3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose into the 5890s, remaining below the October 14 peak, 5918.50.

Elliott Wave Theory: The movement is consistent with the possible solution to the multiple ambiguities on the chart, whoch would relabel the October 14 peak as the end of the 1st subwave of the rising 5th wave that began on October 10. That would mean that the decline that began on that date is the start of a 2nd-wave downward correction.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded narrowly overnight, fluctuating from the 5850s into the 5860s.

What does it mean? In yesterday’s closing Elliott Wave Theory analysis I described how the smallest wave set I was tracking had fallen into ambiguity, describing three possible interpretations of the chart.

Waves on my charts are labeled with a wave number followed by a subscript in curly brackets showing the wave’s distance, within the fractal structure of the chart from the current wave of Intermediately degree, presently wave 5{0}, which began in December 2018.

The present wave in question is wave 4{-11}, a downward correction that began on October 14 from 5918.50. It is a subwave of wave 5{-10}, which began on October 10 from 5811.50.

These are small waves, and I’ve often found that waves of smaller degree are more likely to lack clarity than larger waves. Perhaps it is because each bar on the chart is a larger percentage of the smaller waves, causing a loss of granularity and as a consequence a loss of data. It’s as though the wave pattern are drawn by a thick magic marker rather than a fine-point pin.

Whatever the cause, the reality is that wave 4{-11} has moved so far down that it has broken a rule of Elliott Wave Theory. Here’s how I discussed it in yesterday’s analysis:

• Yesterday morning’s principle wave count, where the 4th subwave has begun, remains viable, maybe.
  • A rule of Elliott Wave Theory says a 4th subwave can’t move beyond the end of the preceding 1st subwave. By my preferred count, it’s close but has not crossed the 1st subwave endpoint at 5737.75
  • By the rule-breaking count, although reasonable as a pattern on the chart, the price has moved below the end of the 1st wave-crossing the line at 5868.25. This calls for a major reanaysis.
• Under the morning’s alternative wave count, the status of the 5th subwave is quite ambiguous.
  • Potentially, the 5th subwave has ended, which means the end of three parent and grandparent waves of increasing size.
• Not mentioned in the earlier counts, but its possible that the larger 5th wave rise is really a 3rd wave rise, which requires a major re-analysis.

One solution to the problem would be to consider the wave 3{-11} peak on October 14 to be the end of wave 1{-11}, making the present decline wave 2{-11}, a downward correction. The rule for 2nd waves is that they never moved below the start of wave 1, unlike 4th waves, which never move beyond the end of wave 1.

What’s an analyst to do? The ambiguities are two great to make a decision. I need more evidence. So I’ll stick with the present chart labelling, ambiguities and all, until the price patterns gain some clarity.

[S&P 500 E-mini futures at 3:30 p.m., 100-minute bars, with volume]

What are the alternatives? See the “What does it mean?” section, above.

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 final; subwave, uptrending wave 5{-8}.
• Wave 5{-8} is in its final subwave, wave 5{-9}, which is in its final subwave, rising wave 5{-10}.
• Wave 5{-10} is in its next-to-the-last subwave, wave 4{-11}.
• Note that the count of wave 5{-10} and 4{-11} is in question.

Long-term Waves.

These are the waves currently in progress under my principal analysis. Each line on the list shows the wave number, with the subscript in curly brackets, the traditional degree name, the starting date, the starting price of the S&P 500 E-mini futures, and the direction of the wave.

• S&P 500 Index:
• 5{+3} Supercycle, 7/8/1932, 4.40 (up)
• 5{+2} Cycle, 12/9/1974, 60.96 (up)
• 5{+1} Primary, 3/6/2009, 666.79 (up)
• 5{0} Intermediate, 12/26/2018, 2346.58 (up)
• S&P 500 Futures
• 5{-1} Minor, 10/27/2023, 4127.25 (up)
• 3{-2} Minute, 10/27/23, 4127.75 (up)
• 3{-3} Minuette, 10/27/23, 4127.75 (up)
• 5{-4} Subminuette, 4/18/2024, 4963.50 (up)
• 5{-5} Micro, 8/5/2024, 5120 (up)
• 1{-6} Submicro, 8/5/2024, 5120 (up)
• 3{-7} Minuscule, 8/7/2024, 5182 (up)
• 5{-8} (unnamed), 9/6/2024, 5394 (up)

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 16, 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.