3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose during the session, into the 4470s, and then pulled back. A push into the 4480s would persuade that wave E{-8}, the final wave of the corrective pattern at that degree, has begun (see the “What does it mean?” section, below). Meanwhile, this morning’s analysis is unchanged. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fluctuated in the 4440s and 4430s overnight until the U.S. employment figures were released an hour before the opening bell. The price whipsawed up to the 4450s and down to the 4430s, remaining within the bounds that had defined the price movement since yesterday’s session closed.

What does it mean? The upward compound correction, wave 2{-6}, that began in October is now in its second corrective pattern. That pattern is in its last leg, wave 3{-7}, which is in its final segment, wave E{-8}. The question is how far along that final segment has advanced, and nothing that happened in overnight trading provides an answer.

The final segment will have five subwaves. The fourth subwave, wave D{-9}, began on June 30, and can be counted as having completed three wave internally, meaning that it has reached its end point. As always with real-time Elliott wave analysis, there is ambiguity in the count, and I’m waiting for some upward movement with clarity to confirm that wave D{-9} has in fact ended and wave E{-9} has begun. I haven’t seen that clarity yet.

Wave E{-9} can be expected to exceed the wave C{-9} peak of 4493.75, attained on June 16, and may move significantly above that level. However, under the rules of Elliott Wave Theory, it will remain below 4953.75, the starting point on January 4, 2022, of wave 1{-6}, the downtrending wave that preceded the upward correction.

One reasonable expectation for an endpoint to wave E{-9} would be the next Fibonacci retracement level, at 4642.68, which is a 78.6% retracement of the preceding first save. The steps on the Fibonacci ladder, shown on the chart in red, are often reversal points, but not always. Also, the reversals often happen in the area of a retraxement level, not precisely at the level.

Wave E{-9}, when complete, will also be the end of the second corrective pattern in wave 2{-6}. Compound corrections can have up to three corrective patterns. The second corrective patten either will be followed by a powerful decline back to the starting point of the upward correction and likely much lower, or will have shallow declining wave that will link the second corrective pattern to a third corrective pattern.

What are the alternatives? In the July 6 Trader’s Notebook, I discussed evidence suggesting that placing the 2nd wave correction in the {-6} degree was disproportionately small compared to earlier waves. I’ll be working on the problem over the weekend and will post a decision on any degree changes by Monday, July 10.

[S&P 500 E-mini futures at 3:30 p.m., 230-minute 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 C{-7} will have five subwaves and is in wave E{-8}, the final subwave.
• Wave E{-8} will also have five subwaves and is in wave D{-9}, the fourth of the set.
• 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, July 7, 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.