3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures worked their way up into the 4590s during the session, remaining below the high point, 4609.25, reached by the upward correction that has been underway for more than nine months.

No change in the analysis. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose from the 4560s into the 4570s after trading resumed overnight, reaching still higher, in the 4580s, after the opening bell. The price remains below a 78.6% Fibonacci retracement, noted on the chart’s Fibonacci ladder, in red. That retracement level is a common turning point.

What does it mean? The upward correction that began last October has formed a compound structure. It is in its second corrective pattern. There may be a third corrective pattern, or the correction may stock at two patterns.

Like all stock-chart patterns, the corrective pattern is composed of a series of increasingly smaller patterns, nested like Russian matryoshka dolls. The corrective pattern, at degree {-2}, is in its final stage, as are the smaller patterns down to degree {-4}.

At this point, it is the pattern one degree smaller, at {-5}, that is driving the analysis. I did an analysis of still smaller patterns on Friday that suggested that the {-5} pattern is in its declining next-to-the-last-wave, the fourth of five waves.

That declining wave, labelled wave D{-5} on the chart, will be followed by a final push upward, which will complete the second corrective pattern.

A compound correction can have up to three corrective patterns. Most that I’ve seen have two, but that’s just anecdotal evidence and means little.

If this compound produces a third pattern, then the second pattern’s peak will be followed by a declining connector wave and then by the final pattern.

If the second pattern ends the correction, then a powerful downtrending wave of the {-2} degree will follow, carrying the price to the start of the correction, at 3502, and below, most likely significantly lower.

The market’s movements are an effective of the ever-changing public mood. Most financial events do little to switch the mood for more than a short time. A few events can have greater impact, and this week has such an event.

The Federal Open Market Committee meets Tuesday and Wednesday. The impact, if any, will come on Wednesday at 2 p.m. New York Time, when the FOMC releases a statement describing the committee’s consensus view of the economy and any decisions taken, usually involving interest rates. Fed Chair Jerome Powell will hold a news conference at 2:30 p.m., which can also contribute to the mood reflected by the markets.

What are the alternatives? It is still possible that the {-5} degree is in its rising third wave rather than its declining fourth. There have been several false signals as the price fishes for a top.

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.

[S&P 500 E-mini futures at 3:30 p.m., 260-minute bars, with volume]

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

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 fourth of five subwaves, wave D{-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 third of five subwaves, wave C{-5}, a rising wave that will be followed by an downward movement and then a final rise 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)

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 24, 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.