SP500 Analysis

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 traded within a narrow range throughout the day, remaining below the future’s overnight high. The index remained below the November 5 high of 4718.50. No change in the analysis. I’ve updated the upper chart.

10:05 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reached a new all-time high, 4723.50, in overnight trading and then pulled back slightly. The S&P 500 index, which doesn’t trade overnight, opened with its November 5 peak, 4718.50, still intact.

What does it mean? Assuming that the index will soon follow the futures in reaching a new high, the fresh peak means that the rise that began on October 12 is still underway, and the decline from November 5 was a shallow correction within the ongoing rise.

What’s the alternative? The details of the count on the upper chart may change. The correction that began November 5 seems disproportionally shallow, creating a degree of uncertainty

Charts. The upper chart is a closer view showing the futures from mid-October to the present. The lower chart is a broader view showing the index from late December 2018, the beginning of a large expanding Diagonal Triangle.

[S&P 500 E-mini futures at 3:30 p.m., 2-hour bars, with volume]
[S&P 500 index at 9:46 a.m., 2-day bars]

What does Elliott wave theory say? Under the new principal count, wave 5 of Bitsy degree — subscript {-9} — within wave 3 of Subminuette degree {-8}. Basically, the waves that the prior counts had seen as ending on November 5 did not end on that date and are still ongoing. The decline that began November 5 is wave 4 of Subminuette degree.

That wave 4 is extremely shallow even by 4th-wave standards. A standard target for 4th waves in Elliott wave analysis is the 4th wave within the preceding 3rd wave, which would be 4590 to 4548. The 4th wave under the new principal analysis ended at 4625.25. It doesn’t break any of the Elliott rules, but it is unusual.

The shallowness of the correction leaves the details of the count uncertain. They’ll start to make sense as the price continues on its way.

What is certain is that wave 3 of Minor degree {-1}, the third leg of the expanding Diagonal Triangle, has reached its end, Minor wave 4 will work its way down to the lower boundary of the Triangle, presently in the 1970s and declining further each day. The 4th wave will be followed by wave 5 of Minor degree, returning to continually rising upper boundary and ending the Triangle, which in its entirety is is wave 5 of Intermediate degree (no subscript). An extremely large decline will follow.

Wave 1 of Minor degree took a year a two months to reach completion. I wouldn’t be surprised if Minor wave 5 took that longer and possibly longer, and so we may be looking at 2023 or later for the Triangle to reach its end.

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, in the ever-changing markets, 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 19, 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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