3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell to the 5730s during the session and then worked its way back up into the 5780s.

Elliott Wave Theory: The 5th-wave downtrend that began on September 26 continues and has reached its final wave within the larger declining 1st wave of the downtrend. It’s also possible that the smallest wave described is a subwave within a subwave of the downtrend’s 1st wave.

The first steps of a trend are filled with ambiguity regarding each wave’s positioning within the fractal structure of the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded narrowly overnight from the 5822.50 and above 5800.75. In the minutes after the opening bell, the price fell further, into the 5780s

What does it mean? The price remained below the September 26 high, 5830, after falling below the starting point, 5768, of the rise that carried the price to its peak. In Elliott Wave Theory, those facts suggest that the 5830 high is the end of the 4th-wave upward correction that began on September 6 from 5394, and the beginning of a downtrending 5th wave that, if typical, stands a good chance of falling below that level.

None of that scenario is guaranteed. The price, within the rules of Elliott Wave Theory, could still reverse and move above 5830, showing that the 4th-wave upward correction is still underway. And the 4th-wave upward correction, having completed three subwaves, may be taking a complex form, with the decline since September 26 being an X-wave separating the first corrective pattern from a second one.

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

What are the alternatives? There are two.

Alternative #1:

The 4th-wave upward correction that began on September 6 is still underway and will soon reverse, reaching above the September 26 high, 5830

Alternative #2:

Occasionally a subwave will take a compound form, containing two or three corrective patterns, each composed of three subwaves — waves A, B and C — and connected to the prior pattern by a wave called an X wave. This would mean that the 4th-wave upward correction is still underway and would delay the start of the following 5th wave downtrend.

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, declining wave 5{-11}.

Alternative #1:

• Wave 4{-11} a rising correction, is taking a compound form,
• The three subwaves — waves A{-12}, B{-12} and C{-12} — have completed the first corrective pattern. A declining connector wave — wave X{-12} is underway.

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, October 1, 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.