3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures reached a new high, 5600.75, during the session and then fell sharply, reaching into the 5440s as the closing bell approach.

Elliott Wave Theory analysis: The small decline from the overnight high was the end of the small 4th wave correction within wave C, the final subwave of a 4th wave upward correction that began on July 25. The rise during the session to a new high was wave 5, and its completion also was the end of wave C and of the 4th-wave upward correction.

The rapid decline that followed is a downtrending 5th wave. When it is complete, it will also be the end of its parent wave, the final subwave, wave C, within a 4th-wave downward correction that began on July 11.

On the chart I mark the degree of a wave within the fractal structure of the chart with a subscript in curly brackets, denoting the wave’s distance from Intermediate degree. The present Intermediate wave is wave 5{0}, which began in December 2018.

Using that system, here is what has occurred. Wave C{-12} within wave 4{-11}, a upward correction that began on July 25, ended on August 1 during the session. At that point, downtrending wave 5{-11} began and is underway. When wave 5{-11} is complete, it will also be the end of wave C{-10}, which began on July 16, within a downward correction, wave 4{-9}, which began on July 11. At completion, look for uptrending wave 5{-9} to begin.

Brevity. It’s complicated. The brief version: Down for a few days, then up for maybe several weeks. After that, a big decline that could take months. Unless, some ambiguity in the analysis results in a gotcha and a major revision, which is always a possibility in Elliott Wave Theory analysis.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures peaked overnight in the 5590s and then pulled back.

What does it mean? The Elliott Wave Theory question is whether that peak is the end of wave C, the final subwave within the small 4th-wave upward correction that began on July 25. A study of the smaller waves says that wave C is still in progress.

A close-up view. The C wave will have five subwaves. I count the overnight peak as being the end of the 3rd subwave and the beginning of a smaller 4th-wave downward correction within wave C. That smaller 4th wave will have three subwaves and will be followed by a rising 5th wave that will complete the larger 4th-wave upward correction that began on July 11.

This close-up chart, captured 15 minutes before the opening bell, shows the subwaves.

[S&P 500 E-mini futures at 9:08 a.m., 5-minute bars, with volume]

Big picture. The larger 4th-wave correction will be followed by an uptrending 5th wave which, will complete, will also be the end of a series of 5th waves of increasing size, covering four degrees, and a still larger 3rd wave, that began on February 21. The 3rd wave will be following by a very large 4th-wave downward correction.

[S&P 500 E-mini futures at 3:30 p.m., 125-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}.
• From the Morning analysis:
• Wave C{-10} is in its next-to-the-last subwave, wave 4{-11}, which turn is in its final subwave, wave C{-12}.
• Within wave C{-12}, the final subwave, wave 5{-13}, is underway.
• The new afternoon analysis:
• Wave C{-10} is in its final subwave, wave 5{-11}.

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, August 1, 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.