3:30 p.m. New York time

Half an hour before the closing bell. Well, that was an interesting head-fake. Or was it a head-fake?

This morning’s analysis marked the May 1 low, 5037.75, as the end of the 4th-wave downward correction and the start of a 5th-wave uptrend. After a rise into the 5090s overnight, the S& P 500 futures fell, reaching below that low, to 5036.25, during today’s session.

If wave 5 is taking the form of an impulse wave, which nearly all of them do, then the lower low broke a rule of Elliott Wave Theory and wave 4 is still underway. And that’s how I’ve re-arranged the chart for this afternoon’s update.

There are a few exceptions to the rule, such as in the case of a truncated fifth wave or a diagonal triangle formation, but they are rare patterns. In most cases, a breach of the wave 4 low by wave 5 invalidates the impulse wave count.

So the principal analysis is back to having the 4th wave still underway, unless, of course, today’s session low is the end of the 4th wave. If it was, then the 5th wave has begun again.

I find Elliott Wave Theory to be useful, despite the ambiguities. But it’s not a very popular tool among analysts. Why might that be?

There are many reasons. Among them,

1. Subjectivity: Elliott Wave analysis is often characterized as subjective, since different analysts can vary in how they interpret a chart.
2. Complexity: The theory involves complex rules and guidelines, which can be challenging to understand and apply correctly.
3. Hindsight bias: Critics argue that Elliott Wave Theory is prone to hindsight bias, where wave counts are often adjusted to fit the historical data. (To which I reply, “Duh. Of course. Historical data is all we have.”)
4. Lack of a specific trading system: While Elliott Wave Theory can help identify market trends and potential reversal points, it does not provide a complete trading system with specific entry, exit, and risk management rules. Traders need to use other tools and strategies in conjunction with Elliott.
5. Difficulty in application: Applying Elliott Wave Theory to real-time market conditions can be challenging, as the wave counts may not always be clear.

All true. And with that in mind, here’s this afternoon’s Elliott Wave Theory chart, revised after this morning’s analysis fell victim to Reason #5 in the list above:

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

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight at a measured pace, so far reaching into the 5090s.

What does it mean? The price remained above the May 1 low, 5037.75, strengthening the Elliott Wave Theory analysis that the 4th-wave downward correction that began on April 25 ended at that point, and a 5th-wave uptrend began.

Fifth waves are, well, a bit flaky. The idea model of an uptrend tells us that they should move above the end of the preceding 3rd wave — 5128.75 in this case — but in the real world such uptrends sometimes fall short of that point, and sometimes they extend and rise far beyond expectations.

What we do know for certain is the impact the 5th wave will have when it ends. In terms of the degree of this wave five, it is seven steps below Intermediate degree. The present Intermediate degree is also a 5th wave, which began in December 2018 and is in its 5th subwave.

The end of the smaller 5th wave that just began will be the end of a 1st wave one degree larger, which work its way through four more waves after the 1st, waves 2 through 5.

The end of that 5th wave will mark the end of a 3rd wave, one degree higher, and the beginning of a 4th-wave downward correction followed by a 5th-wave rise.

That sequence will again be repeated, one degree higher, and then again, and then again, with the last 3rd-4th-5th waves pattern being five degrees larger than the 5th wave that just began.

It is in the next step, six degrees larger, that the pattern will break. the end of that 5th wave will also be the end of two more 5th waves of increasing size that will mark the end of the present Intermediate 5th wave that began in 2018, and also of three additional 5th waves, each one degree higher than the one before it.

I think of the 4th-wave / 5th-wave sequence now underway as the calm before the storm. And what a storm it will be.

Waves on the chart have a wave number followed by a subscript in curly brackets that denote the relationship of that wave to the Intermediate degree. Here is the sequence of waves now underway, described in that way, from smaller to larger: Waves 5{-7}, 1{-6}, 3{-5}, 3{-4}, 3{-3}, 3{-2}, {5{-1}, 5{0}, 5{+1}, 5(+2}, and 5{+3), the first (smallest) wave having begun on April 1, 2024 and the final (largest) wave having begun on July 8, 1932.

Needless to say, it will take a while for all of this to work itself out.

What are the alternatives? None at present. They will develop, without a doubt.

[Superceded by the afternoon analysis.]

[S&P 500 E-mini futures at 9:35 a.m., hourly 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}.
• Morning chart: Wave 5{-7} is in its initial subwave, wave 1{-8}.
• Afternoon chart: Wave 4{-7} is in its final subwave, wave C{-8}.

And here are the waves of Intermediate degree and larger mentioned in the discussion, as recorded in the 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)

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, May 2, 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.