3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose to 5528.25 during the session and then pulled back slightly. The movement was insufficient to bring clarity to the Elliott Wave Theory analysis of the chart.

As the session nears its end, the ambiguity that marked trading overnight remains: Either the 4th-wave downward correction that began on July 11 continues to work through its endgame, or the 5th-wave uptrend that began on July 25th continues to work through its early stages.

On the chart I’ve retained the 4th-wave-continues scenario. The two scenarios, however, are of equal likelihood.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight, reaching into the 5490s.

What does it mean? Elliott Wave Theory, when applied to the chart, sees two potential analyses of equal likelihood.

The first scenario retains yesterday’s analysis: The 4th wave downward correction that began on July 11 continues and is nearing its end.

The second scenario see yesterdays low, 5486, as being the end of the correction, and the subsequent rise as being the being the early stages of a 5th-wave uptrend.

Which is the principal analysis, which the alternative? Absent any certainty, I’m staying with the previous day’s analysis for the chart labelling. If the price continues to rise, reaching above the June 23 high, 5620.75, then the principal analysis switches to the 5th-wave-has-begun scenario. If the price reverses and falls below the June 25 low, 5486, then the principal analysis remains the 4th-wave-continues scenario.

[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}.

4th-wave continues scenario:

• Within wave 5{-8}, wave 4{-9}, a downward correction, is in progress.
• Wave 4{-9} is in its final subwave, wave C{-10}.

5th-wave-has-begun scenario:

• Within wave 5{-8}, wave 5{-9}, an uptrend, is in progress.
• Wave 5{-9} is in its initial subwave, wave 1{-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 26, 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.