3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose above the starting point of the 4th-wave downtrend that began on May 7. The rise can be interpreted in two ways:

• The 4th wave ended at the May 8 low, 5188.75, and the ensuing 5th wave began from that point
• The May 8 low was the end of wave A within the 4th-wave downward correction, and the rise that followed is wave B, the second of three subwaves.

I’m going with the 4th-wave-ended interpretation for my principal analysis, as it seems to be a better match for the internal subwaves. I can’t rule out the 4th-wave-continues interpretation entirely.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell into the 5190s overnight, rising into the 5210s as the weekly unemployment insurance claims data was released.

What does it mean? Elliott Wave Theory sees the rise as a subwave within a low-degree 4th-wave downward correction that began on May 7, part of a larger 1st-wave uptrend, the initial subwave of a still larger 5th-wave uptrend that began on May 2.

All of this is happening within a series of nested uptrending waves within a large 5th-wave uptrend, of what Elliott called the Intermediate degree, that began in December 2018.

And while bullish traders and the financial press will cheer for so much uptrendiness within the fractal complexity of the chart, I always keep in mind that every uptrend, without exception, is followed by a downtrend. In Elliott Wave terminology, every motive wave up and down the fractal structure is followed by a corrective wave.

On the chart, the waves are labeled with the wave number followed by a subscript denoting the distance in degrees from the Intermediate degree, wave 5{0}, underway since December 2018. The waves discussed so far, when viewed on the chart, are downward corrective wave 4{-9} within wave 1{-8} within uptrending wave 5{-7}. The wave numbers listed on the upper right of the chart are the nested uptrending waves that will dominate the market for years to come.

What are the alternatives? There is an ambiguity in the chart, a not unusual occurrence in Elliott Wave Theory. 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 p.m., 40-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 9, 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.