3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell during much of the session, remaining above 4590 as the closing bell approached. Under the principal analysis, the second corrective pattern within the upward correction that began last October has ended, and a descending wave is under way to connect the second pattern with a third and final corrective pattern.

The connector is called an X wave, and its third and final subwave appears to be taking the form of a barrier triangle, with a flat lower price channel. I’ve put the triangle boundaries on the chart in red.

The principal analysis seems most likely to me, based on the chart. See below for the alternative described in this morning’ analysis.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell overnight, reaching into the 4590s.

What does it mean? The third wave down since the July 27 peak continues. The first wave had three subwaves, suggesting that the downward movement is a correction of some sort.

The late July peak may have marked the end of the second corrective pattern within a compound correction, wave 2{-2}, that began on September 13, 2023.

A compound correction can contain two or three corrective patterns. If wave 2{-2} is going for three patterns, then the present decline is a wave that will connect the now complete second pattern with a future third pattern.

Such connecting waves are call X waves in the classical nomenclature of Elliott wave analysis. An X-wave is built from three subwaves, meaning it is part of a corrective wave. The first wave down, which I’ve labeled as wave A{-4}, had three subwaves, and that suggests that the upward correction is continuing, the second corrective pattern ended on July 27, a connector wave is underway, and a third corrective pattern lies ahead.

What are the alternatives? It is possible that the decline since July 27 is a subwave of the ongoing final wave of the second corrective pattern. So far the decline has been quite small compared the waves of the second corrective pattern. The X-wave scenario raises the question of whether that principal analysis violates the tendency toward proportionality.

What I no longer think is an alternative at this point is the idea that the upward correction has ended entirely and a powerful downtrend, wave 3{-2}, is underway. The three-subwave structure of the first wave down from July 27 makes that impossible.

[S&P 500 E-mini futures at 3:30 p.m., 15-minute bars, with volume]

What does Elliott wave theory say? Here are the waves that underlie the 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 has completed its second corrective pattern and has begun a connector wave, X{-3}, which will be followed by a third corrective pattern.
• Wave X{-3} will have three subwaves and is at wave C{-4}, the final subwave.
• 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:

• The final wave, C{-3}, of the second corrective pattern is not yet complete. Within it, wave E{-4} is in its fourth of five subwaves, wave D{-5}, a falling wave that will be followed by 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, 3502 (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, August 1, 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.