3:30 p.m. New York Time

Half an hour before the closing bell. The S&P 500 futures continue to fall during the session, reaching into the 4370s so far.

This morning’s analysis is unchanged. Wave C{-5} within wave B{-4} within the downward correction, wave 2{-3}, continues. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell continually overnight, from the 4440s to just above 4400 so far.

What does it mean? There are three ways of interpreting the chart. The following discussion will require the use of wave labels as they appear on the chart. See the “Reading the chart” section below.

Under my principal analysis, wave 2{-3}, a downward correction that began on August 18, continues and is in its second subwave, falling wave B{-4}. The B wave in turn is in its 3rd and final subwave, wave C{-5}.

Wave B{-4} will be followed by rising wave C{-4}, the final wave in the corrective pattern, which will likely carry the price above the wave A{-4} end point, 4566.

This scenario implies a limit. The corrective pattern is taking the form of a Zigzag, and under the rules of Elliott Wave Theory, no B wave in a Zigzag can move below the start of the preceding A wave. That level is 4350 in this case, and if the price moves below that level, then the principal analysis will be invalidated and the chart will require reanalysis.

When wave 2{-3} is complete, it will be followed by a powerful downtrend, wave 3{-3}, which will carry the price below 4350, and likely significantly lower.

The Fibonacci retracement ladder is shown on the chart in red. It tracks wave 2{-3}’s percentage retracement of the preceding wave 1{-3}, which began its decline on July 27 from 4634.50. The decline has carried the price back below the 23.6% Fibonacci retracement level from a starting point close to the 78.6% Fib level.

What are the alternatives? Two other interpretations are possible.

It’s possible that the entire corrective pattern within wave 2{-3} ended at the September 14 high. If so, then there are two possibilities.

Alternative #1

Wave 2{-3} ended on September 14 and a powerful downtrend, wave 3{-3}, has begun and is in its initial subwave, wave 1{-4}. It will have five subwaves altogether.

Alternative #2

Wave 2{-3} is taking a compound form, containing two or three corrective patterns. The present decline is wave X{-4}, a wave that will connect the now complete first corrective pattern with a second corrective pattern.

[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.

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 #1

• Wave 2(-3} ended on September 14.
• The decline that followed is downtrending wave wave 3{-3}.

Alternative Analysis #2

• Wave 2(-3}’s first corrective pattern ended on September 14 and the upward correction continues, taking a compound form.
• The decline that followed is wave X{-4}, connecting the completed first corrective with a future second corrective pattern.

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 21, 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.