3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures so far has reached a high during the session of 4455.25. That’s 3.75 below the maximum high of the present upward correction, 4459, under the rules of Elliott wave theory.

A move above that level by the futures, but not the corresponding level on the index, will present an ambiguity. The futures move in 25-cent increments; the index, in 1-cent increments. So a move by the futures and not the index can be seen as a rounding error rather than a violation of the Elliott wave rule. for 4th waves.

The corresponding maximum high for the upward correction on the index is 4443.95.

I raised the end point of wave B{-8}. Otherwise, this morning’s analysis remains unchanged. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose to 4425.25 overnight and then declined into the 4390s.

What does it mean? The overnight peak was the end of the 2nd subwave, rising wave B{-8}, within the 2nd of three waves, declining wave B{-7}, within a small upward correction that began on August 18, wave 4{-6}. The declining 3nd subwave, wave C{-8}, is now underway.

In this discussion I’ve used the wave designations of Elliott wave analysis: A wave number (for waves within a trend) or letter (for waves within a correction), followed by a subscript in curly brackets indicating the degree of the wave. By degree I mean the wave’s position within the complex fractal structure that is the price movements. Another way of thinking of it is the wave’s relative size in relation to other, larger or smaller, waves.

The upward correction is taking the Zigzag form, meaning that it’s first segment was composed of five smaller waves, its second segment, now underway, of three subwaves, and the third segment of five subwaves.

The second segment, wave B{-7}, will be followed by rising wave C{-7}, which will complete the corrective pattern within wave 4{-6}. One characteristic of 4th waves is that they never move beyond the end of the preceding 1st wave. So that end point, 4459 in this case, is a firm upper limit on the upward correction. If the price does move above that level, then the analysis no longer matches the chart; something else is going on.

Corrections, especially 4th wave corrections, will occasionally take a compound form, meaning the correction will contain two or three corrective patterns. So when the present corrective pattern ends with wave C{-7}, there are several possible wave forms that will follow:

• If the correction takes a simple form, then the end of wave C{-7} is the end of the wave 4{-6} correction. Wave 5{-6}, the final wave within a larger downtrend, wave 3{-5}, will carry the price below the end of wave 3{-6}, at 4350, and most likely significantly below the level.
• If the correction takes a complex form, then wave C{-7} will be followed by a connector, wave X{-7}, linking the just completed first corrective pattern with a second corrective pattern, most likely a three-wave pattern. That second pattern might be the end of the upward correction, or it might nbe followed by a third corrective pattern.

What are the alternatives? None at present. I’m quite certain that ambiguities will develop, as they always do.

[S&P 500 E-mini futures at 3:30 p.m., 45-minute bars, with volume]

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

Principal analysis:

• A 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}, wave 5{-4} is underway.
• Within wave 5{-4}, wave 3{-5} is underway, and one degree further down, an upward correction, wave 4{-6}, is in progress, having begun on August 18.
• Wave 4{-6} completed its first subwave, rising wave A{-7}, on August 22, and began its second subwave, declining wave B{-7}.
• Wave B{-7} is in its 3rd and final subwave, wave C{-8}.

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)

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 23, 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.