3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures have fallen during the session, reaching below the 38.2% Fibonacci retracement level. A major 3rd wave downtrend began on September 1, from 4547.75. It will carry the price down at least 200 points from the downtrend’s beginning to the beginning of the preceding 2nd wave, and most likely by a multiple of that amount.

Because of the depth and speed of the decline so far, I’ve eliminated the complex correction scenario, discussed below, from my analysis.

In Elliott wave terminology, wave 3{-3} is underway. It is part of a larger downtrend, wave 3{-2}, that began on July 27.

I’ve updated the chart and annotated this morning’s “What does Elliott Wave Theory say?” section, below.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell overnight, reaching into the 4480s, slightly below the 50% retracement level.

What does it mean? The decline lends credence to the corrective pattern that began on August 18 having ended on September 1, above the 61.8% Fibonacci retracement level. The decline has completed three waves down.

In question is the nature of the correction. Is it a simple correction, containing one corrective pattern? If so, then the upward correction has ended and a powerful downtrend is underway. Or is it a compound correction, that will eventually contain two or three corrective patterns? If so, then the decline is a wave that will connect the just completed first corrective pattern and a future second corrective pattern.

A connector wave has three subwaves, and the decline since September 1 can be counted as having traced three waves (or five, it’s not entirely clear). If the price reverses and returns to the neighborhood of the September 1 peak, 4547.78, then a compound correction is underway. Assuming three subwaves have been completed, If it continues downward, adding a fourth and five subwave, then the downtrend has begun.

I’ve chosen to mark the chart in line with the simple correction scenario, since this correction is a 2nd wave, and simple patterns are more common in that wave position. The retracement ladder is shown on the chart in red.

What are the alternatives? None beyond the choice outlined above. The decline is sufficient to remove yesterday’s alternative, that the first corrective pattern is underway.

[S&P 500 E-mini futures at 12:30 p.m., 70-minute bars, with volume]

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

Principal analysis

• A downtrend wave 3{-2}, began on July 27 is underway.
• Internally, wave 3{-2} complete its first subwave, wave 1{-3}, on August 18, and wave 2{-3}, an upward correction, began.
• Two possibilities of nearly equal probability: [Afternoon analysis: Only one scenario remains.]
  • The correction ended on September 1.
    • Wave 3{-3}, a powerful downtrend, began on September 1 and is taking its first tentative steps.
  • The correction continues. [Eliminated in the afternoon analysis.]
    • Wave 2{-3} is still underway and is taking a compound form.
    • Declining wave X{-4}, now underway, will connect the first corrective patternwith a second 1.

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, September 6, 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.