3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose during the session into the 5270s. Applying Elliott Wave Theory: The movement indicates that the low degree 4th-wave downward correction (wave 4{-9} on the chart) is complete, and the 5th-wave uptrend (wave 5{-9}) has begun.

When wave 5{-9} is complete, it will also be the end of uptrending wave 5{-8}, one degree higher, and of uptrending wave wave 3{-7}, another degree higher.

Wave 3{-7} began on May 2 from 5036.25. A 4th-wave downward correction will follow — wave 4{-7} — and is likely to end within the 4th subwave of the 3rd wave within wave 3{-7}. That would give wave 4{-7} a price target in the upper 5160s / lower 5170s. That target is a tendency, not a firm rule.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell sharply an hour before the opening bell, from the 5250s to the 5210s. The drop, which coincided with the release of the Producer Price Index, quickly returned to its prior level.

What does it mean? The payment producers received from end users — consumers, the government, export and capital investment — rose by 0.5 points from the prior month, potentially an indicator of inflation. The PPI often triggers changes in the public mood, and that public mood is what drives stock prices and Elliott Wave Theory’s analysis.

In this case the decline, while rapid, was relatively small. Elliott Wave Theory sees it as a subwave within a 4th-wave correction within a 5th-wave uptrend that began on May 8.

When the 4th wave correction is complete, it will be followed by a 5th-wave rise that will be the final wave of the larger 5th wave, the uptrend that began on May 8.

Big picture: That uptrend is the final wave of a 3rd-wave uptrend that began on May 2, which in turn is a subwave of a 1st-wave uptrend that began on April 18.

Waves on the chart are labeled by the wave number, followed by a subscript that shows how far the wave is from the Intermediate degree. The distance is stated in degrees within the fractal structure of the chart. The present Intermediate degree — wave 5{0} — began in December 2018.

The waves discussed above are labeled as follows on the chart: Wave 4{-9}, a downward correction, within wave 5{-8}, an uptrend, which in turn is a subwave of wave 3{-7}, a subwave of wave 1{-6}, the initial subwave within uptrending wave 5{-5}, which began on April 18.

A 5th wave, the final wave of a larger trend, has no clear price target. The 5th wave usually moves beyond the end of the preceding 3rd wave, although sometimes it falls short.

In this case, wave 5{-8} has already moved beyond the end of wave 3{-8}. And sometimes a 5th wave will extend, traveling an unusually large distance for its position in the fractal structure of the chart. And there’s no telling what this 5th wave will do until it happens.

Wave 5{-5} has not yet reached the end of the preceding 3rd wave. Wave 3{-5} ended on March 31 at 5333.50.

What are the alternatives? Critics of Elliott Wave Theory point to its ambiguities, and it is true that wave patterns often lack clarity. There is an ambiguity that has been with us for some time on this chart. I’ve counted the 5th wave that began on April 18 (wave 5{-5} on the chart) as being in its 1st subwave (wave 1{-6} on the chart). It’s possible that the subwave of wave 1{-6} (wave 3{-7} on the chart) is in fact the immediate subwave of wave 5{-5}, 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., 80-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 middle subwave, wave 3{-7}, which is in its final subwave, wave 5{-8}.
• Wave 5{-8} is in its next-to-the-last subwave, wave 4{-9}.

We Are Here.

These are waves of larger degree currently in progress under my principal analysis, from Intermediate degree to the Supercycle degree. Each line on the list shows the wave number, with the subscript in curly brackets, the traditional degree name, the starting date, the starting price of the S&P 500 E-mini futures, and the direction of the wave.

• 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 14, 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.