3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell during the session, reaching 5630. The decline adds sufficient doubt of the accuracy of this morning’s analysis that I’ve made some revisions to the subwaves within the 5th-wave uptrend that began on July 2, as follows:

• The end of the 3rd subwave, and uptrend, moves to the overnight peak, 5707.75.
• The decline that followed is the 4th subwave, a downward correction.

Under this scenario, the small 4th-wave correction will be followed by a 5th wave uptrend. The 4th-wave correction is labelled wave 4{-9} on the chart, and the wave that follows will be wave 5{-9}. At this low level within the fractal structure of the chart we’re tracking wave movements that last days, maybe a week, so it shouldn’t take long.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose sharply an hour before the opening bell after the release of the Consumer Price Index, the most extensive measure of inflation in the United States. The price leapt within a minute from 5681.27 to 5707.25 and then fell back, almost returning to the starting point.

What does it mean? [The following analysis has been superseded by the afternoon analysis, above.] In Elliott Wave Theory analysis, the rapid rise marks the beginning of the final subwave within an uptrending 5th wave that began on July 2.

The 5th wave that began overnight is labeled wave 5{-9} on the chart, the subscript in curly brackets referrng to the wave’s distance from the Intermediate degree within the fractal structure of the chart. The present wave of Intermediate degree is wave 5{0}, which began in December 2018. Wave 5{-9} is nine degrees lower in the fractal structure.

The larger 5th wave, which began on July 2, is labeled wave 5{-8}. When it is complete, it will also mark the end of three 5th waves of increasingly larger size, waves 5{-7}, 5{-6} and 5{-5}. All of these waves are subwaves of a larger 3rd wave, wave 3{-4}, which began on February 21. The simultaneous completion of 5th waves covering five degrees will also be the end of wave 3{-4}, and the beginning of a downward correction, wave 4{-4}, which will be far more impressive than any correction we’ve seen since winter.

[S&P 500 E-mini futures at 3:30 p.m., 90-minute bars, with volume]

What are the alternatives? There are two, one concerning the near-term chart and a second concerning the larger movements.

Alternative #1 [Superseded by the afternoon analysis, above.-

Wave 5{-8} is in its initial subwave, and the decline from the peak is a 2nd-wave correction. One firm rule of Elliott Wave Theory is that a 2nd wave can’t move beyond the start of the preceding 1st wave; in this case, the price before the one-minute rise overnight to a new high. If the price falls below 4677.25, then my analysis above is incorrect — the middle subwave, wave 3{-9} within wave 5{-8} is still underway.

Alternative #2

Another alternative: There may be a 1st wave on the chart, between wave 5{-6} and 5{-5}. If that’s the proper count, then it would delay the onset or the 4th-wave downward correction, wave 4{-4}. See the June 18 Trader’s Notebook for a more detailed discussion. As the uptrend progresses, this alternative is appearing to be less likely.

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 5{-6} is underway and is in its final subwave, uptrending wave 5{-7}, which in turn is in its final subwave, uptrending wave 5{-8}.
• Within wave 5{-8}, an uptrending subwave, wave 5{-9}, is in progress.

Alternative #1 Analysis [Superseded by the afternoon analysis, above]

• Within wave 5{-8}, an uptrending subwave, wave 3{-9}, is in progress.

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, July 11, 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.