SP500 Analysis

3:30 p.m. New York time

New Year’s Eve. The bond market in the U.S. will close early on Friday, at 2 p.m. New York time. The stock markets, however, will keep regular hours.

Half an hour before the closing bell. The S&P 500 index joined the futures and the SPY exchange-traded fund in reaching a higher high, 4808.93, in today’s trading. And futures added a bit to their opening-bell high, making the new peak 4799.75. However, once the S&P 500 family touched those higher highs, everyone yawned, laid down, figuratively, and took a long nap. The price went nowhere as it traded within a narrow range. No change in the analysis. I’ve updated the chart as wave 5 of Deci degree — subscript {-11} — slowly continues.

11:35 a.m. New York time

MU iron condor partial exit. I’ve exited the calls in my short iron condor on MU. The short calls were in the money and were at risk of exercise when the stock goes ex-dividend on December 31. Were that to happen, i would not only have hundreds of short shares of MU in my account, but I would have to pay the dividend on them. I’ve written up the results in the analysis, and will put it all together with another update after exiting the puts, which are now an out of the money short bull put spread.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued a sideways movement in overnight trading, remaining below the December 26 peak of 4798. However, within a minute after the opening bell, the price rose to a new high, 4799.

What does it mean? The decline below the peak was a downward correction. The new high set this morning suggests that the correction is over, and a new leg up will continue to carry the price to new heights.

What’s the alternative? The futures trade in 25-cent increments, so it’s possible that the new high is a rounding error, and the correction is still underway. The index did not reach a new high this morning, remaining below the December 28 high of 4807.02 and thereby lending some weight to the alternative analysis. However, the exchange-traded fund SPY, which tracks the S&P 500, did reach a new high this morning, 478.96.

[S&P 500 E-mini futures at 3:30 p.m., 25-minute bars, with volume]

What does Elliott wave theory say? The correction was wave 4 of Deci degree {-11} within uptrending wave 3 of Subbitsy degree {-9}, which began December 20. The end of Deci wave 4 marks the start of Deci wave 5. Fifth waves typically move beyond the end of the preceding 3rd wave — 4798 on December 27 — and often significantly beyond that level, although there is no requirement under the rules of Elliott wave analysis that wave 5 even move beyond the end of wave 3. A 5th wave ending below the end of wave 3 has been truncated in the terminology of Elliott wave analysis.

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 30, 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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