3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures have risen into the 5450s during the session. Elliott Wave Theory analysis suggests that today’s rise is the final subwave — wave 5 — within the larger final subwave — wave C — within the 4th-wave upward correction that began on August 5, although there is a bit of ambiguity in the pattern traced by the smaller subwaves. The rise has taken the price above the 61.8% Fibonacci retracement level without a pause.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures zig-zagged overnight, rising to nearly 5410 with the release of new Producer Price Index statistics as the opening bell approached.

What does it mean? Elliott Wave Theory analysis shows that the 4th-wave upward correction that began on August 5 continues and is in its final subwave, wave C.

I’ve placed a Fibonacci ladder on the chart, in red, to measure how much of the preceding 3rd the current 4th wave has retraced. Wave 4 turns out to be something of an over-performer. A 4th wave tends to retrace a Fibonacci 38.2% of the 3rd wave. The present retracement is approaching 61.8%.

In Elliott Wave Theory, Fibonacci retracement levels are tendencies, not firm rules. Nonetheless, the present retracement level suggests that wave 4 is very near its end. When the 4th-wave is complete, a 5th-wave downtrend will follow.

See the August 12 Trader’s Notebook for a discussion of what happens after that.

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

What are the alternatives? Unchanged from yesterday. We’re at a point where the present low-degree C wave — wave C{-12} — is routinely reaching new highs, and in high carries the possibility that it is the end of wave C and of its parent 4th wave. Only the price movements that follow each high can tell us whether wave C has in fact ended.

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}.
• Wave C{-10} is in its next-to-the-last subwave, wave 4{-11}, which in turn is in its final subwave, wave C{-12}.

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 13, 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.