3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell during the session, reaching into the 5410s.

Elliott Wave Theory: I’ve updated the chart below to show a close-up the 4th-degree downward correction that began on August 28. The closer view clarifies that the final subwave of the correction, wave C, is in its downtrending 3rd-wave, which in turn is in its final subwave. I had previously counted wave C as being in its final subwave, wave 5.

Waves on the chart are marked with a wave number followed by a subscript in curly brackets showing the wave’s distance within the fractal structure of the chart from Intermediate degree. The present Intermediate degree is wave 5{0}, which began in December 2018. The 4th wave downward correction is wave 4{-8}, meaning it is eight degrees below Intermediate degree. Internally, wave 4{-8} is in wave C{-9}, which in turn is in wave 3{-10}. That 3rd wave is in wave 5{-11}, its final subwave.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell to 5466.50 overnight until an hour before the opening bell, when the Employment Situation Report was published and the price rose into the 5510s within the span of a minute, and kept rising, remaining below the prior day’s high.

The report showed that the unemployment rate had decline from 4.3 to 4.2, and as a result the Sahm Rule, the most sensitive measure of whether a recession is underway, showed that yes, the U.S. is still in a recession, for the second month in a row,

What does it mean? I’ll leave it to economists to parse the importance of the recession indicator. The S&P 500 futures, Elliott Wave Theory shows, is still in the 4th-wave downward correction that began on August 28. That correction is in wave C, it’s final subwave if wave 4 is typical. (See the alternatives section below for a discussion of the atypical.)

The overnight decline suggests to me that the final subwave, wave 5, within wave C has begun, although the chart, as is often the case for low-degree movements, is not entirely clear, and it’s possible that the next-to-the-last subwave is still underway.

When the 4th-wave correction that began in late August is complete, it will be followed by an uptrending 5th wave that will likely carry the price back into the 5660s and perhaps signficantly higher.

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

What are the alternatives? There are two, the same as yesterday. The description of each alternative is unchanged from the day before.

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 3{-10}.
• Wave 3{-10} is in its final subwave, wave 4{-11}.

Alternative Analysis #1, compound correction scenario:

• Wave 4{-8} is in its final subwave, wave C{-9}, which is in its middle subwave, wave 3{-10}.
• Wave 5{-10}, still in the future, will be the end of wave C{-9} but not of the wave 4{-8} downward correction, which under this scenario 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 #2, 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 final subwave, wave 3{-11}. And wave 3{-11} is in its final subwave, wave 5{-12}.

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 6, 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.