3:30 p.m. New York time

Half an hour before the closing bell. This morning’s analysis interpreted the chart as showing that the 4th-wave downward correction that began on March 31 had ended, and a 5th-wave uptrend had begun.

In the alternative analysis, I asked what could possibly go wrong with the principal analysis. My answer was, the price could reverse during session, moving lower. A few hours later, the price did just that.

I’ve promoted the alternative analysis — the 4th wave correction is still underway — back to principal analysis. I think the 4th-wave correction is nearing its end, but not quite yet. Unless, the new low is the actual end.

As a leading AI, Anthropic’s Claude 3 Opus, which is capable of doing Elliott Wave Analysis, said after analyzing GLD the other day, “Confidence in the accuracy of this analysis is moderate, as Elliott Wave Theory is a subjective tool and open to interpretation. The wave count should be continually reassessed as new price data becomes available. It’s crucial to use other technical analysis tools and fundamental analysis in conjunction with Elliott Wave Theory to make more informed trading decisions.”

I meditated for awhile on those wise words before launching into this afternoon’s analysis.

Based on the subwaves of the C-wave within the 4th-wave, I think the correction is nearing its end, but it’s not there quite yet. Unless, the new low is the actual end. For what it’s worth, Ehlers Stochastic, a technical analysis metric that I find to be reliable, is oversold and so has the S&P 500 futures poised for a rise.

I’ve retained this morning’s chart and added a new one with the revised analysis.

[S&P 500 E-mini futures at 3:30 p.m., 100-minute bars, with volume]

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell overnight and then reversed to the upside.

What does it mean? Applying Elliott Wave Theory: The 5th-wave decline on April 15, from 5213.25 to 5081.25, has five subwaves, suggesting that the overnight low is the end of that 5th wave, its parent C wave and, up one more degree, the 4th-wave downward correction that began on March 31.

If that count continues to match the reality of the chart, then a 5th-wave uptrend has begun.

The 5th wave uptrend will have five subwaves. There are few guidelines or rules for 5th waves. They can extend and rise a long distance beyond the end of the preceding 3rd wave — 5333.50 in this case. Or they can be truncated, ending before reaching that point.

Like many Elliott Waves, 5th waves tend to adhere to the Fibonacci retracement levels. For example a truncated 5th wave may end at a 61.8% retracement of the preceding 3rd wave, 5229.02 on this chart. Or it may expand and reach a 161.8% retracement, 5503.53 on the chart. These are tendencies, not rules, and often 5th waves will end at non-Fibonacci levels.

I’ve placed a Fibonacci retracement ladder, for the preceding 3rd wave on the chart, in red.

What are the alternatives? What could possibly go wrong? The price could reverse during the session, moving lower than 5081.25. If that happens, then the 4th-wave downward correction is not yet complete and the 5th-wave uptrend has not yet begun.

On the chart: Here are the waves under discussion as they are labeled on the chart, smaller to larger, with subscripts in curly brackets denoting the wave’s distance from Intermediate degree. The present Intermediate wave is 5{0}. It began in December 2018. The waves: Wave 5{-7} within wave C{-6} within the downward correction, wave 4{-5}. If the alternative analysis is correct, that’s where things stand now. But if the principal analysis is correct, the ongoing waves are wave 1{-6} within uptrending wave 5{-5}.

[Outdated analysis: S&P 500 E-mini futures at 9:35 a.m., 100-minute bars, with volume]

What does Elliott wave theory say? Here are the waves that underly the analyses. [Note: Outdated analysis. The Alternative Analysis has been promoted to Principal Analysis.]

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}.
• Uptrending wave 5{-5} is in its initial subwave, rising wave 1{-6}.

Alternative Analysis:

• Downtrending wave 4{-5} is in its final subwave, falling wave C{-6}, which is in its next-to-the-last subwave, rising wave 4{-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 16, 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.

License

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Based on a work at www.timbovee.com.