3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures continued to decline during the session, reaching into the 5470s. The decline helps verify this morning’s Elliott Wave Theory analysis: The 4th-wave downward correction that began on July 11 continues to work through its endgame.

I’ve updated the chart.

9:55 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell overnight, to 5543.75, and just after the opening bell to 5541.25.

What does it mean? Seen through the lens of Elliott Wave Theory analysis, this decline provided a test of yesterday’s principal analysis, which said: The uptrending 5th wave that began on July 19 continues and is in its 1st subwave. The decline, under this now discredited scenariio, would be a 2nd subwave.

That analysis failed the test.

What kind of test? The test came from a firm rule of Elliott Wave Theory: A 2nd wave never moves beyond the starting point of the preceding 1st wave. If it does, then it’s not a 2nd wave; something else is going on.

The preceding 1st wave began from 5542. The decline has carried the price to within two points above that level.

If the price had remained at or above above 5542, then the principal analysis would have remained viable. Instead, the price dropped below 5542, into the 5530s so far, meaning that something else is going on.

The new principal analysis. That “something else” is this new principal analysis: The 4th-wave downward correction that began on July 11 continues and is in its final subwave, wave C. The C wave when complete will have five subwaves. The rise that began on July 11 was the 2nd subwave within wave C.

[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 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}, wave 4{-9}, a downward correction, is in progress.
• Wave 4{-9} is in its final subwave, wave C{-10}.

Discredited Analysis:

• Within wave 5{-8}, uptrendng wave 5{-9}, is in progress.
• Wave 5{-9} is in its second subwave, wave 2{-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 24, 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.