3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures has continued to fall during the session. Elliott Wave Theory: It has dropped below the lower boundary of the price target range. The decline is the final subwave, wave C, of the 4th-wave downward correction that began on July 11.

I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traced a sideways path overnight.

What does it mean? The overnight pattern, in Elliott Wave Theory, is the final subwave of a 4th-wave downward correction that began on July 11. The price fluctuated just above upper boundary of the price target for that subwave, wave C, which began on July 16. (See the July 17 Trader’s Notebook for a discussion of how the price target was calculated.) The target has boundaries at 5634.75 and 5578.50, which are marked on the chart in red.

Looking ahead. As noted in earlier analyses, the end of wave C will also be the end of the 4th-wave upward correction and the beginning of a 5th-wave uptrend. These are all small waves. However, the end of that small wave 5 will have large consequences,

The present waves are nested within a series of increasingly larger 5th waves, which will all come to and end the moment the small wave 5 is complete. The still larger 3rd wave that encompasses them all will also end, and a 4th-wave downward correction will begin.

The larger 3rd wave began on February 21 from February 21 from 4959, and a 4th-wave correction retracing a portion of that 3rd wave will be noticeably larger than the small 4th wave that is reaching its end.

[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 18, 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.