S&P 500 Index Labor Day Special Update; Elliott Wave Theory

By: Chris Guthrie
Published September 3, 2018
02:00 AM GMT

The S&P 500 Index dropped as projected in my August 29, 2018 Elliott Wave Theory article. However, the full projected drop has not been achieved. This could be okay, because the projection did not have the bottom occurring until the day after Labor Day, September 4, 2018. The movement over the previous two days has been interesting and my original analysis has reached a fork in the road. This article will explore where the index is likely to travel on September 4, 2018. As well as analysis for upward and downward movement.

Elliott Wave Theory Technical Analysis

The first path for movement on September 4th could have the index dropping to my declared zone per my original analysis. The second option could have the index moving upward as all of the movement in minute wave 4 was completed on August 31, 2018. The chart below outlines path number one. It depicts the potential completion of subminuette wave 4/beginning of wave 5. Completion of wave 5 will be the current market bottom.

S&P 500 Index Labor Day Special Update; Elliott Wave Theory

There are a few reasons this is the most likely path. During the course of intermediate wave 3 which began at the end of June 2018, minuette waves have had a particular duration. The second path (displayed below) has minuette wave C completed in the shortest duration, 60 minutes. Also, minuette wave C is the only wave that failed to meet the prior minimum and median duration. To be fair, a new minimum is not unheard of, but its length compared to the other waves is troubling. Lastly, wave C [Elliott Wave Rule] cannot be shorter than waves A or E. This has occurred per path two’s wave analysis. While these are all reasons the correction and short-term bottom has not occurred, the latter reason is the most telling.
The minimum duration of the minuette waves have been:
  Wave A – 45 minutes
  Wave B – 25 minutes
  Wave C – 175 minutes
  Wave D – 20 minutes
  Wave E – 40 minutes

The median duration of the minuette waves have been:
  Wave A – 80 minutes
  Wave B – 105 minutes
  Wave C – 202.50 minutes
  Wave D – 115 minutes
  Wave E – 85 minutes

If minute wave 4 was completed, the actual wave durations are as follow:
  Wave A – 153 minutes
  Wave B – 144 minutes
  Wave C – 60 minutes
  Wave D – 102 minutes
  Wave E – 249 minutes
S&P 500 Index Labor Day Special Update; Elliott Wave Theory

In addition to the minuette wave movement, the subminuette movement is outlined below if the above chart depicting minute wave 4 has indeed occurred. The minimum durations have been met by all subminuette waves. Some of the subminuette waves never achieved their median duration. This is not unlikely, but worth consideration. Minuette waves A, C and E, failed to meet:
  Subminuette wave 1’s median duration of 35 minutes;
  Subminuette wave 2’s median duration of 20 minutes;
  Subminuette wave 3’s median duration of 110 minutes;

Minuette waves B and D, failed to meet:
  Subminuette wave B’s median duration of 15 minutes;
  Subminuette wave D’s median duration of 15 minutes;
  Subminuette wave E’s median duration of 27 minutes;

Next, I originally classified minute wave 4 to be a three segment wave ABC. If minute wave 4 has occurred, I have it marked as a five segment ABCDE wave. Minute wave 2 was an ABCDE wave which means minute wave 4 could be either the ABC or ABCDE variety. The main Elliott Wave Rule I analyze by never has both corrective waves 2 and 4 in the same wave lasting only three segments. They can however both last 5 segments (ABCDE). Typically if one wave is five segments the other is three. In this case, a five-segmented minute wave is not impossible.

My initial assessment identified eight potential levels for a bottom to occur. I discounted the top two and bottom two options and built a likely movement zone with the remaining levels. Of the eight original levels only one was met. This level alone could be an accurate enough level to act as the bottom of the projected correction. This level was 2892.74. The index dropped below this level for a brief 5 minute and a 3 minute period on August 31. This period does coincide with the potential minute wave 4 end (2891.73) as displayed in the image above. This level, 2892.74 was derived from a common movement ratio found between waves 1 and 4. On average wave 4’s movement is 0.36 times that of wave 1. Wave 1. Minute wave 1 moved 66.14 points and I therefore projected minute wave 4 could drop 23.76 points from the top of 2916.50.

The strongest piece of information I have identified that supports the end of minute wave 4 is its overall duration. There have been three corrective minute waves during intermediate wave 3. They have lasted 290, 545, and 1575 minutes. If wave 4 ended it would have lasted 710 minutes which is above the minimum, average, and median durations. My original projection has minute wave 4 lasting 805-955 minutes. My projection is below the maximum and similarly above the minimum, average and median durations. While this number is strong, it is only based on three data points.

The early movement on September 4th will ultimately signal where the market is going. Minute wave 4 has indeed ended if the index breaks above 2906.32 before it drops below 2891.73. Inversely, my original projection is still in play if the index drops below 2891.73 before a rise above 2906.32. A drop below 2891.73 should place the index in the target zone of 2870.91 to 2886.50. An early signal will be the movement of international markets on September 3rd and 4th. I will be monitoring the Standard and Poors 500 futures market for early signals. A break in that market above 2907.50 will also signify that minute wave 4 ended. At the time of this writing, it has been a level of resistance the futures market could not break through. There is a chance that minute wave 4 has not ended yet.

Disclaimer: I currently have puts on SPY. I plan to enter additional positions depending on the open and activity in the first hour of the market on September 4, 2018. I will go long when the index breaks above 2906.32. This article is for reference only and should not be solely relied on to predict future movement. Historical movements and technical indicators should never be the sole basis for entering positions involving risk. You should not take a risk without fully understanding the system, market, and having established trading discipline. Make sure appropriate research is conducted prior to taking any risk in a marketplace. The author and Limitless Life Skills LLC do not have an interest, outside of the holdings disclosed, or relationship with the companies mentioned in this article and all expressed views are that of our writers.

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