3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose into the 5560s during the session and then fell back, so far reaching into the 5510s.

Elliott Wave Theory: The last leg — wave C — within the 4th-wave downward correction that began on August 28 continues, working its way through the 4th of five subwaves.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell slightly overnight, coming close to 5500, and then rose slightly.

What does it mean? The pattern, analyzed using Elliott Wave Theory, appears to be an upward 4th wave correction within wave C, the final subwave of the larger 4th-wave downward correction that began on August 28.

The correction within wave C will be followed by a downtrending 5th-wave that will finish wave C and most likely will also be the end of the parent wave, the larger 4th-wave downward correction.

An uptrending 5th wave will follow, the final subwave within an uptrending 3rd wave that began on August 7.

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

What are the alternatives? An alternative remains as a future possibility, 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}.

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 4, 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.