SP500 Analysis

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has continued its rise, reaching 4467.50 on the futures, 4475.82 on the index. Wave 3 of Subminuscule degree within wave 5 of Minuscule degree continues. 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 continued to rise overnight, reaching a high of 4446.15.

What does it mean? The rise is the final leg of an uptrend that began October 1 and will be followed by followed by a correction of the rise that began on May 13 from 4046.88 on the index.

What’s the alternative? The present rise is a wave connecting two corrective patterns in a compound structure. The final leg of the uptrend has not yet begun.

Chart. The upper chart is a short-term view of the futures, from September to the present. The lower chart is a long-term view of the index, from 2018 to the present.

[S&P 500 E-mini futures at 3:30 p.m., 90-minute bars, with volume]
[S&P 500 index, 2-day bars]

What does Elliott wave theory say? The present rise is wave 3 of Subminuscule degree within wave 5 of Minuscule degree, whose completion will mean the end of wave 1 of Submicro degree.

But what does that really signify? One of the great discoveries of R.N. Elliott in the 1930s, as he developed the theory named after him, was that on stock charts, the large and the small follow the same patterns. There is nothing to distinguish a weekly chart with 30-minute bars from a yearly chart with daily bars from a 20-year chart with monthly bars. Large or small, the charts trace patterns that follow the same rules and tendencies.

The larger waves — what I call the parent waves — provide context for understanding the implications of the smaller waves — the child waves. And this operates all the up and down the degrees tracked in Elliott wave theory, from the present wave 3 of Subminuscule degree all the way up to wave 3 of Grand Supercycle degree, which, according to Elliott wave analyst Robert Prechter, founder of Elliott Wave International, got its start in the 18th century.

A brief homage: Prechter’s work taught me everything I know about Elliott wave theory, since I first read his book, The Elliott Wave Principle, in the early 1980s. The Elliott Wave International site is a generous teacher, and I recommend it to anyone who wants to improve their Elliott wave analytical skills. (Not a paid ad. This is me speaking from the heart.)

Here I’ll trace the degrees from small to large, as I understand them through my analysis, describing what I see as the significance of each.

Wave 3 of Subminuscule degree is the middle wave of its parent degree. When it is complete, it will go through a shallow 4th wave correction, and then push up further as a 5th wave. Subminuscule degrees tend to reach completion within a week.

Wave 5 of Minuscule degree is the final wave within its parent wave. When complete, it will mark the end of its parent wave 1 of Micro degree.

Wave 1 of Submicro degree is the first of five waves. First waves tend to be a bit tentative, as though traders aren’t quite able to believe that an uptrend is underway. It is followed by 2nd wave correction that reclaims much of the 1st wave’s rise, and then by an energetic 3rd wave. It is that 3rd wave, in my opinion, that will be likely to break above the September 1 peak of 4545.85 on the index, 4549.50 on the futures.

The parent, wave 5 of Micro degree, is the main actor at the moment. The end of its child wave 5 of Submicro degree will also be the end of wave 5 of Micro degree.

The end of wave 5 of Submicro degree will trigger the end of a series of ancestral waves, all the way up to great-grand-parent: Micro 5, Subminuette 5, Minuette 5 and Minute 5. The largest of the degrees, Minute 5, began on September 30 and so far has lasted a month and a half, with still more time to go.

Wave 3 of Minor degree, Minute degree’s parent, will be complete by the end of the wave 5 of Minute degree and will go into a 4th wave correction. Minor wave 3 is a subwave within an expanding Diagonal Triangle that began on February 26, 2018. In Triangles, the price bounces between the upper boundary and the lower boundary. In expanding Triangles, the boundaries keep getting farther apart. So wave 4 will reach down into the 2000s or lower, and then be followed by wave 5, which will return to a still higher level. The decline will surely feel a bit like the end of the world as we know it.

Wave 5 of Intermediate degree, the expanding Diagonal Triangle that is Minor degree’s parent, will be complete when wave 5 of Minor degree reaches its end. This sets up another cascade of completions, since the end of Intermediate 5 also means the end of its parent, grand-parent and great-grand parent waves, of degrees Primary, Cycle and Supercycle — each in wave 5 — and of wave 3 Grand Supercycle degree.

Wave 3 of Grand-Supercycle degree will be followed by a shallow 4th wave correction upon completion, although “shallow” isn’t what it will feel like, since the decline will be correcting a rise reaching back into early 18th century. It’s quite possible that no one alive today will see the end of wave 4 of Grand-Supercycle degree.

And there we have it, from an overnight rise to a correction potentially lasting a century or more.

And a note on the alternative analysis: If the price reverses and moves back down toward the 4260 level, then the likelihood is that wave 4 of Micro degree is still underway, and the rise-fall pattern is wave X of Submicro degree, standing between two corrective patterns in a compound structure. This has the effect of pushing the beginning of wave 5 of Micro degree down the road a week or more. But eventually wave 4 of Micro degree will end, and the movements described in the principal forecast will begin.

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 15, 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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