3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell during the session to within cents of 5205 and then rose again, retracing part of the decline. The 4th-wave downward correction that has defined the market since mid-May continues to work through its final wave.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded sideways overnight, in the 5230s and 5240s, rising quickly into the 5270s an hour before the opening bell, when the Personal Consumption Expenditures (PCE) Index for April was published.

Elliott Wave Theory. The rapid rise was a subwave two degrees deep within a relatively small 4th-wave downward correction that began on May 16. The correction is nearing its end. One degree deep, it is in its final subwave, wave C, and two degrees deep, it is in its middle subwave, wave 3. The rapid rise may well be the 4th subwave of five — an upward correction — within that low-degree 3rd wave.

Small waves? Why would anyone care? It is true that all of these waves are small waves buried deep within the fractal structure of the chart. Even so, a fractal structure implies that sometimes a small wave can trigger a tsunami of change. That’s the set-up here.`

From smaller to larger: The 4th subwave within wave C will be followed by a rising 5th subwave. When complete, that 5th subwave will be the end of wave C, and also the end of the 4th-wave downward correction that began on May 16. A 5th-wave uptrend will come next, and when it is done, it will be the end of a larger 5th-wave uptrend and also a still larger rising 5th wave that began on May 14 and May 8, respectively The end of those 5th waves will also be the end of a larger 3rd wave that began on May 7.

So that deeply buried subwave of wave C will trigger a series of endings across five degrees of the fractal structure.

What are the alternatives? There’s an ambiguity one degree above the 3rd wave that began on May 7. Under my principal analysis, I’ve labeled that wave as the 1st subwave within a still larger 5th-wave uptrend, both of which began on April 18. But is there really a 1st wave, or are all of the subwaves I’ve placed within wave 1 actually one degree higher?

The waves on the chart have the wave number followed by the degree, a subscript in curly brackets that shows the wave’s distance from Intermediate degree, a very large degree. The ongoing wave of Intermediate degree began in December 2018.

If there is no wave 1 still underway, then the waves on the chart labeled as labeled 3{-12}, C{-11}, 4{-10}, 5{-9}, 5{-8} and 3{-7} ought to be labeled 3{-11}, C{-10}, 4{-9}, 5{-8}, 5{-7} and 3{-6}. Under the alternative scenario, the 1st wave within wave 4{-5} ended on April 19.

At this point, the chart lacks the clarity needed to choose between the two scenarios. In the words of Valentine Michael Smith, a human foundling raised by Martians whose story was told in Robert Heinlein’s Stranger in a Strange Land, “Waiting is.”

[S&P 500 E-mini futures at 3:30 p.m., 2-hour 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 final subwave, wave 5{-9}, which is in its next-to-the-last subwave, wave 4{-10}.
• Within wave 4{-10}, the final subwave, wave C{-11}, is underway and is in its middle subwave, wave 3{-12}.

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 31, 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.