3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures continued to rise during the session, reaching into the 5560s. This morning’s analysis stands: The 4th-wave upward correction that began on August 5 continues to work through its endgame.

9:35 a.m. New York time

What is a trend? Look below for “A note on inflation”, a discussion of yesterday’s inflation data. My conclusion: It’s not yet time to declare victory over inflation.

What’s happening now? The S&P 500 E-mini futures rose sharply an hour before the opening bell after the weekly Jobless Claims Report showed a decline. The price reached the 5530s in the overnight session, pushing above the 78.6% Fibonacci retracement level.

What does it mean? The sharp rise, seen through the lens of Elliott Wave Theory, increases the likelihood that the final subwave — wave 5 — within the final subwave — wave C — within the 4th-wave upward correction that began on August 5 is underway.

One rule of Elliott Wave Theory says that a 4th-wave never moves beyond the end of the preceding 1st wave. The preceding 1st wave in this case ended at 5600.75. If the price moves beyond that level, then the analysis will need to be redone.

[S&P 500 E-mini futures at 3:30 p.m., 70-minute bars, with volume]

What are the alternatives? 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}.
• Wave C{-12} is in its final subwave, wave 5{-13}.

A note on inflation. Yesterday’s Consumer Price Index report for July prompted many happy-talk headlines noting that inflation had fallen below 3% for the first time since 2021. I’m all for happy talk, but I don’t think that the latest inflation numbers deserve it.

Inflation, like stock prices, is about trends. When I was a rookie trader, one of my wise mentors quite often said, “It takes three prices to make a trend.” A single rise, or a year-over-year comparison of a price, doesn’t tell the trader anything about a trend that’s useful for the next trade. Same thing goes for economic data released monthly, such as inflation,

So I downloaded the CPI data into a spreadsheet and did some math that applied the 3-data-point method.

First interesting finding: Using the 3-data-point method, there has never been a downtrend in inflation since the first month for which we have records, January 1947. So if this tendency holds, the prices we have when inflation is over will likely be the prices, more or less, that we’ll be living with until the next inflation kicks in.

Yesterday’s inflation report, for July, did not indicate an uptrend. The last three monthly reports have two inflation increases (including the most recent one) and one decrease. So there is no trend at present. The June report wasn’t part of an uptrend, either; those three months had two increases and one decrease.

The most recent trend was the May 2024 inflation report, which was part of three uptrending months in a row. It was the final month of an uptrend that began in October 2022 and lasted 20 months, through last May. Before that there were three trendless months, and then another series of trending months lasting from August 2020 to August 2020, lasting 23 months.

Out of 931 months since records began in January 1947, there have been uptrends in 624 months, or 67.2% of the 931-month total, and no trends in 305 months, or 32.8% of the total.

Bottom line: Happy talk makes me nervous, and when I hear it, I look for verification. This data shows there is no uptrend to justify happy talk as of yet.

For anyone interested, the spreadsheet may be viewed here.

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 15, 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

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.