SP500 Analysis

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 peaked half an hour into the trading session and then declined, giving back its overnight gains. The peak was 4711.75 on the futures, 4718.50 on the index. The decline is not yet large enough to reach a conclusion that the peak ends the rise that began October 27. It might have done so, but then again, maybe not.

In Elliott wave analysis, there’s a trick of the trade. When a wave has fulfilled all of the requirements for completion, and yet has a small pullback and then a rise to even higher highs, the normal practice is to count that pullback and rise, and perhaps some earlier fluctuations, as being of a smaller degree; basically, the analyst pushes them down a degree, quite arbitrarily, in order for the count to work.

I’ll do that if the price reverses quickly and moves to a new peak. Otherwise, I’m going to wait for more decline, and then make a decision.

So how long should I wait? If today’s peak is in fact the end of of the rise from October 27 — wave 5 of Bitsy, it is also the end of wave 3 of the parent wave of Subminuscule degree. So the subsequent correction will be wave 4 of Subinuscule degree, probably a Flat, and it is likely to end within the price range of wave 4 of Bitsy degree within wave 3 of Minuscule degree. That Bitsy wave 4 declined from 4590 to 4543.75 (marked on the chart with a tan oval). And so if the price reaches the low 4600s, then I’ll be inclined to label the present wave as wave 4 of Subminuscule degree. That target range is something that often happens with 4th waves, but it’s not a rule, so the decline could be shallower or deeper. Which will make chart analysis decisions “interesting” over the next few days.

I’ve added in a longer-term chart showing the upper and lower boundaries of the expanding Diagonal Triangle, wave 5 of Intermediate degree, that began in December 2018. It is currently in its 3rd wave, of Minor degree, which began on February 23, 2020, at the end of the early pandemic market crash. In an Expanding Triangle, the boundaries keep moving further from each other, which creates additional room for upside potential without the price moving too far past the upper boundary.

9:37 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose to a new peak in overnight trading and the price moved still higher after the opening bell rang, so far to 4705 on the futures, 4712.28 on the index.

What does it mean? The rise that began November 3 continues.

What’s the alternative? Under the rules of Elliott wave analysis the rise has met all of the requirements for completion. Any peak could be, but won’t necessarily be, the end the rise.

[S&P 500 E-mini futures at 3:30 p.m., 55-minute bars, with volume]
[S&P 500 Index at 3:25 p.m., daily bars]

What does Elliott wave theory say? The rise from November 3 is wave 5 of Subbitsy degree within wave 5 of Bitsy degree within wave 3 of Subminuscule degree. Under Elliott, a move in the direction of the trend consists of five waves, so the rise is on its last leg at the Subbitsy and Bitsy degrees. Their completion will also be the end of wave 3 of Subminuscule degree, which began October 13. Subminuscule 3 will be followed by a 4th wave correction, likely taking the form of a Flat, in contrast to the Zigzag pattern of the preceding 2nd wave. In Elliott this is known as the Rule of Alternation. Subminuscule wave 4 will be followed by a 5th wave rise to new heights.

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, November 5, 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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