3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures have traded sideways during the session, remaining below the July 19 peak that marks the highest point of the upward correction that began on October 13, 2022.

Since July 19 the price has engaged in a five-wave pattern, indicative of a trending move (as opposed to a counter-trend correction). That suggests that the July 19 peak was the end of the middle leg of wave E{-4}, the wave that is in play as the corrective pattern nears its end.

On this very near-term chart, I’ve marked the peak as the end of wave C{-5} and falling wave D{-5} as being underway. In the smaller wave count, I have no idea what degree those waves are. I’ve marked the larger degree with a place-holder {n} as the degree number, and the subwave of that degree as {n-1}. An expedient, but it works.

Wave D{-5} as a counter-trend move ought to have three subwaves. It is certainly possible for those waves to take a Zigzag pattern, which would mean five subwaves for the first of the three waves, suggesting that the {n} degree could be degree {-6} and {n-1}, {-7}.

If this analysis proves correct, then wave D{-5} with its three subwaves will be followed by rising wave E{-5}, with five subwaves, which will be the final subwave of wave E{-4} whose completion will also be the end of wave C{-3} in the second corrective pattern within rising correction wave 2{-2}.

The chart in Thursday’s post gives context to the waves that led up to the July 19 peak and the small price movements that have followed it.

I’ve left this morning’s chart without an update, since the price movements are too small to show meaningfully on a chart of that scale.

[S&P 500 E-mini futures at 3:30 p.m., 10-minute bars, with volume]

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded in the 4560s and 4570s overnight, rising sharply into the 4590s as the opening bell approached.

What does it mean? The upward correction that began on October 13 continues. It has taken a compound form and is in its second corrective pattern. When that pattern is complete, it may be the end of the correction, or it may be followed by a third corrective pattern that will end the correction.

In any case, when upward correction is complete, it will be followed by a powerful downtrend. Trends in Elliott wave theory are composed of five waves: 1st, 3rd and 5th in the direction of the trend, and 2nd and 4th as countertrend corrections.

In the near-term view of the market, little has changed over the past few sessions, and I’d like end the week by pulling out for the long view. All of the ups and downs of the upward correction, a 2nd wave, have been part of a 4th wave downtrend, the next to the last wave within a massive expanding Diagonal Triangle, a 5th wave that began in December 2018.

For the nearer-term analysis, I refer the reader to yesterday’s Trader’s Notebook and to editions posted earlier in the week. There’s a rather mind-numbing sameness to them all as the present corrective pattern keeps reaching new heights, each of which could be the end the pattern, but so none has been.

In the discussion below I refer to waves by number, with their degree — their place in the fractal structure — indicated by a subscript in curly brackets. See the “Reading the Chart” section further down in this posting.

The expanding part of “expanding Diagonal Triangle” means that each reversal point is beyond the one that came before. The price channel I’ve marked on the chart, in blue, shows how the pattern got its name.

The Triangle is wave 5{0}, which began on December 26, 2018. It is the final wave of a rising wave 5{+1}. which which began on March 6, 2009. That wave, in turn is nested in two still larger rising trends, wave 5{+2}, which began on December 9, 1974, and wave 5{+3}, which began on July 8, 1932.

That all means that there are multiple end games underway. The present upward correction, wave 2{-2}, is a subwave of wave 4{-1}, which began on January 4, 2022. The future downtrend, wave 3{-2}, will be followed by another upward correction, wave 4{-2}, and then a final downward push, wave 5{-2}, which may well turn out to be more powerful than the 3rd wave that preceded it.

The end of wave 5{-2} will also be the end of the next-to-the-last wave of the Triangle, wave 4{-1}. And that’s when things get interesting. Wave 5{-1} will follow, a powerful rise that will carry the price up into the neighborhood of the upper price channel, which is presently in the 6400s and rising higher every day. It will be a bull market for the history books.

As all experienced traders know, just as the dark of night follows a bright and sunny day, so any bull market is followed by a bear market. And what a bear market it will be!

The end of wave 5{-1} will also be the end of wave 5{0} — the expanding Diagonal Triangle — and also of the larger enclosing waves, all the way up to wave 5{+3}, the uptrend that began in 1932, from the low of the Great Depression.

The downward movement that follows will eclipse any downtrend in the memories of people now living. I expect that it will feel like the end of the world as we know it.

What are the alternatives? Some analysts see the structure that began in December 2018 as a regular five-wave trend rather than as an expanding Diagonal Triangle. The scale of the wave 4{-1} decline and wave 5{-1} rise may vary depending upon which analysis proves correct. The wave numberings and relative scales that lie ahead are the same for both analyses.

[S&P 500 index at 9:35 a.m., 3-day bars]

What does Elliott wave theory say? Here are the waves that underly the nearer-term analysis. For longer-term waves, see the “We Are Here” section below.

Principal 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 at wave E{-4}, the final subwave.
• Wave E{-4} is in its third of five subwaves, wave C{-5}.
• 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

Alternative analysis:

• Wave E{-4} is in its fourth of five subwaves, wave D{-5}, a declining wave that will be followed by an upward push to completion

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 21, 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.