3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to rise during the session, as the final subwave within the last leg of the compound correction’s second corrective pattern continued.

The final subwave is wave E{-8}. I expect it to contain five waves one degree smaller. When that fifth smaller wave is complete, the last leg, wave C{-7}, of the second corrective pattern will be complete.

The correction containing the patterns is wave 2{-6}. Under the rules of Elliott Wave Theory, a second wave cannot move beyond the starting point of the preceding 1st wave. Wave 1{-6} began on January 4, 2022 from 4808.25. That price is an absolute upper limit for wave 2{-6}. Any move higher will mean that the analysis doesn’t match the chart — the map doesn’t match the territory — and I’ll reanalyze the chart.

What happens next? Well, as is so often the case with market charts, it depends.

A compound correction can have two or three corrective patterns within it.

If this one has two, then the end of wave C{-7} will also be the end of the upward correction, wave 2{-6}. Downtrending wave 3{-6} will follow, and like all third waves, it will be powerful, will carry the price below the starting point of the wave 2{-6} correction, from 3508, and almost certainly well below that level. For optimistic traders whose positions are long, it will feel like the roller coaster has reached the fast downslope, whose end point can’t seen.

If the correction will contain three corrective patterns, then the present wave C{-7} will be followed a relatively shallow connector, wave X{-7}, which will remain above the correction’s starting point, 3508, and perhaps well above that level. When wave X{-7} is complete, a third corrective pattern will begin with yet another upward wave A{-7}.

There has been a lot written recently about the collapse of everything, most notably End Times by Peter Turchin. In its small way, this chart feels like the End Times for our long-running upward correction.

I’ve updated the upper chart, retaining this morning’s lower chart for comparison with the revised analysis.

2:15 p.m. New York time

The final subwave begins. I noted this a move above the upward correction’s prior peak, 44903.75, would mean that the final subwave within the last leg of the compound correction’s second corrective pattern has begun. The price this afternoon has moved to 4494.25 (so far), meaning that the final subwave is underway. In Elliott wave terminology, wave E{-8} within wave C{-7} within the correction, wave 2{-6}, has begun.

[S&P 500 E-mini futures at 3:30 p.m., 4-hour bars, with volume]

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures spiked up into the 4470s when the PCE inflation numbers were released, remaining below the high set so far by the present upward correction, 4493.75

What does it mean? In question as the week comes to a close is whether the rise that began on June 6 is the final subwave within the rising final wave of a corrective pattern, or is an upward movement within the falling next-to-the-last subwave. A move above the prior peak within the correction, 4493.75, would confirm the final-subwave scenario. A reversal and fall below 4368.50 would confirm the next-to-the-last subwave scenario.

In any case, when the final subwave is complete, it will also mark the end of the second corrective pattern within a compound correction that began on October 13, 2022. At that point, one of two possibilities will play out: Either the compound correction adds a third and final corrective pattern, or the upward correction ends and an energetic downtrend begins.

What are the alternatives? As is common, there is some ambiguity as to the relative degree of the correction. I’ve marked it as {-6} — Minuscule Degree in traditional Elliott wave terminology — but it could be larger.

The week ahead. Next Tuesday, July 4, is the Independence Day holiday in the United States. U.S. markets will be closed on the holiday and on Monday, July 3, they will close early, at 1 p.m. New York time. The London and Tokyo markets will trade on both days, and I’ll report on S&P 500 futures trading that occurs on those days.

[S&P 500 E-mini futures at 9:35 a.m., 4-hour bars, with volume]

[Chart outdated by this afternoon’s new price peak]

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.)

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.

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 30, 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.

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Based on a work at www.timbovee.com.