3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures swung slightly higher into the 5550s and then slightly lower into 5490s during the session, retracing some of the decline as the closing bell approached.

This morning’s principal analysis remains unchanged. The 4th wave downward correction that began on August 28 remains unchanged and has been in its final subwave, wave C, since September 2. Wave Cis in its next-to-the-last subwave, a smaller 4th-wave upward correction, which began on September 3.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fluctuated between the 5540s and the 5510s overnight.

What does it mean? Elliott Wave Theory sees the pause that began on September 3 as the next-to-the-last subwave — wave 4 — within the final subwave — wave C — within the larger 4th-wave downward correction that began on August 28.

If the larger 4th-wave correction is typical, the the correction is working through its endgame and will soon be over. It will be followed by a 5th-wave uptrend that is likely to carry the price back into the 5660s at a minimum, and perhaps much higher.

Since there is no guarantee that the larger 4th wave will be typical, there are alternatives. None of the alternatives question the basic pattern that lies ahead –end of the downward correction and beginning of an uptrend — but only the timing of the decline’s end and the beginning of the following rise.

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

What are the alternatives? There are two.

Alternative #1:

This alternative is 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. This would delay the start of the following 5th wave uptrend.

Alternative #2:

This alternative has to do with how best to interpret the chart’s position within wave C. It plays off of the fact that the 2nd subwave within C under the Principal Analysis is quite small. It is possible that the decline we’ve seen since September 2 is a degree smaller within the fractal structure of the chart than the principal analysis would have. Under this scenario, wave 1 within wave C is underway. This would delay the end of the 4th-wave downward correction and the start of the ensuing 5th wave uptrend.

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}, which is within wave 4{-10}.
• Wave 5{-8} will follow the end of the present wave C{-9}.

Alternative Analysis #1, compound correction scenario:

• Wave 4{-8} is in its final subwave, wave C{-9}, which is in its next-to-the-last subwave, wave 4{-10}.
• Wave 5{-10 will be the end of wave C{-9} but not of the wave 4{-8} downward correction, which under this senario will take a compound form containing two or three corrective patterns.
• The present wave C{-9} will be followed by a rising connector wave X{-9} and then a declining wave A{-9}, the first wave of the second corrective pattern.

Alternative Analysis #1, wave 1 scenario:

• Wave 4{-8} is in its final subwave, wave C{-9}, which is in its initial subwave wave 1{-10}, which in turn is in its next-to-the-last subwave, wave 4{-11}.

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 5, 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.