12:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures traded in a range during the session, from the 4420s to the 4440s. This morning’s analysis remains unchanged. I’ve updated the chart.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures peaked early after trading resumed overnight, at 4440, declined to 4410.25, and then rose at the opening bell, exceeding the overnight high.

What does it mean? No change in the analysis since Monday. The upward compound correction that began on October 13, 2022 is still underway and is nearing the end of the second corrective pattern. A third pattern may follow, or the second pattern may, when complete, be the end of the upward correction and the start of a powerful downtrend.

A major revision in the wave labeling. Over the weekend, as promised, I explored the question of my wave degree labeling. For some time the alternatives list has included the possibility that the degrees might be labeled as being smaller than they should be. The uncertainty of the degree applied to the upward correction and all other waves — larger and smaller — since a major downtrend began on January 4, 2022.

My conclusion, after two days work, was that the degrees were indeed lower than they should be, by four degrees. I posted a Trader’s Notebook on Sunday, July 9, titled “Trader’s Notebook: New Wave Degrees”. It describes the problem of degree setting, which is a major ambiguity endemic to Elliott wave analysis, the evidence that has led me to make the change, and what the change would look like on the chart. The post included two charts: One showing the present upward correction in its entirely, and the other showing the parent structure, an expanding Diagonal Triangle that began in December 2018.

The chart below uses the new degree levels. For a chart showing the old degrees of:

• the second corrective pattern, see Friday’s Trader’s Notebook for July 7;
• of the full upward correction, the Notebook for June 22;
• and for the entire downtrend that began on January 4, the Notebook for June 12.

Under the new system, all degree labels since January 4 have been made larger by four degrees. The upward correction is now wave 2{-2}; before, it was wave 2{-6}. The same change has been made to all of its subwaves: The final leg of the second corrective pattern is wave C{-3}, which is in its final subwave, wave E{-4}.

A final caution: Nothing about wave degrees is set in stone, and events on the chart could at some date require a further change≥

[S&P 500 E-mini futures at 12:30 p.m., 230-minute bars, with volume]

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

• An upward correction, a Zigzag, wave 2{-2}, began on October 13, 2022 and is underway.
• The upward correction, wave 2{-2}, 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{-3}, its final wave.
• The end of the present wave C{-3} could also be the end of the wave 2{-2} correction if the compound structure contains two subwaves.
• Or the present corrective pattern could be followed by a declining connector, wave X{-3}, and then a third corrective pattern.
• Wave C{-3} will have five subwaves and is in wave E{-4}, the final subwave.
• Wave E{-4} will also have five subwaves.
• Wave 2{-2}, when complete, will be followed by a powerful downtrend, wave 3{-2}.
• Under the rules of Elliott wave analysis, wave 2{-2} cannot move beyond the beginning of wave 1{-2}, which was the January 4, 2022 peak at 4953.25.

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:
• 2{-2} Minute, 10/13/2022, 3577.75 (up)

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.

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 10, 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

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.