3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell sharply during the session, from the 5660s, so far reaching the 5540s. Elliott Wave Theory: The decline confirms this mornings principal analysis: The 4th-wave downward correction that began on August 28 has entered its end game. It is in its final subwave, wave C.

Wave C will have five subwaves and may be in its 3rd subwave, although the power of the fall makes the pattern somewhat unclear.

When wave C is complete, the parent wave 4 will also be complete, and a 5th-wave uptrend will begin.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures began at a high, 5669.75, when trading resumed overnight and then fell into the 5620s.

What does it mean? The higher high brought clarity to the Elliott Wave Theory analysis of the internal structure of the 4th-wave downward correction that began on August 22.

Under the new analysis, the August 28 low that had been labeled as the end of the B wave within the correction is now labeled the end of wave A, the higher high is the end of wave B, and the decline now underway is the final subwave, wave C, if the correction is typical.

[S&P 500 E-mini futures at 3:30 p.m., 90-minute bars, with volume]

What are the alternatives?

Alternative Analysis #1:

If the price reverses and reaches a still higher high, then wave B is still underway and wave C has not yet begun.

Alternative Analysis #2:

The alternative lies in the future, after wave C is complete. Typically, a 4th-wave correction will have three subwaves — A, B and C — and then will be complete. Occasionally a subwave will take a compound form, containing two or three corrective patterns, each composed of three subwaves and connected to the prior pattern by a wave called an X wave.

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} is in its next-to-the-last subwave, wave 4{-8}, a downward correction.
• Wave 4{-8} is in its final subwave, wave C{-9}.

Alternative Analysis #1:

• Wave 4{-8} is in its middle subwave, wave B{-9}.

Alternative Analysis #2:

• Wave C{-9} is part of a the first corrective pattern within a compound correction and will be followed by wave X{-9}.

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, September 3, 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.