After the closing bell

In the end, the S&P 500 and its derivatives bumped up slightly to set a new high. To me, it looks like the beginning of wave 5 of Micro degree within wave 5 of Subminuette degree.

Stepping back to a broader view, we can see how far along the price has come since the present Diagonal Triangle began on December 26, 2018. The Triangle wave 5 of Intermediate degree, and each bounce up or down to a triangle boundary is a Minor wave. By my count, the S&P 500 is working on wave 5 of Minor degree. A Diagonal Triangle has five waves internally, so the end is near.

And finally, the long view, showing how we got to where we are: Intermediate wave 5 within Primary 5 within Cycle 5 within wave 5 of Supercycle degree. Looking back at the close-up chart at the top, I’m struck by the fact that the whole house of cards stretching back 91 years is poised to come tumbling down when today’s Submicro wave 5 within Micro 5 within Subminuette 5 within Minuette 5 within Minute 5 within Minor 5 reach an end. Perhaps even next year.

Of 2020, I doubt that any of us can say it was pleasant or easy. But when I look at this long-view chart, honestly, all of the crashes and crises and Sturm und Drang we’ve seen in 2020 — this year of roughhouse politics and plague — in the grand sweep of history seem fairly small in their impact on the markets. After all, we’ve been in an uptrend since the Black Tuesday crash of October 29, 1929, and that uptrend, despite all that has happened since, remains intact as 2020 comes to an end.

By Tim Bovee, Portland, Oregon, December 31, 2020

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3:30 p.m. New York time

Half an hour before the closing bell. We’re ending the year with a seasonally boring session, as the S&P 500 index and its derivatives barely budged. The tiny upward hook at the right extremity of the chart might, just might, be the beginning of wave 5 of Micro degree, which when it is complete, will also mark the end of wave 5 of Subminuette degree and wave 3 of Minuette degree. I’ve updated the chart below.

Happy New Year, fellow traders!

9:50 a.m. New York time

Friday. Markets will be closed globally on Friday for the New Year’s holiday, including New York, London, Tokyo and Sydney.

What’s happening now? The S&P 500 E-mini futures continue a lazy path along the upper boundary of the Diagonal Triangle that began in December 2018 and since then has defined the boundaries of the index’s price perambulations.

What does it mean? It’s a holiday week, so honestly, it means very little. The most recent high was set two days ago at 3747.25. If that’s the end of the upward move that began 10 days ago, then the price will decline, into the 3200s and then, in the winding way of market prices, even lower.

What is the alternative? The price could still go a bit higher, but the upside potential is limited.

What does Elliott wave theory say? The December 29 high could mark the end of wave 3 of Minuette degree and the subwave 5 of Subminuette degree. It seems more likely to me that the present doldrums is a 4th wave of Micro degree within Subminuette 5, which provides room for a 5th wave rise at the Micro level once the wave 4 correction is complete.

All of that is happening within Primary wave 5 of Intermediate wave 5 of Minor wave 1 of Minute wave 2

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continues to stay within the confines it had established in overnight trading. I’ve updated the chart, below.

10:05 a.m. New York time

What’s happening now? The S&P 500 E-mini futures remain within yesterday’s range, trading in a narrow band overnight and in the first half hour after the opening bell.

What does it mean? The slight decline from Tuesday’s high, 3747.75, could be the first tentative steps of a correction, setting up for a final push to a new high.

What is the alternative? It could be the holiday doldrums. Volume and volatility contract near year’s end as trader’s globally take a holiday.

What does Elliott wave theory say? The rise from 3596 on December 21 appears to be a 3rd wave of Submicro degree, suggesting that there’s a bit more upside to go.

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3:30 p.m. New York time

Half an hour before the closing bell. The overnight high of 3747.35 on the S&P 500 E-mini futures was unequalled during the trading session. The price dropped during the day by 20 points plus a little. A quick look at the rise today appears to be a 3rd wave of Micro degree within a 5th wave of Subminuette degree. Here’s a near-term chart of the futures.

10 a.m. New York time

What’s happening now? The S&P 500 index continues to rattle along the rising upper boundary of the Diagonal Triangle that began two years ago, rising above it in overnight trading by less than 20 points.

What does it mean? The index has been on the rise since October 30 in what is the concluding movement of the larger-scale uptrend that began February 23 from 2191.86. Once uptrend is complete, the next move will be a decline into the lower 2000s, or perhaps lower.

What does Elliott wave theory say? I re-analyzed the chart using a smoothing technique and have concluded that the S&P 500 is on wave 5 of Minuette degree. Its completion will end the first leg of the Diagonal Triangle, the 5th wave of Intermediate degree that began on December 26 from 2346.58.

