3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures returned to the 5210s during the session, coming within a point of the overnight high. Elliott Wave Theory: The 4th-wave downward correction within the 5th-wave uptrend that began on May 2 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 overnight, from the 5110s to the 5080s.

What does it mean? Elliott Wave Theory sees the decline as a 4th-wave downward correction within the 1st subwave of a larger 5th-wave uptrend that began on May 2.

Corrections usually take of two patterns: A Zigzag, with five subwaves within the first subwave — wave A — or a Flat, with three subwaves within wave A. So far wave A is in its 3rd subwave.

The correction is of a small degree within the complex fractal structure of the chart. The preceding 3rd wave took only two days to complete, and I would expect the 4th wave to be short-lived.

The 4th-wave will be followed by a rising 5th wave, a subwave of the larger 5th wave. When complete, the smaller 5th wave will also mark the end of the larger 5th wave, which in turn will mark the end of the 1st subwave within the still larger 5th wave.

What are the alternatives? There’s an alternative way of analyzing the chart. In my principal analysis, I’ve counted the 5th wave that began on May 2 (wave 5{-7} on the chart) as being in its 1st subwave (wave 1{-8} on the chart). It’s possible that the subwave of wave 1{-8} (wave 4{-9} on the chart) is in fact the immediate subwaves of wave 5{-7} (wave 4{-8}), meaning that the 5th-wave uptrend is further along than the principal analysis would have it.

[S&P 500 E-mini futures at 3:30 po.m., 35-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}.
• Wave 1{-6} is underway and is in its final subwave, wave 5{-7}, which is in its initial subwave, wave 1{-8}.
• Wave 1{-8} is in its next-to-the-last subwave, wave 4{-9}.

Alternative Analysis:

• Wave 1{-6} is underway and is in its final subwave, wave 5{-7}, which is in its next-to-the-last subwave, wave 4{-8}.
• Wave 4{-8} is in its 1st subwave, wave A{-9}.

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 8, 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.