3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell sharply during the session, from the 5340s to below 5310. Elliott Wave Theory: The decline confirms this morning’s principal analysis, that declining wave C, the final subwave of the 4th-wave downward correction that began on May 16, is underway. It resolves the ambiguity discussed this morning over whether wave B had ended: It had.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight to 25 cents above the starting point of the 4th-wave downward correction that began on May 16,

What does it mean? When applying the rules of Elliott Wave Theory, it becomes clear that the correction is taking the form of a Flat, which is common in 4th waves. This decline from May, wave A, had three subwaves, a sign of the Flat structure.

The rise that followed, wave B, is now underway, or may have ended at the overnight high, 5349.25. In labeling the chart, I’ve chosen the “still underway” scenario for my principal analysis but would be unsurprised if wave B rose still higher.

In any case, the B wave will be followed by declining wave C, the final subwave of the correction. An uptrending 5th wave will follow, completing the parent wave, a rising 5th wave that began on May 14, and triggering the end of two larger 5th waves, as well as the still larger 3rd wave that began on May 2.

The 3rd wave is a subwave within a larger 1st wave that began on April 18, along with its parent 5th wave. When the 3rd wave that began on May 2 is complete, it will be followed by a 4th-wave downward correction three degrees higher than the present 4th-degree correction within the fractal structure of the chart.

What are the alternatives? In addition to the ambiguity over whether wave B has ended, discussed above, there is a more significant ambiguity regarding the 1st wave that began on April 18. The four smaller waves on the chart below wave 1 — labeled 4{-10}, 5{-9}, 5{-8} and 3{-7} — may in fact be one degree larger, eliminating the next higher degree, wave 1{-6}. See the Reading the Chart section below for an explanation of wave labeling, including the curly brackets.

[S&P 500 E-mini futures at 3:30 p.m., 100-minute bars, with volume]

What does Elliott wave theory say? Here are the waves that underly the analyses, update with the afternoon analysis.

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 final subwave, wave 5{-9}, which is in its next-to-the-last subwave, wave 4{-10}.
• Wave 4{-10} is in its final subwave, wave C{-11}.

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 22, 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.