12:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures moved above yesterday’s high, confirming that the downtrend that began on September 19 has ended and an upward correction has begun. The downtrend was wave 3{-5}, and the upward correction is wave 4{-5}.

Wave 3{-5} took eight days to reach completion, and the tendency toward proportionality within Elliott Wave Theory would suggest a similar span of time, give or take, for wave 4. That’s a tendency not a rule. Surprises sometimes happen.

A 4th wave usually has three subwaves. If it take the form of a Zigzag, the A subwave will contain five subwaves, and if a Flat, three subwaves. For both forms, the B wave has three subwaves and the C wave, five subwaves.

Under the rules of Elliott Wave Theory, a 4th wave cannot move beyond the end of the preceding 1st wave of the same degree. In this case, that’s wave 1{-5}, which ended on September 19 at 4462.25, and wave 4{-5} cannot move above that level.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded sideways overnight, swinging between slightly above 4300 and the 4320s.

What does it mean? A small upward correction is underway within the final subwave of a series of larger downtrends that, most importantly for understanding the market trend, is a 3rd wave decline that began on September 14 and is in its 1st subwave.

At a small level, the final subwave of the series, a 5th wave, will also complete a 5th wave one degree higher, and then a still larger 3rd wave that began on September 19 from 4509.50. That larger 3rd wave will be followed by a 4th-wave upward correction that likely will last for weeks and will be followed by a 5th wave downtrend that will carry the price into the 4200s and possibly lower.

What are the alternatives? The position of a wave within the vast fractal structure of a chart is ambiguous during the early stages of a trend.

I’ve chosen to treat the downtrend that began on September 14 as being in its 1st subwave, one degree lower. It’s possible that the count one degree lower is in fact be one degree higher, meaning that the downtrend is in its 3rd subwave. Or everything within 1st subwave could in fact be in its own 1st subwave, moving the smaller waves down a level.

[S&P 500 E-mini futures at 3:30 p.m., 25-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 and is underway.
• Within wave 3{-2}, a smaller downtrend, wave 3{-3}, began on September 14 and is in its initial subwave, wave 1{-4}.
• With wave 1{-4}, subwave 4{-5}, an upward correction, is underway, having begun on September 27 from 4277.

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 28, 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.