3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures continued its trending 3rd-wave decline within a larger 1st wave downtrend that began on October 12. No change from this morning’s principal analysis.

I find it easy to get lost in the minutiae of the near-term charts, those small degrees, within the vast fractal pattern, that I use for my trading.

Occasionally, I like to remind myself that the dramatic rises and falls of those lower degrees are contained within much larger behemoths, slow-moving waves that determine the well-being of our households, our economy, our nation and ultimately the world.

The following chart is of S&P 500 index showing the entirely of wave 5{0} — an Intermediate wave in the nomenclature of the inventor of Elliott Wave Theory, R.N. Elliott. Every wave we’ve seen in the index for the past five years has been a subwave of wave 5{0}, which began on December 26, 2018.

[S&P 500 index at 3:25 p.m., 3-day bars]

Wave 5{0} has taken the form of an expanding Diagonal Triangle and is the final subwave within uptrending wave 5{+1}. Internally, wave 5{0} is in turn in its next-to-the-last subwave, declining wave 4{-1}, which began on January 4, 2022, which in turn in its middle subwave, wave 3{-2}.

I’ve drawn in the triangle’s price channel with blue lines. If the chart proceeds as usual, the price in wave 4{-1} will approach the lower boundary, presently in the 1700s and moving lower each day. When the 4th wave is complete, wave 5{-1} will return to the triangle’s upper boundary, now in the 6720s and moving higher each day. And that will be the end of wave 5{0}, which will be followed by a very large downtrend. Which, of course, will have its upwaves and downwaves of various degrees, large and small, that will give futures traders many opportunities to make a fortune or lose it.

When I posted this morning’s analysis I had not yet determined how the reanalysis of the chart impacted the alternatives to the principal analysis. I’ve concluded that Alternative #1 in the October 12 post is no longer valid. The alternative postulated that wave C{-6} within wave 4{-5}, the larger upward correction that began on September 27 is underway.

Alternative #2 in that same post is, however, still a viable alternative, and I’ve inserted it back into the “What are the alternatives” section below.

I’ve updated this morning’s chart, below.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight, carrying the price from the 43760s to above 4400.

What does it mean? I had identified the movement as part a low-degree 4th wave upward correction that began on October 12 from 4355.50. But then the chart broke a rule of Elliott Wave Theory: If a 4th wave moves above the 1st wave of the same degree, then it’s not a 4th wave. Something else is going on.

The only possible “something else”, it seems to me at first glance, is that the rise from October 11 is that the decilne on October 12 is a very rapid five-wave downtrend that is a 1st wave — wave 1{-9} on the chart. And the rise that followed and is still underway is a 2nd wave upward correction — wave 2{-9}, both within downtrending wave 1{-8}.

A 2nd wave, under the rules of Elliott Wave Theory, can’t move beyond the start of the preceding 1st wave, which is 4430.50 at this point. There’s still some distance to go.

It is common for 2nd waves to end at the 78.6% Fibonacci retracement level in relation to the preceding 1st wave, which is 4404.24 on this chart. When the 2nd wave is complete, it will be followed by a 3rd wave downtrend, wave 3{-9}.

What are the alternatives? There is one. The final leg of the upward correction — wave C{-6} within wave 4{-5} — ended at the overnight high and the correction takes a compound structure. Declining wave X{-6}, a connector wave, has begun and will be followed by a second corrective pattern.

[S&P 500 E-mini futures at 3:30 po.m., x-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 5{-5}, an downtrend, is underway, having begun on October 12.
• Wave 5{-5} is in its first subwave, wave 1{-6}.

Alternative Analysis:

• An upward correction, wave 4{-5}, is underway and is forming a compound structure. The first corrective pattern ended on October 12, and a declining connector subwave, wave X{-4}, is underway.

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, October 13, 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.