3:30 a.m. New York time

Half an hour before the closing bell. The S&P 500 futures traded narrowly during the session, remaining below the overnight peak. The 4th-wave downward correction that began on July 11 continues to work through its final subwave, declining wave C, which is in its next-to-the-last subwave, rising wave 4.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose from the 5490s to the 5530s after trading resumed overnight and fell sharply from the high as the opening bell approached.

What does it mean? I did some low-degree Elliott Wave Theory work over the weekend, seeking greater clarity in the decline that began in mid-July.

That decline is a 4th-wave downward correction, which began on July 11 and is in its final subwave, declining wave C, which began on July 16. That much is clear. I found that the internal structure of the earlier parts wave C presented difficulties, and in light of later developments, I’ve revised the internal count.

Wave C when complete will have five subwaves.The 1st subwave, downtrending wave 1, ended on July 19. The 2nd subwave, a wave-2 rising correction, ended on July 23. The 3rd subwave, downtrending wave 3, ended on July 25, and a 4th subwave, a 4th-wave rising correction, is presently underway.

What’s next? The present 4th subwave will be followed by a downtrending 5th wave that will carry the larger C wave to completion. The end of wave C will also be the end of the 4th-wave downward correction that began on July 11.

A 5th-wave upward correction will begin and if typical will carry the price above the end of the preceding uptrendng 3rd wave, 5707.75 and perhaps beyond. Some 5th waves are truncated, failing to exceed the 3rd wave that came before. So there’s no guarantee that the present 5th wave will rise above that 3rd-wave endpoint.

The preceding 3rd wave lasted a bit more than a week to reach completion. A 5th-wave can be of similar duration, but sometimes 5th waves extend, taking more time and covering greater distances, out of proportion with the 3rd wave.

The present 5th wave, when complete, will also trigger the completion of four rising 5th waves of larger size, and also will end the 3rd wave, one degree larger, that began on February 21. A 4th-wave downward correction will begin and will be five degrees higher in the fractal hierarchy than our present 4th wave, a serious downward correction.

[S&P 500 E-mini futures at 3:30 p.m., 200-minute bars, with volume]

What are the alternatives? On the chart the 3rd wave that preceded the present rather small correction ended on July 11. There’s a case to be made that it actually ended on July 16, and if that’s the case, then the present correction is in its 1st subwave, wave A, with two more subwaves to follow.

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}.

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 29, 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.