3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell during the session, so far reaching into the 5430s. Elliott Wave Theory: A 4th-wave upward correction, which began on July 25, within a larger 4th-wave downward correction, which began on July 11, is in its final subwave, rising wave C, which in turn is in its middle subwave, declining wave B.

The declining B wave within the smaller 4th wave will be followed by a rising C wave, whose end will also be the end of the 4th-wave upward correction. A downtrending 5th-wave will complete the C wave within the larger 4th-wave downward correction, ending the correction itself.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight into the 5510s and then trended sideways as the opening bell approached.

What does it mean? The S&P 500’s narrow range has continued for nearly a week. Elliott Wave Theory analysis sees the pause as part of a 4th-wave upward correction that began on July 25 within the final subwave, wave C, of the a larger 4th-wave downward correction that began on July 11.

The moody public. Elliott Wave Theory sees market movements as reflecting changes in the public mood, a nebulous concept that covers a broad range of causes and human responses. For the trading segment of the population, an important group when it comes to translating the mood into market price changes, economic reports and Federal Open Market Committee actions can be drivers of the public mood.

And beginning tomorrow, there are major drivers aplenty. All times are New York time.

• On Wednesday at 8:15 a.m., the ADP jobs report, a private-sector report that gives a sneak preview of the government’s Employment Situation Report.
• On Thursday at 2 p.m., the Federal Open Market Committee (FOMC) statement revealing their decision on interest rates: Lower them or do nothing.
• On Friday at 8:30 a.m., the government’s Employment Situation Report, an important input for the FOMC’s decision-making.

Potential impacts. To the extent any of these produce a significant change in the public mood, I would expect to see greater price fluctuation and perhaps greater directionality in the S&P 500.

The question is, which direction? And the short-term answer is, impossible to say. If the 4th-wave upward correction is not yet complete, then the direction will be down. If the 4th-wave is complete, then a 5th-wave uptrend will begin, a small one that will complete the larger corrections C wave.

And of course, the public may shrug, mutter “meh”, and leave the public mood unchanged, and the market’s movements with a lack of clear direction and a narrow range.

[S&P 500 E-mini futures at 3:30 p.m., 2-hour bars, with volume]

What are the alternatives? Unchanged from Monday. 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 30, 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.

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Based on a work at www.timbovee.com.