3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures, having fallen overnight, bounced during the session, reaching into the 4420s. The bounce wasn’t large enough to warrant changing this morning’s analysis, which sees the a small downward correction underway within the larger upward correction. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures declined overnight to the 4390s, moving below the 61.8% Fibonacci retracement level for the first time since June 14. The high point in the rise that began in October was 4493.75, set on June 16.

What does it mean? The rise that began on October 13, 2022 is an upward correction. The 61.8% Fibonacci level is a common reversal point, or bounce point. If the price doesn’t bounce, then it’s an indicator that the trend may have changed.

If the price continues downward, then the likelihood increases that the June 16 peak ended a subwave in what may be the final wave of the correction, which is a 2nd wave. I’ve marked the chart to reflect this scenario.

I’ve also resolved the ambiguity in the correction analysis that has complicated the chart for a week. There were two alternatives, of equal likelihood: A simple correction in its first subwave (the A-wave scenario), and a compound correction in the final subwave of its second corrective pattern (the C-wave scenario).

After checking the time consumed by prior 2nd waves, I’ve settled on the compound correction C-wave scenario, and have marked the chart accordingly.

What are the alternatives? It’s possible that the peak so far isn’t the end of the final wave within the second corrective pattern. A rapid reversal to the upside will lend credence to this scenario.

A second alternative is that the degree assigned to the 2nd wave, wave 2{-6}, is too low. I’ll be looking at that issue over the weekend.

What happens next? A compound correction can contain three corrective patterns. The present second corrective pattern, when complete, could be the end of the correction and the beginning of a powerful 3rd wave downtrend. Or it could be that the correction will add a third corrective pattern, connected to the second pattern by a declining X wave that likely will remain above the start of the second pattern, 3884.25.

[S&P 500 E-mini futures at 3:30 p.m., 8-hour bars, with volume]

Reading the chart. Price movements — waves – – in Elliott wave analysis are labeled with numbers within trending waves and letters with corrective waves. The subscripts — numbers in curly brackets — designate the wave’s degree, which, in Elliott wave analysis, means the relative position of a wave within the larger and smaller structures that make up the chart. R.N. Elliott, who in the 1930s developed the form of analysis that bears his name, viewed the chart as a complex structure of smaller waves nested within larger waves, which in turn are nested within still larger waves. In mathematics it’s called a fractal structure, where at every scale the pattern is similar to the others.

What does Elliott wave theory say? Here are the waves that underly the analysis.

• An upward correction, a Zigzag, wave 2{-6}, began on October 13, 2022 and is underway.
• The upward correction, wave 2{-6}, is taking a compound form, which can contain up to three corrective patterns.
• The correction is in its second corrective pattern, which is in wave C{-7}, its final wave.
• The end of the present wave C{-7} could also be the end of the wave 2{-6} correction if the compound structure contains two subwaves.
• Or the present corrective pattern could be followed by a declining connector, wave X{-7}, and then a third corrective pattern.
• Wave 2{-6}, when complete, will be followed by a powerful downtrend, wave 3{-6}.
• Under the rules of Elliott wave analysis, wave 2{-6} cannot move beyond the beginning of wave 1{-6}, which was the January 4, 2022 peak at 4953.25. (I’ve adjusted the January 4 peak.)

We Are Here.

These are the waves currently in progress under my principal analysis. Each line on the list shows the wave number, with the subscript in curly brackets, the traditional degree name, the starting date, the starting price of the S&P 500 E-mini futures, and the direction of the wave.

• S&P 500 Index:
• 5{+3} Supercycle, 7/8/1932, 4.40 (up)
• 5{+2} Cycle, 12/9/1974, 60.96 (up)
• 5{+1} Primary, 3/6/2009, 666.79 (up)
• 5{0} Intermediate, 12/26/2018, 2346.58 (up)
• S&P 500 Futures and index:
• 4{-1} Minor, 1/4/2022, 4953.25 (down) (futures), 4818.62 (down) (index)
• S&P 500 Futures:
• 1{-2} Minute, 1/4/2022, 4953.25 (down)
• 1{-3} Minuette, 1/4/2022, 4953.25 (down)
• 1{-4} Subminuette, 1/4/2022, 4953.25 (down)
• 1{-5} Micro, 1/4/2022, 4953.25 (down)
• 2{-6} Minuscule, 10/13/2022, 3577.75 (up)

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, June 22, 2023

Disclaimer

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.

License

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Based on a work at www.timbovee.com.