3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell further during the session, into the 5630s.

The decline reinforces this morning’s Elliott Wave Theory analysis the sees the the 4th-wave downward correction that began on July 11 as being in its final subwave, wave C. The decline has carried the price below the upper boundary, 5634.75, of the price target. See this morning’s analysis below.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reached a new peak, 5721.25, minutes before the closing bell on Tuesday, and then began to decline, reaching into the 5650s as today’s opening bell sounded.

What does it mean? The 4th-wave downward correction that began on July 11 continues. My Elliott Wave Theory analyses over the last few days have repeatedly moved the end of the middle subwave — wave B — as each new peak developed. The move to the Tuesday’s peak, late in the session, has been followed by a an energetic decline, suggesting that this time the final subwave — wave C — really has begun.

Price target. As noted in yesterday’s analysis, the 4th-wave correction is taking the Flat form, and the C-wave within a Flat typically retraces from the length of the preceding A wave to 165% of that length. It’s a tendency not a firm rule.

Under that tendency, wave C will be somewhere between 86.50 points and 142.75 points in length. The target range, based on wave C’s higher starting point, will typically range from 5634.75 and 5578.50. The range boundaries have been rounded to conform the the futures’ 25-cent increment in price changes.

Looking forward. The C wave, when complete, will be the end of the 4th-wave correction and the start of a 5th-wave uptrend. Fifth waves tend to have a lot of variety, sometimes fallling short of the peak of the preceding 3rd wave — 5707.75 in this case — and sometimes extending well beyond that level.

The end of the 5th-wave uptrend will cascade up the fractal structure of the chart, also marking the end of a series of 5th wave of increasing size overing four degrees, and also the end of a still larger 3rd-wave uptrend that began on February 21. A large 4th-wave downward correction will follow.

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

What are the alternatives? 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}, a downward correction, wave 4{-9}, is in progress.
• Wave 4{-9} is in its final subwave, wave C{-10}

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 17, 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

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Based on a work at www.timbovee.com.