SP500 Analysis

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has continued to rise throughout the session, reaching 4360s on the futures, 4370s on the index, as the closing bell neared. The intensity of the rise gives credence to my principal analysis: That the correction ended overnight and wave 5 of Micro degree is on its way to new highs. I’ve updated the top chart, showing a near-term view.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures dropped in 4260 in overnight trading and then executed a sharp reversal, moving up 60 points.

What does it mean? By my principal analysis, the correction that began on September 3 ended at the overnight low, and a rise has begun that will eventually exceed that date’s high, 4549.50. This analysis will be disproven if the price reverses and drops back to the 4260 region.

What’s the alternative? If the price rise falls well short of the September 3 high, then the correction is still underway and is taking a compound structure, in which two corrective patterns are connected by an intervening wave. Under this scenario, the rise that began last night is the beginning of that intervening wave.

Charts. The top chart is a near-term chart, tracking the correction that began September 3. The lower chart is a long-term chart, showing the Diagonal Triangle that began in December 2018.

[S&P 500 E-mini futures at 3:30 p.m., hourly bars, with volume]
[S&P 500 index at 9:35 a.m., 2-day bars]

What does Elliott wave theory say? Under the principal analysis, last night’s low marks the end of wave 5 of Micro degree and also of two parent waves of increasingly larger degrees, wave C of Submicro degree, and its parent wave 4 of Micro degree (the correction that began on September 3). The ensuing rise is wave 5 of Micro degree, which will push beyond the September 3 high of 4549.50, perhaps significantly so.

Under the alternative scenario, the rise that began last night is an X wave, connecting two Submicro corrective patterns within wave 4 of Micro degree. The first pattern, now complete, proved to be a Zigzag. The second pattern, after wave X is complete, could be another Zigzag, or a Flat, or perhaps a Triangle of some kind. There is a lot of variety in corrective waves. If the alternative scenario proves to be correct, then the present rise won’t approach the September 3 peak.

Under both scenarios, wave 4 of MIcro degree eventually ends, and the 5th wave that follows will carry the price up to new highs. The end of wave 5 of Micro degree will cascade up the degree ladder, also marking the end of 5th waves of Subminuette, Minuette and Minute degree. One more level up, and it’s the end of wave 3 of Minor degree, which began on February 23, 2020, at the end of the early pandemic crash. The ensuing wave 4 of Minor degree will carry the price down to the lower boundary of an Expanding Triangle that began. The boundary drops lower every day and is presently in the 1980s.

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, October 1, 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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