3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures continued to rise during the session, reaching into the 5790s.

Elliott Wave Theory: Wave C, the final subwave within wave 4, an upward correction, continues. At this point, any higher high in the rising 5th wave within wave C could possibly be the end point with that correction.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight, coming within a point of 5780.

What does it mean? The rise that began on September 11 is in its 5th subwave, according to Elliott Wave Theory analysis. That rise is a C wave, the final subwave within a 4th-wave upward correction that negan on September 6.

Some observations.

• The C wave is quite a bit longer than the preceding waves A and B.
• The A and B waves took a far shorter time to reach completion than has the still ongoing C wave. Wave A: Four days, Wave B: One day, Wave C: Eighteem days so far.

The C wave seems disproportionally larger compare to the two earlier waves. On the other hand, in working with charts, I’ve often seen larger C waves. A waves tend to be tentative — is the trend really changing? B waves as well — OMG! I don’t think the new trend is real! Notably, of the firm rules of Elliott Wave Theory corrections, the B wave — the wave of doubt — is the only one that has restrictions.

And 5th waves have a tendency to show greater variation. Normally they move beyond the end of the preceding 3rd wave, in a proportional manner. Sometimes, they come up short, a condition known as truncation. Sometimes they move a disproportional distance beyond the end of wave 3, a condition known as extension.

In brief, 5th waves are quirky.

In any case, the rise from September 6 is working through its end game. The end of wave 5 will be the end of wave C, which in turn will be the end of the wave 4 correction. A 5th-wave downtrend will follow and if typical, can be expected to move beyond the end of the preceding 3rd wave, at 5394, unless it is truncated, or far below 5394, if it is extended.

At this point in the endgame, each new high within the rise could be the end of the correction. Or not. It’s ambiguous.

[S&P 500 E-mini futures at 3:30 p.m., 50-minute bars, with volume]

What are the alternatives? There are three

Alternative #1:

The 4th-wave upward correction that began on September 6 ended on September 19. A 5th-wave downtrend has begun.

Alternative #2:

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 #3:

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 5{-10}.
• Wave 5{-10} is in its final subwave, rising wave 5{-11}.

Alternative Analysis #1, upward correction ended

• Wave 4{-8} has ended and falling wave 5{-8} has begun.

Alternative Analysis #2, 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 #3, 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 19, 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.