2-day bars]

What does Elliott wave theory say? Price channels, such as the Minuette degree channel on the upper chart, are drawn by connecting the starting points of subwaves. Initially, the Minuette degree channel connected the start of Subminuette waves 1 and 3. A stage two channel became possible when wave 5 began, and the present channel connects the the starting points of waves 3 and 5 as the lower boundary, with the upper drawn as a line at the same angle as the lower boundary, intersecting the end of wave 3.

I’ve found price channels to be good indicators of how high a trend is likely to go, although not a perfect indicator. Sometimes the price will shoot beyond a boundary, and sometimes it will come up short. So I think of a channel boundary as a good guess hedged in by possible extremes.

Today’s high so far is about a third of the way up the distance from the lower boundary to the upper. So Minuette wave 5, which began on May 13 from 4029.25, still has some distance to go. The uptrend that began on Aug. 3 from 4365.25 is wave 3 of Minuscule degree, four degrees down from the Minuette degree that forms the basis for channel. That difference in degree gives plenty of room for the price to rise at a normal pace — it doesn’t require an extraordinary burst of energy to reach the upper boundary. So I expect business as usual, if that phrase has any meaning when applied to the markets.

The lower chart shows that all of this is happening within a much larger structure, a Diagonal Triangle based on wave 5 of Intermediate degree that began on December 26, 2018 from 2346.58 on the S&P 500 index. Internally, Intermediate wave 5 is now in its 3rd of five waves — wave 3 of Minor degree. The upper boundary is being defined by the present series of new highs.

The upper chart’s Minuette degree price channel began on May 11, and I’ve marked that point on the lower chart with a red arrow to show the large difference in scale between the Minuette degree channel and the Intermediate degree triangle.

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, 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, August 13, 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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