What do you mean by "display the updated image in GUI axes"? If you mean that you make a call to imshow or imagesc, then chances are you overwriting the current figure axes with the new image. In this case, the imellipse handle is no longer valid, not just "hidden" under the axes.
I suggest storing the Image to a variable, then updating the CData property of the Image, which will not clear the imellipse object.
Here is an example:
I = imread('peppers.png'); %sample image
J = rgb2gray(I); %sample modification to the image
h = imshow(I); %h is an Image object
e = imellipse(); %draw the ellipse on the figure
isvalid(e) %should return true
h.CData = J; %change the image in the figure without clearing the axes
isvalid(e) %should still return true
