3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose during the session, so far reaching into the 4530s. The small upward correction that began overnight, a subwave of downtrending wave 5{-5}, continues and is now in its third and possibly final leg. Wave 5{-5} is a subwave of wave 1{-4} within a large downtrend, wave 3{-3}, than began on June 27.

This morning’s analysis is unchanged. I’ve updated the upper chart, which is a close-up view of the futures. The lower chart, a big picture view of the S&P 500 index, is unchanged from this morning.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose after trading resumed overnight, from 4500.50 into the 4520s.

What does it mean? The upward correction that began last October, wave 2{-2}, ended on July 27, and a downtrend that will last many months, wave 3{-2}, has begun.

The overnight rise is a small upward correction within the final wave of the earliest stage of the downtrend.

In Friday’s analysis I gave equal likelihood to the downtrend scenario and several alternatives. The clear five-wave pattern of the decline shifted the odds in favor of the downtrend, which is now the principal analysis.

The upward correction, now ended, began from 3502. The downtrend will carry the price below that level, and perhaps significantly below. The downtrend is a third wave, which is never the shortest of the three trending subwaves within a larger trend, and quite often, the third wave is the longest of them all.

The description most often associated with third waves is “powerful”.

All of this is happening within downtrending wave 4{-1}, which began on January 4, 2022. That wave is a subwave within an expanding Diagonal Triangle, wave 5{0}, that began on December 26, 2018.

What are the alternatives? It remains possible, although less likely, that the upward correction is still underway. The correction took a compound form and has completed two corrective patterns. Under this alternative scenario, the decline is a wave connecting the prior second corrective pattern to a third pattern that will complete the correction.

Reading the chart. The upper chart, of the S&P 500 futures, is a close-up focused on the decline that began on July 27. The lower chart, of the S&P 500 index, pulls back and shows the expanding Diagonal Triangle that began in 2018 and encompasses everything discussed in the analysis. The price-channel boundaries of the Triangle are shown in blue.

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., 30-minute bars, with volume]

[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 analysis.

Principal analysis:

• An downward correction, wave 3{-2}, began on July and is underway.
• Internally, the correction is in its first subwave, wave 1{-3}.
• Within wave 1{-3}, things become a bit more ambiguous, since the precise degree of the subwaves won’t become clear until the downtrend has progressed further.
• I’ve chosen, as a guess, to label the subwave of wave 1{-3} as being in its first wave, 1{-4}, wich in turn is in its final subwave, wave 5{-5}.

Alternative analysis:

• Wave 2{-2}, and upward compound correction that began on October 13, 2022 completed a second corrective pattern on July 27.
• The subsequent decline is wave X{-3}, a downward connector between the second corrective pattern and the future third corrective pattern.
• Once the third corrective pattern within wave 2{-2} has ended, a powerful downtrend, wave 3{-3}, will follow.

Big picture:

• Both the wave 2{-2} correction and wave 3{-2} downtrend are subwaves of wave 4{-1}, a downtrend that began on January 4, 2022.
• Wave 4{-1}, in turn, is a subwave of wave 5{0}, an expanding Diagonal Triangle that began on December 26, 2018.
• Wave 4{-1} may eventually reach the lower boundary of wave 5{0}, presently slightly below 1800 and declining further each day.
• Wave 4{-1} will be followed by rising wave 5{-1}, the final wave in the Triangle.

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)

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 7, 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.