3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures has peeked above 4540 and then withdrawn, so far staying below the overnight high, 4547.50. 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 continued falling overnight, reaching below 4510 as the session began.

What does it mean? The ambiguities of the week remain in place, with multiple explanations of the meaning of the decline since July 27 peak, 4634.50. The interpretation is happening within the context of a rising upward correction that began on October 13, 2022 and has taken a compound form, so far containing two corrective patterns.

Here are the alternatives:

• The decline is a subwave of the final wave of the second corrective pattern, which is still underway
  • The lower the price falls, the less likely this scenario becomes.
• The second corrective pattern ended at the July 27 peak and the correction continues.
  • The decline is a wave that will connect the second corrective pattern with a third and final corrective pattern. This is called an X-wave in classical Elliott wave terminology.
• The upward correction ended at the July 27 peak.
  • The decline is the early stage of what will become powerful downtrend that will carry the price below the start of the upward correction, from 3502, and most likely significantly below that level. This would be a 3rd wave

The chart below. The chart shows the final subwave, wave C{-3} of the second corrective pattern within the upward correction, wave 2{-2}.

[S&P 500 E-mini futures at 3:30 p.m., 165-minute bars, with volume]

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

Known facts:

• 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.

Ambiguities

• Is the July 27 peak the end of wave C{-3} within the correction, wave 2{-2}?
• If wave C{-3} has ended, has wave 2{-2} also ended or will it produce a connector, wave X{-3}, and then move on to wave A{-3}, the first wave of a third corrective pattern?
• If wave 2{-2} has ended, a powerful downtrend, wave 3{-3}, is taking its tentative 1st steps.

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:
• 3{-2} Minute, 7/27/2023, 3502 (down) (tenatively)

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 3, 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.