To smooth the chart and make the subwaves clearer, I super-imposed a six-day simple moving average (the purple line), which bring clarity to the often random-looking fluctuations of the market. That smoothing made it clear that the index is now in its 5th wave rather than its 3rd.

The Diagonal Triangle, remote in time though its beginning might seem, is important because it defines the boundaries of the S&P 500’s movement for some time to come, perhaps years. The Triangle became a necessity under the rules of Elliott wave analysis in late February when the low point of the brief pandemic crash, Minuette wave 2, fell below the starting point of the preceding Minuette wave 1. This is normally not seen under the rules of Elliott wave analysis, but it can occur in an expanding Diagonal Triangle.

The Triangle will have 5 waves ultimately, bouncing from boundary to boundary in an expanding field. The completion of the rise from February 23 will be the end of wave 1 of Minuette degree within wave 5 of Minor degree within wave 5 of Intermediate degree. The next wave will be wave 2 of Minuette degree, which will carry down to the lower boundary, which is presently around 2106. Most likely it will take the form of a three-wave Zigzag, as is typical of 2nd waves.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to inch up throughout the today as it continued its rise as wave C of Submicro degree. The high half an hour before the close was 3740.51 on the index and 3732.25 on the futures. I’ve updated the futures chart, below.

9:55 a.m. New York time

What’s happening now? The S&P 500 E-mini futures price resumed its climb when trading began overnight on Sunday and is again tracing a path along the upper boundary of the Diagonal Triangle that began on December 26, 2018. The overnight high was 3726.50.

What does it mean? The index and its derivatives have been in an upward correction within a larger downtrend beginning at 3596 on December 20. The correction has been shallow rather than the dramatic, as is typical of waves in this position of a trend. If the correction ends at the overnight high, then the net move will be a resumption of the downtrend, carrying the price back into the 3500s.

What is the alternative? The correction could extend in a compound pattern, with a shallow downward separator movement followed by another corrective pattern.

What does Elliott wave theory say? Wave C of Submicro degree, when complete, fulfills the minimum requires of its parent, rising wave 4 of Micro degree. Completion of Micro 4 would mean the start of wave 5 of Micro degree, a downtrending movement that, when complete, will mark the end of a number of parent waves, up to wave A of Minute degree. This is all happening within wave 4 of Minor degree and its parent, wave 5 of Intermediate degree.

It’s possible that wave 4 of Micro degree, rather than ending with Submicro wave C, will extend in a compound pattern. Indeed, that is a common occurrence with 4th waves. If that is in fact what happens, then the movement after Submicro C will be a downtrending X wave, which will connect the completed corrective pattern to another corrective pattern.

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12:40 a.m. New York time

Forty minutes before the closing bell. Very little movement of the S&P 500 in pre-Christmas trading shortly before the early market close. I’ve updated the near-term chart below.

9:55 a.m. New York time

Early close. The U.S. markets will close at 1 p.m. New York time for Christmas Eve, and will be closed all day Friday for the Christmas holiday.

What’s happening now? The S&P 500 future traded narrowly within a 25-point range overnight, tracing a downwave and an upward correction of very small degree.

What does it mean? The decline from yesterday’s peak of 3701.75 could be a step signaling a continuation of the upward correction that began December 20 as a compound structure.

What is the alternative? Or it could be the beginning of a downtrend that will carry the price into the 3500s.

What does Elliott wave theory say? If the correction is still underway, then we’re seeing wave X of Micro degree, to be followed by a second corrective pattern. If the downtrend has resumed, then we’re seeing the first steps of wave 5 of Micro degree.

Big picture, the S&P 500 index continues to remain close to the upper boundary of a Diagonal Triangle that began on December 26, 2018. The triangle is the 5th, and final, subwave wave within Primary wave 5, which began in January 2009.

My trading strategy. I manage my profitable options positions 21 days before expiration. My present holdings, short bear call spreads on IWM, expire January 15, and the Christmas holiday on Friday is the day for management. However, IWM remains above 192 — the top of the profit zone — and so the position is presently unprofitable. I’ll hang on to it in the hope it will return to profitability, and if it doesn’t, I’ll pick the moment to take my loss.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 peaked and drop back a little after — apparently — completing the 5th wave within wave C of Micro degree. If in fact C is indeed complete, then the ensuing decline will be either the first step of Subminuette wave 5 to the downside or the beginning of a downward wave X that will glue the corrective pattern just finished to another, future corrective pattern in a compound structure. I’ve updated the chart below.

10:30 a.m. New York time

What’s happening now? The S&P 500 index E-mini futures are working through the third wave of an upward correction that began December 20.

What does it mean? The correction, once complete, will be followed by a downtrend that initially will reach below the beginning of the correction’s beginning at 3596.

What does Elliott wave theory say? The correction, the 4th wave of Micro degree, has so far traced three waves internally and is now rising in the C wave. The correction is happening within downtrending wave 5 of Subminuette degree, which began on December 20 from 3724.

