3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures whipsawed wildly after Fed Chair Jerome Powell spoke at the Federal Reserve’s Jackson Hole, Wyo. Economic Symposium, ending up in the 5630s, close to where the price stood before the speech.

Elliott Wave Analysis: The decline from the August 22 high, the end of a 3rd-wave uptrend and the beginning of the low-degree 4th-wave downward correction now underway, was wave A within that correction. The rise prior to Powell’s speech was wave B, and the decline from today’s high, after Powell began speaking, is wave C, which is now underway. The 4th wave downward correction is in its final wave, unless it takes a complex form, with a second and perhaps a third 3-wave pattern.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose steadily overnight, from the 5590s to the 5630s.

What does it mean? The likeliest interpretation, using Elliott Wave Theory, is that the rise is the middle subwave — wave B — within a low-degree 4th-wave downward correction that began on August 22. A final, declining subwave — wave C — will follow that, when complete, will end the correction and begin an rising 5th wave, one degree higher, the final wave of an uptrend that began on August 7.

That 5th wave is a subwave of a larger uptrending 3rd wave, which in turn is a subwave of a still larger uptrending 1st wave, the initial subwave of 5th-wave uptrend that began on August 5 and that, if typical, will carry the price above the end of the preceding 3rd wave, 5721.50, and perhaps significantly above that level.

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

What are the alternatives? It’s possible that the overnight decline was the 4th-wave correction in its entirety and that the low-degree 5th-wave uptrend has begun.

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 5{-2}, 5{-3} and 5{-4} are underway, as is wave 5{-5}.
• Wave 5{-5} is in its initial subwave, wave 1{-6}, which in turn is in its middle subwave, wave 3{-7}.
• Wave 3{-7} appears to be in its next-to-the-last subwave, wave 4{-8}, a downward correction.

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 23, 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.