3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell during the session, so far reaching into the 5080s. In my mind, the decline is sufficient to justify labeling the April 29 peak, 5154.25, as the end of the B wave within the 4th-wave downward correction that began on April 23, and the beginning of the final subwave, wave C.

If the price reverses and moves above 5154.25, then my analysis doesn’t match the chart and wave B is still underway.

The further the price falls, the more likely it is that my analysis does match the chart, which I have udpated.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded narrowly in the 5130s and 5140s overnight, dropping sharply into the 5120s as the closing bell approached. The drop coincided with the release of the Employment Cost Index for the 1st quarter.

What does it mean? Elliott Wave Theory sees the narrow trading range, Wave B, the middle subwave in a downward correction that began on April 23, as typical of a wave reaching its end. The B wave has retraced 124% of the preceding A wave. In a correction forming the Flat pattern, the B wave tends to correct somewhere between 100% and 169% of the preceding A wave. The B wave is within that retracement range.

When the B wave is complete, a declining C wave will begin, the final wave of the downward correction. When wave C is complete, along with wave 4, a 5th-wave uptrend will begin.

On the chart, the waves have a number followed by a subscript in curly brackets showing the wave’s distance from the Intermediate degree in the fractal structure of the price movements. The Intermediate wave is wave 5{0}, which began in December 2018.

Here is how the waves discussed above appear on the chart, small34 to larger: Wave B{-8} is underway within the correction, wave 4{-7}. The preceding A wave is wave A{-8} on the chart. Wave C{-8} will follow, and when it is complete, it will be the end of wave 4{-7} and start of wave 5{-7}.

What are the alternatives? The principal analysis, described above, depends upon the 4th-wave correction taking the form of a Flat. But the A-wave is a bit messy and can be counted, if I squint, as the first wave of a Zigzag, which would mean that the outsized retracement violates a rule of Elliott Wave Theory. If that were the case, then I would count the April 25 low as the end of wave 4 and the subsequent rise as the early portion of wave 5.

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

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

Principal Analysis:

[Last item updated for the closing bell post.]

• 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}.
• Wave 4{-7} is in its final subwave, wave C{-8}

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 30, 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

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.