There’s a lot of complexity to the chart, especially the interrelation of the degrees. To provide guide, I’ve changed the wave numbers in the “Wave Degrees” box to reflect my count on the chart. The low level movements I’ve been tracking are all part of wave 1 of Minuette degree within descending wave A of Minute degree within wave 4 of Minor degree, the latter being a correction within rising wave 5 of Intermediate degree, which began in 2018.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 a little and then rose back a little during the day in what could be interpreted as either a continuation of the 4th wave of Subminuette degree or the beginning of Subminuette wave 5. There’s still a great deal of ambiguity. In either case, the potential upside movement is limited under the rules of Elliott Wave analysis, so my expectations lean toward a decline. I’ve updated the chart below.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures overnight continued the rise that began December 20 and have so far completed three waves. In trading before the opening bell it hooked downward and continued to decline slowly in the early minutes of the session.

What does it mean? The rise is a low-level upward correction within a downtrend that is in its third wave. The correction is likely to extend beyond three waves, tracing a compound structure, delaying the eventual decline.

What is the alternative? The upward correction, when complete, will be followed by a decline that is likely to carry the price back into the 3500s.

What does Elliott wave theory say? The rise from the December 20 low is wave 4 of Subminuette degree. Fourth waves tend to extend and always form a different pattern from the preceding 2nd wave. The parent wave of Subminuette 4 is downtrending wave 5 of Minuette degree, which began from the December 20 peak of 3724, and within it, Subminuette wave 2 was a simple Zigzag pattern. So I expect that we’ll see a compound structure, with the segments being separated by an X wave to the downside.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 recovered about three-fourths of its early morning decline, and then faltered a bit. Impossible to say yet whether the rising wave 4 of Micro degree is complete or not. I’ve updated the chart below.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell sharply overnight, from a high of 3724 down to 3596, and then turned a rose to the 3660s.

What does it mean? The speed and scope of the decline suggests that a significant decline has begun that will carry the S&P 500 away from the sideways pattern it has traced all month.

What is the alternative? As before, it’s possible that the S&P 500 still has some upside left. The overnight decline may prove to be yet another false start on the downward track.

What does Elliott wave theory say? By my principal count, wave 4 of the Subminuette degree ended this morning at 3724, and from that point Subminuette wave 5 began.

My trading strategy. IWM, the stock backing my short bear call options spreads, dropped back close to the profit zone for the first time since December 15. I’ll manage the position on December 24 or 26 if it is profitable to any extent, and shall exit earlier if it attains 50% of maximum potential profit.

The S&P 500 has changed. Tesla (TSLA) this morning was added to the S&P 500, replacing Apartment Investment and Management Co. (AIV), a company now trading at $4 plus change.

TSLA’s weight in the index will be far greater than AIV’s, thanks to the automaker’s market cap of $658.79 billion, compared to $703.37 million for AIV. TSLA will rank #7 in the index ranking by market cap, below Facebook (FB) and above the former #7, Berkshire Hathaway (BRK.A and BRK.B).

TSLA is a high beta stock, at 2.25, more than double AIV’s beta of 0.9. So my best guess is that TSLA, because of its greater size and beta, will produce an index that will be more volatile than than it was before.

One thing to watch will be implied volatility and implied volatility rank. The exchange-traded fund SPY tracks the S&P 500. SPY’S at-the-money call options expiring January 15 had an IV of 19.55% on Sunday, before TSLA became part of the index. SPY’s IV rank, which compares the IV to its historical performance, was 13.4% on Sunday.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 and its derivatives continued to fall for much of the day, reaching the 3670s. I’ve updated the “Close up” chart, below.

10:20 a.m. New York time

What’s happening now? The S&P 500 E-mini futures moved to a higher high overnight, touching 3723, then reversed and fell nearly 30 points in the minutes before and after the opening bell.

What does it mean? As before, the peak could be the end of the upward correction that began December 11, or at least i’s first phase, a possibility buttressed by the steepness of this morning’s decline. If the correction is indeed over, then the decline would be a resumption of the downtrend that began December 8. If the correction is extending into a compound pattern, then the decline would be a wave that separates two corrective patterns.

What is the alternative? The present pattern within upward correction could still have a bit more upside left.

What does Elliott wave theory say? If the correction is over, this morning’s peak ended wave 4 of Subminuette degree and began Subminuette wave 5, as shown in the chart above. If the correction is extending in a compound pattern, the peak began downtrending Subminuette wave X, a separator wave.

All of this is happening within downtrending wave A of Minuette degree within wave 4 of Minor degree, which in turn is a subwave of uptrending wave 5 of Intermediate degree, which began December 26, 2018 and has taken the form of a Diagonal Triangle, as seen in the chart below.

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