3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures reached a few points below the overnight low during the session and then rose, reaching a session high so far of 4399.

The rise provides confirmation that the third leg of the upward correction, the C wave, is now underway.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reached a low of 4366 overnight and then rose back into the 4390s.

What does it mean? The decline brought the price to within $16 of starting point of the upward correction that began on August 18, from 4350. Had the price fallen below that level, it would have discredited the present Principal Analysis and replaced it with Alternative #1, a scenario that the 2nd wave upward correction ended on September 14 and a 3rd have downtrend has begun.

However, the line remained uncrossed, and the Principal Analysis scenario is that the 2nd wave continues, the corrective pattern is in its 3rd and final leg, a C wave, and the overnight low was the end of a wave B{-4}, the middle leg of the corrective pattern.

The rise that followed is the 3rd leg, wave C, and is still underway. It’s end will also be the completion of the corrective pattern.

At that point, one of two things will happen: Either the end of the corrective pattern will also be the end of the upward correction — the likeliest scenario — or the correction will take a compound form, in which the first corrective pattern will be followed by a declining connector wav and then by a second corrective pattern. Compound corrections can contain as many as three corrective patterns.

Whatever form the 2nd wave upward correction takes, it will be followed by a 3rd wave downtrend that will fall below 4350 and almost certainly far below that price.

I’ve overlaid the chart with the Fibonacci ladder, in red, the better to understand how much of the preceding 1st wave has been retraed by the correction. The A-wave peak, 4566, was close to a 78.6% Fibonacci retracement, and if wave C is typical, it wil reach or exceed that 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

The upward correction ended on September 14 and a powerful 3rd wave downtrend has begun and is in its initial subwave. The downtrend will have five subwaves altogether. If the price goes below 4350, this scenario will become the Principal Analysis.

Alternative #2

The correction is taking a compound form, containing two or three corrective patterns. The present decline is 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 final subwave, rising wave C{-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 22, 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.