3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures continued to fall during the session. In Elliott Wave Theory, the continued decline suggests that wave 3, a subwave within the first subwave of a 5th-wave downtrend. The wave of the smallest degree, wave 3, began on October 6 from 5808. That interpretation confirms this morning’s somewhat tentative analysis.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell fewer than 50 points after trading resumed overnight and then rose a fraction of the decline.

What does it mean? The decline, as analyzed usng Elliott Wave Theory, is a subwave buried two-degrees deep within a downtrending 5th wave that began on September 26.

The 5th wave is in its initial subwave. One degree lower, the overnight decline appears to be a downtrending wave 3 that began moments after trading resumed on Sunday, New York time.

That conclusion carries a caveat. It’s possible that the small 2nd-wave upward correction that began on October 6 is still underway. [Invalidated by the afternoon analysis.]

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

What are the alternatives? There are three, one of which is no longer a possibility.

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.

Alternative #3: [Invalidated by the afternoon analysis]

The small 2nd-wave uptrend that began on October 2 is still underway, has completed its first subwave, wave A, and is now in its second, wave B.

What does Elliott wave theory say? Here are the waves that underly the analyses.

Principal Analysis: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 initial subwave, declining wave 5{-11}, which in its 1st subwave, declining wave 1{-12}, which in turn is in a 3rd-wave downtrend, wave 3{-13}.

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.

Alternative #2:

• Wave 4{-11} continues to decline as a subwave of wave C{-12}.
• When the subwave is complete wave C{-12} within wave 4{-11} will continue to rise.

Alternative #3 [Invalidate by the afternoon analysis]

• Wave 2{-13}, an upward correction, continues and is in its 3rd subwave, wave B{-14}.

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 7, 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.