3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures stayed low during the session while so far remaining above the overnight low. Elliott Wave Theory: The middle subwave, wave B, of the 4th-wave downward correction 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 sharply after consumer price data for March was released, from the overnight peak, 5283, down to the 5170s as the opening bell approached.

What does it mean? Applying Elliott Wave Theory: The decline carried the price to within 10 points of the lower boundary of the price target range of the 4th-wave downward correction that began on March 31. The correction’s rising middle wave — wave B — began on April 4 and is now in its second subwave, a falling wave B.

That smaller falling wave B began coincident with the price data release. It will have three subwaves and will be followed by a rising C wave that will complete the larger middle wave — wave B — of the 4th-wave correction.

On the chart below I label a wave by its wave number or letter, and with a subscript, in curly brackets, that shows the wave’s degree as its distance from the much larger Intermediate wave, presently wave 5{0}, which began in December 2018. See the “Reading the chart” section below for more on degree labelling.

The wave’s discussed above, as they are labeled on the chart, are falling wave B{-7} within rising wave B{-6}, both subwaves of the falling correction, wave 4{-5}. Wave B{-7} will be followed by rising wave C{-7}, whose end will also be the end of rising wave B{-6}.

Under a rule of Elliott Wave Theory, the B wave of a correction that has taken the Flat pattern must retrace at least 90% of the preceding A wave. I’ve marked that 90% retracement level, 5319.25, with a dashed blue line.

The price range of the 4th wave correction is marked with red dashed lines. A 4th wave tends to end within the range of the 3rd, for the upper and lower boundaries of the range of the 4th subwave within the preceding 3rd wave, and red lines show those price levels, 5223.50 down to 5167.75.

What are the alternatives? None at present. Without a data future ambiguities will show up.

[S&P 500 E-mini futures at 3:30 p.m., 90-minute bars, with volume]

What does Elliott wave theory say? Here are the waves that underly the analyses.

Principal Analysis:.

• Rising wave 5{0} is underway. It is a wave of Intermediate Degree that began in December 2018.
• It is in its final subwave, wave 5{-1}
• Within wave 5{-1}, rising waves 3{-2}, 3{-3} and 3{-4} are underway, as is the smallest wave labeled on the chart, wave 3{-5}.
• Downtrending wave 4{-5} is in its 2nd subwave, rising wave B{-6}, which in turn is in its middle subwave, falling wave B{-7}.

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, April 10, 2024

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.

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Based on a work at www.timbovee.com.