3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose above the overnight high, reaching into the 5340s. Under Elliott Wave Theory, the rise demotes this morning’s principal analysis, that a low-degree declining 5th wave had begun, and promotes the alternative analysis: The 4th wave upward correction continues.

The 4th wave when complete will have three subwaves. At the opening bell the overnight rise had three subwaves, leading to the now demoted morning analysis. The afternoon chart also shows three subwaves within wave 4, so it’s possible that the correction has ended during the session. Or not.

I’ve reworked the chart to show wave 4 as being underway and shall leave it there until there’s greater evidence to the contrary.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reached 5305.50 early in overnight trading and then worked its way lower into the 5220s.

What does it mean? Analysis based on Elliott Wave Theory sees the movement as the early stage of the 5th and final wave within a larger 5th wave that is the last leg of the declining wave C that began on July 15. The C wave is the final wave within the 4th-wave downward correction that began on July 11.

Chart labeling. Each wave on a chart is labeled with its wave number (such as 5 or C) followed a subscript in curly brackets showing its degree within the fractal hierarchy of the chart (such as {-9}. The subscript shows how many degrees the wave is from Intermediate degree. The present intermediate degree, wave 5{0}, began in December 2018.

What comes next? The end of the small downtrending 5th wave now beginning — wave 5{-12} — will also be the end of the downtrending larger 5th wave — wave 5{-11} — within the still larger declining C wave — wave C{-10} — which is the final subwave of the 4th-wave downward correction that began on July 11 — wave 4{-9}.

Above wave 4{-9} are a nested series of rising 5th waves — wave 5{-8} through wave 5{-5}, and they, too, will end simultaneously with wave 5{-12}. Encompassing all of that is uptrending wave 3{-4}, which began on February 21 from 4959.

So wave 5{-12} is small in degree — just a scribble on the chart — it is large in its impact. When it ends, it will be the beginning of a 4th-wave downward correction eight degrees larger in the fractal hierarchy., wave 4{-4}.

The financial media’s response to the Friday’s downward movement — wave 3{-13}, a subwave within wave 3{-12} — caused a great deal of pessimistic, maybe even panicky, assessments of the market. Multiply that pessimism and panic by nine degrees to have a sense of what lies ahead.

“After the darkness comes the dawn” ought to be the slogan of Elliott Wave Theory. Wave 4{-4}, when when complete will be followed by uptrending wave 5{-4}, which will be a bull market lasting for months

[S&P 500 E-mini futures at 9:35 a.m., 45-minute bars, with volume]

What are the alternatives? I’ve marked the small 4th-wave upward correction as having ended overnight. But perhaps it hasn’t. Stock prices tend to produce head-fakes as one wave transitions into the next. If the 4th subwave — wave 4{-12} — is still underway, the the futures developments described will be delayed briefly until wave 4{-12} reaches its end.

What does Elliott wave theory say? Here are the waves that underly the analyses.

Principal Analysis:

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}.
• Wave C{-10} is in its final subwave, wave 5{-11}.
• At the lowest level analyzed, declining wave 5{-12} is underway.

Alternative Analysis

• At the lowest level analyzed, rising wave 4{-12} is underway.

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 6, 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.