SP500 Analysis

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to trade slightly below Friday’s high of 4590 as the session neared its end, staying within 35 points of that peak until late in the session, when the price dropped to 4550.50. No change in the analysis. I’ve updated the chart.

9:50 a.m. New York time

What’s happening now? The S&P 500 E-mini futures remained slightly below yesterday’s peak, 4590,

What does it mean? Two possibilities, of equal likelihood: Either the decline from the peak is a low-level correction that will be quickly followed by a rise to new highs (which is how I’ve labelled the chart).

Or the decline marks the end of larger rise that began October 13 and the beginning of a shallow correction which in turn will be followed by a rise to new highs.

What is the alternative? A bearish alternative would be to redo the analysis entirely, making yesterday’s high the end of the rise that began February 23, 2020. Based on the internal count, I consider this to be of extremely low probability.

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

What does Elliott wave theory say? The rise from October 13 is wave 3 of Subminuscule degree. Internally, it is in wave 5 of Bitsy degree, which has turned to be a hard-to-count wave, which lots of ambiguity. I think it has met all of the Elliott requirements for completion, but it can continue extending for quite some time.

Of equal likelihood is a scenario where yesterday’s high ended wave 3 of Subminuscule degree, and the subsequent slight decline is an early stage within wave 4 of Subminuscule degree. The 4th wave could trace one of three patterns: Zigzag, Flat or Triangle. I’m betting on Flat, which is a shallow correction.

The alternative scenario sees yesterday’s high as the end of wave 2 and the beginning of wave 3 of Minor degree, at the end of the early pandemic crash, on February 23, 2000. Minor degree is seven degrees larger than Subminuscule degree and is the largest internal degree of wave 5 of Intermediate degree, an expanding Diagonal Triangle, wave 5 of Intermediate degree, that began in December 2018. The internal count suggests that the price is in wave 1 of Submicro degree, four levels below Intermediate, and that Minor wave 3 won’t be complete until the end of wave 5 of Submicro degree.

So how much high does the S&P 500 really have? As shown in the longer-term chart that I posted on Friday, the price since April has been bouncing along the upper boundary of the Diagonal Triangle that began nearly three years ago. The price can go above that boundary, but usually not by a lot. So I expect the price to continue its work at the boundary, with maybe a final push above to complete wave 5 of Intermediate degree.

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 27, 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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