SP500 Analysis

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500, as the trading day neared its end, continued to trade sideways in a narrow zone. No change in the analysis. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded sideways overnight, remaining within a 16-point range.

What does it mean? The sideways movement is part of a low-level correction within an uptrend that began December 20. It will be followed by a rise to a rise that will carry the price above 4798, the starting point of the correction.

What’s the alternative? The unknown at this point is what form the correction will take. If it’s a simple correction, it will be over quickly. If it’s a compound correction, consisting of several simple corrections in a row, then it will take more time to reach completion. But it’s a low-level correction so whatever the form, it won’t last a long time.

[S&P 500 E-mini futures at 3:30 p.m., 20-minute bars, with volume]

What does Elliott wave theory say? The correction is wave 4 of Deci degree — subscript {-11} within wave 3 of Subbitsy degree {-10} within wave 3 of Bitsy degree {-9}, which began on December 20. All of this is happening within rising wave 5 of Subminuscule degree{-8}, which began on December 3 from 4492.

Wider view: The present correction is a very small bump in the road with the 3rd waves of three larger degrees, and those within a still larger 3rd wave within a 1st wave, and all of that within a series of ever-larger 5th waves stretching up four degrees, to wave 3 of Minor degree {-1} within wave 5 of Intermediate degree {0}.

Moreover, Intermediate wave 5 is a subwave within 5th waves stretching up three more degrees, to wave 5 of Grand Supercycle degree {+3}, which began in 1932.

Long story short: There’s a lot of upside in the S&P 500. Possibly. Fifth waves carry no expectation regarding how much distance they’ll cover, but Intermediate wave 5 has lasted nearly four years and has covered nearly 2,500 points in its rise. That gives some idea of what large-degree 5th waves are capable of. However, the fact that there are so many 5th waves up and down the fractal structure at this point provides a note of caution: When 5th waves reach their ends, they are followed often by devastating declines.

So the motto of this era in the markets, I think, is this: “Let the good times roll, but be mindful that the good times don’t last forever.”

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it this way 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 29, 2021


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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