3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures moved net sideways during the session, largely staying in the 5360s to the 5330s, with a breakout on either side.

Elliott Wave Theory: The downtrending 5th wave that began on September 26 continues to work through its initial subwave.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures again traded narrowly overnight, fluctuating between the 5760s and the 5730s.

What does it mean? After analyzing the chart using Elliott Wave Theory, I’ve concluded that the 5th-wave downtrend that began on September 26 from 5830 is working through its early stages.

A typical 5th wave will move beyond the end of the preceding 3rd wave, 5394 in this case. But not always. Sometimes a 5th wave ends before reaching that level, a condition known as truncation.

[S&P 500 E-mini futures at 3:30 p.m., 80-minute bars, with volume]

What are the alternatives? There are two.

Alternative #1:

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.

Alternative #2:

The 4th-wave upward correction that began on September 6 is still underway and will soon reverse, reaching above the September 26 high, 5830. The lower it goes, the less likely this scenario becomes.

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 2, 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

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.