SP500 Analysis

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to work through the low-level correction that began with an overnight peak, completing wave A within wave 4 of Subbitsy degree, and beginning wave B. A 4th wave correction, like its 2nd wave counterpart, has three waves internally. However, 4th waves have a stronger tendency to extend in compound pattern that result in two or three correctives waves in a row within the parent wave. No change in the analysis. I’ve updated the chart, below.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reached a new high of 4542.25 in overnight trading and then reversed to the downside. The new high on the index, at the opening bell, was 4537.36.

What does it mean? The peak marked the end of the low level rise that began on August 27 and the beginning of a correction that I expect to take a distinctly down-trending form; the preceding correction within the rise was rather shallow, and two corrections within a movement tend to alternate in form. The correction will be followed by a further push to the upside whose completion will be followed by a larger correction.

What’s the alternative? A swift reversal to the upside would mean that the rise from last Friday is still underway and the correction still lies in the future.

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

What does Elliott wave theory say? The rise from August 27 is wave 3 of Subitsy degree and the subsequent decline is Subitsy wave 4, all within wave 5 of Bitsy degree. Wave 2 of Subbitsy degree, which ended on August 27, was quite shallow: A Flat formation. Under the rule of alternation within Elliott wave analysis, wave 4 correction is expected to be steeper: A Zigzag formation.

The end of Subbitsy 4 will also be the end of Bitsy 5 and will cascade up three levels of 5th waves to mark the end of wave 5 of Submicro degree. That end point will also mark the end of wave 3 of MIcro degree, which began May 19 at 4059.50, settting off a 4th wave correction.

The same rule of alternation suggests that wave 4 of Micro degree will be a shallow Flat correction, since the preceding wave 2 was a steep Zigzag.

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 31, 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.

Creative Commons 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.