3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose back into the 5080s during the session. Applying Elliott Wave Theory to the chart pattern, I see two possible interpretations: Either the rise is the middle subwave — a B wave — of the 4th-wave downtrend that began on April 23 from 5128.75, or the 4th-wave downtrend ended today at the session low, 5022.25, and a low-degree 5th wave uptrend has begun. Whether it has begun or lies in the future, that 5th wave uptrend when complete will mark the end of the 1st subwave within the larger 5th-wave uptrend that began on April 18.

I’m going with the 4th-wave-continues interpretation because what might be read as a middle B-wave in the 5th-wave-began interpretation seems overly small and therefore less likely.

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, in the 5070s and 5080s, until the latest Gross Domestic Product advance estimate was released, sending the prices tumbling into the 5030s.

What does it mean? The magnitude of the decline compared to the prior rise, when Elliott Wave Theory is applied, suggests that the rise is a 3rd wave one degree larger than I had previously labeled it, and that the decline is a 4th wave of that same larger degree. On the chart the waves under discussion are labeled rising wave 3{-7} and falling wave 4{-7}, with the subscripts in curly brackets denoting the waves relationship to the Intermediate wave, which is presently wave 5{0} and which began in December 2018.

The waves of the {-7} degree are subwaves of a rising 1st subwave within a still larger 5th-wave uptrend that began on April 18. The 1st subwave will be followed by a 2nd wave downward correction as the larger 5th wave works its way higher.

What are the alternatives? The change in degree is an example of the ambiguity I discussed in yesterday’s post. Such ambiguity in the degree of subaves is always the case early in a wave’s progress. There may be further ambiguities that become apparent as the 5th-wave uptrend continues.

[S&P 500 E-mini futures at 3:30 p.m., 50-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 wave 5{-5}.
• Uptrending wave 5{-5} is in its initial subwave, rising wave 1{-6}, which is in a declining subwave, 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 25, 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.