SP500 Analysis

3:30 a.m. New York time

Half an hour before the closing. The S&P 500 fell in overnight trading and then rose during the day, remaining about 40 points below yesterday’s high. No change in the analysis. I’ve updated the upper chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures declined in overnight trading, from a high of 4455.

What does it mean? The decline is a downward correction within the middle, rising wave in a larger downward correction. The middle wave has not yet reached its target; see the Elliott wave theory section, below.

What’s the alternative? If the middle wave fails to reach that target, then the form taken by the larger correction is different than I expected. More below in the Elliott wave theory section.

Charts. The upper chart examines the near term, from the beginning of September. The lower chart examines the long term, from the start of October 2018. The Fibonacci retracement ladder on the near-term chart shows retracement of wave 3 of Micro degree, which began on May 19.

[S&P 500 E-mini futures at 3:30 p.m., 50-minute bars, with volume]
[S&P 500 index at 9:30 a.m., 2-day bars]

What does Elliott wave theory say? First, the near term. The rise that began September 20 is wave B of Submicro degree within wave 4 of Micro degree. I expect the 4th wave to take the form of a Flat — a shallow correction, alternating with the Zigzag form of the preceding 2nd wave.

In a Flat, wave B must retrace at least 90% of the preceding wave A — that’s a firm rule in Elliott wave analysis. A 90% retracement of the A wave that began on September 3 would bring the price up to 4523.93. Wave B’s high so far is 4455, so the wave has at least another 69 points to go before meeting that requirement.

Although the alternation of form between a 2nd wave and a 4th wave is common, it’s not a requirement in Elliott wave theory. Although 2nd waves tend to take the Zigzag form and 4th waves, the Flat form, it is not unheard of for both to be Zigzags or both to be Flats. If the 4th wave is taking a Zigzag form, then wave B commonly retraces 38% to 79% of wave A. The Zigzag retracement range would be from 4391 to 4497, and so wave B has met this tendency (not a requirement).

Next, the long term. The expanding Diagonal Triangle of Intermediate degree that began December 26, 2018 is still underway. With it, wave 3 of Micro degree ended on September 3 and wave 4 of Micro degree is now underway. The 4th wave will eventually reach, come near to or exceed the lower boundary of the Diagonal Triangle, which keeps moving lower every day. At present, the boundary stands at about 2000. The 4th wave will be followed by a 5th wave back to the upper boundary, which is moving higher every day. The end of wave 5 of Micro degree will mark the Diagonal Triangle, and the end of wave 5 of Intermediate degree, as well as the end of 5th waves the next three levels higher, of Primary, Cycle and Supercycle degrees, the latter having begun in the Great Depression of the 1930s. (In several earlier posts I misidentified the Supercycle degree underway as the 3rd wave. The 5th wave is correct.)

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, September 24, 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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