3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell during the session, reaching the 4490s, near the 50% Fibonacci retracement level.

The strength of the decline suggests that the overnight peak, 4566, was the end of the first subwave, wave A{-4}, within the upward correction, wave 2{-3}, that began on August 18. As a result, I’ve promoted this morning’s alternative analysis to the position of principal analysis. Wave B{-4}, the declining middle subwave, is now in progress.

A B-wave is subject to two rules in Elliott Wave Theory.

• If it’s a Zigzag pattern, with five subwaves within the A-wave, then the B-wave cannot fall beyond the starting point of the A wave. In this case, that would set an absolute lower limit of 4350.
• If it’s a Flat pattern, with three subwaves in the A-wave, then the B wave must retrace at least 90% of the previous A-wave. In this case, that sets an absolute minimum decline to 4371.75.

On the chart, I’ve labeled five subwaves within wave A{-4}. That’s the count of a Zigzag. If I squint my eyes real hard, after a couple of beers, I can see a way to count three subwaves total within wave A{-4}, the count of a Flat.

The Zigzag seems to me to be the best match for the reality of the chart. But of course, I’ve had charts overturn best matches before, and no doubt will again. So I shall treat the Flat scenario as an alternative analysis.

I’ve updated the chart, retaining its Zigzag scenario labeling.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell overnight from the 4560s to the 4540s, and fell further as the opening bell sounded.

What does it mean? At its high point the price came to within 10 points of the 78.6% Fibonacci retracement level, a common reversal point for corrections, such as the one now underway. (The Fibonacci ladder appears on the chart in red.)

The upward correction that began on August 18, a 2nd wave, is now in the 5th subwave of its 1st of three segments of a corrective pattern. The present rising A wave will be followed by a declining B wave and a rising C wave that will complete the corrective pattern.

The present A wave has taken a month so far, suggesting that the corrective pattern will likely continue into the depths of winter. No guarantees, of course. Although waves within a pattern tend to be of roughly similar magnitude, there can still be quite a bit of variety among them.

What is the alternative? It is possible that the overnight peak, 4566, was the end of the A wave and that the B wave has begun. Promoted to the principal analysis in the afternoon posting.

[S&P 500 E-mini futures at 3:30 p.m., 2-hour bars, with volume]

What does Elliott wave theory say? Here are the waves that underly the analyses, updated for the afternoon.

Principal Analysis:

• A downtrend wave 3{-2}, began on July 27 and is underway.
• Within wave 3{-2}, wave 2{-3}, an upward correction, began on August 18 and is in its middle subwave, declining wave B{-4}.
• The corrective pattern is taking the form of a Zigzag, with five subwaves within wave A{-4}.

Alternative Analysis:

• The corrective pattern is taking the form of a Flat, with three subwaves within wave A{-4}.

Big picture:

• The wave 3{-2} downtrend is a subwave 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 15, 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

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Based on a work at www.timbovee.com.