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 6160s. The 5th-wave uptrend that began on December 13 continues. The further it goes, the less likely this morning’s alternatives.

9:35 a.m. New York time

What’s happening now? When trading the S&P 500 E-mini futures overnight, the price gapped up by 1.2%, moving the price to an all-time high in the history of the market. Last week’s closing was 6051.36. This week’s opening was 6125.50. As the opening bell drew near the price had reached the 6140s in a gentle rise.

What does it mean? The straightforward approach to the Elliott Wave Theory analysis is to consider the 6041.25 low on December 13 to be the end of the 4th-wave downward correction that began on December 6 and the beginning of the wave 5 uptrend that follows.

That’s perfectly in line with the theory and violates no rules.

The problem comes with the 4th-wave’s final wave: It doesn’t have a sufficient number of subwwaves.

With the exception of Triangle patterns, corrections come in two varieties: Zigzags and Flats. The two types are similar in structure. However, they differ in the number of subwaves in their initial wave. Wave A in a Zigzag has five subwaves; in a Flat, three subwaves. Both have two subwaves in wave B and five subwaves in wave C.

And wave C is the problem. In a straightforward reading, it was in its 3rd subwave when the upward gap occurred, too few waves to have reached completion.

Where do we go from here?

There are several ways for an analyst to handle this.

First, charts to always have perfect clarity. They’re messy, so perhaps there are five subwaves but two of them are too small to see clearly.

Second, Triangles have three subwaves internally. Perhaps wave 4 is developing into some sort of Triangle, Could be. We’ll have to see what develops.

Third, perhaps the 5th wave is taking the form of a Triangle. Again, could be.

I’ve taken the straightforward approach: Wave 4 has ended and wave 5 has begun.

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

What are the alternatives? See the discussion above for a description of the major ambiguity in wave 4 and perhaps in wave 5..

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, uptrending wave 5{-10}.
• Wave 5{-10} is in its final subwave, wave 5{-11}, which appears to have completed its middle subwave, wave 3{-12}.
• Rising Wave 5{-13} is now underway and is in its early stages.

Long-term Waves.

• 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)
• 5{-9} (unnamed), 10/2/2024, 5724 (up)
• 5{-10} (unnamed), 11/4/2024, 5824.25 (up)
• 5{-11} (unnamed), 11/19/2024, 5933 (up)
• 5{-12} (unnamed), 11/27/2024, 6000.25 (up)
• 5{-13} (unnamed), 12/13/2024, 6041.25 (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, December 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.

License

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Based on a work at www.timbovee.com.