SP500 Analysis

3:30 p.m. New York time

Half an hour before the closing bell. A low-level downward correction of the S&P 500 that began with Friday’s high was completed today. The correction of was 4 of Bitsy degree, and the subsequent Bitsy wave 5 has risen to new heights. Bitsy 5 is the last leg of uptrending wave 3 of Subminuscule degree. I’ve updated the chart.

9:55 a.m. New York time

What’s happening now? The S&P 500 E-mini futures pulled back slightly from Friday’s peak, 4463.25, in an uptrend that began August 4 from 4391.25

What does it mean? The pullback is a low level correction within a series of nested uptrends that began on July 19 from 4224 following a 160-point decline, within a series of nested uptrends of still larger degree.

What’s the alternative? None regarding the nature of the rise. There are low-level labeling issues, which I discuss in detail in the Elliott wave theory section, below.

[S&P 500 E-mini futures at 3:30 p.m., 70-minute bars, with volume]

What does Elliott wave theory say? In ascending order, the low-level correction is wave 4 of Bitsy degree — a very low level indeed — within wave 3 of Subminuscule degree degree, which began on August 4, within wave 3 of Minuscule degree, which began on August 3, within wave 5 of Submicro degree, which began on July 19 from 4224.

The whole structure from July 19 begins with an unnaturally long Minuscule wave 1 of 192.75 points that ends at 4416.75. From that point, there’s a sideways correction of Minuscule degree that looks more like a 4th wave than a 2nd wave — 2nd waves tend to be of the Zigzag pattern. The correction ended on August 3 and was followed by a Minuscule degree 3rd wave of unnatural shallowness — 3rd waves usually carry a lot of energy, and this 3rd can barely roll out of bed in the morning.

Within Minuscule wave 3, the waves are poorly differentiated, with no powerful 3rd waves in the required positions. Internals like this require the analyst to repeatedly subdivide larger waves into smaller waves. That’s natural in Elliott wave analysis, given the fractal nature of the market’s movements, but it’s not generally this visible.

So, bottom line: I have very little confidence in the internal labelling of waves within Submicro wave 5. What I’ve done is the best I’ve got, but the whole structure could be dismantled a day’s price movement. I’m finding the best way to see the chart is to focus less on the internals of Submicro wave 5 and more on the upper boundary of the Minuette degree price channel drawn in red on the chart, which is the ultimate target of the rise that began March 4 from from 4056.88.

One little gotcha to look out for: Under the rules of Elliott wave analysis, a 3rd wave can’t be the short of the three odd-numbered waves in a trend. Since Minuscule wave 1 is 192.75 points long, Minuscule 3 would to exceed 4558 to be longer than wave 1. My experience has been that the 3rd wave is almost always the longest of the three. If Minuscule 3 falls short of 4558, then the following 5th wave would have to be shorter than wave 3 in order to be in compliance with the rules. If the 5th wave is longer, then it would require a complete recount within Submicro wave 5.

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 16, 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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