SP500 Analysis

3:30 p.m. New York time

Half an hour before the closing bell. The futures reversed this afternoon and fell sharply. The movement threatens to leave my present analysis in violation of a rule of Elliott wave analysis. The present wave is C of Deci degree — subscript {-11} — within wave 4 of Subminuscule degree {-10}. The rules require that a C wave in wave 4 retrace at least 90% of the preceding 3rd wave, as I discussed in yesterday’s S&P 500 post. This wave 4 has retraced about 62% the length of the preceding wave 3. So far. If it’s over, then wave C has come up short and the entire count will need to be revisited. If wave C still has some distance to travel, then there’s a chance that it will end up in compliance with the rule.

Wave C can’t be complete under the rules of Elliott wave analysis. It’s possible that what we’re seeing is a Diagonal Triangle, but this early in the pattern the analysis is uncertain.twi

I’ve updated the chart, with this morning’s labelling unchanged.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose in overnight trading, and at the opening was close to a 38.2% retracement of the decline that began on November 25.

What does it mean? The extent of the overnight rise lends credence to the view that the third and final leg of an upward correction has begun. The correction began on November 26, and the 3rd leg, on November 30.

What’s the alternative? The correction may not end at the 3rd leg but instead might well add another corrective pattern, forming a compound structure.

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

What does Elliott wave theory say? The present location is uptrending wave C of Deci degree — subscript {-11} — within uptrending wave 4 of Subbitsy degree {-10} within downtrending wave A of Bitsy degree {-9} within downtrending wave 4 of Subminuscule degree {-8}.

Putting it another way, the price is within the last leg of a rising 4th wave correction within the first leg of a falling 4th wave correction. Both 4th waves will be followed by 5th waves, descending in the case of the smaller 4th wave and ascending in the case of the larger one.

The alternative analysis addresses the possibility that the smaller 4th wave develops into a compound correction, where two or three corrective patterns are linked together by a connector wave (to be labelled an X wave if it occurs).

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, December 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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