3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell during the session to 4365.75 and then rose to 4423.75 and then declined from that daily high. I’ve edited to chart to show the session peak as the end of wave 2{-9} and the beginning of wave 3{-9}, a minor change required because the session rose higher than the overnight peak. Otherwise, no changes. I’ve updated the chart.

SPY short bear call spread entry. Continuing to experiment with trades closer to expiration, I entered a bear call options spread on SPY that will expire in nine days, on October 26. I then rushed off to get three vaccination jabs. Upon returning home, I jumped into updating my options ledger with the new position, and then only had time to prep for the afternoon analysis before dashing off to a meeting. I’ll write up the trade analysis and post it this evening or overnight. My goal with this position is to capture some profit from wave 3{-9}, discussed in the analysis.

October 18: I’ve posted the trade analyses. After placing the first trade, I decided to double down and placed a second trade, so there are two analyses with different premiums: The first position and the second position.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell overnight and reaching into the 4370s.

What does it mean? The low degree 3rd wave within a five-wave downtrend that began on October 12 is underway. A 3rd wave is never the shortest wave in a trend and is often the longest. On the chart, the wave is labeled 3{-9}.

The 3rd wave will be followed by a 4th wave upward correction and then a 5th wave downtrend that, if it follows the typical pattern, will move beyond the end of the preceding 1st wave. In this case, wave 1{-9} ended on October 13 at 4340.75, and perhaps significantly below that level.

This is all happening within downtrending wave 4{-5}, four degrees larger, implying the “down” will dominate the chart for some time to come.

In assessing the chart, I’ve moved the end of the 1st wave from the previous lowest low in the chart to the later October 13 low and labeled the October 16 high as the end wave wave 2. Wave 3{-9} is presently in progress.

What are the alternatives? There are two:

Alternative #1: The degree labels are lower than the reality on the chart. The degree {-8} waves, for example, ought to be labeled {-7} and the {-9} wave changed to {-8}.

Alternative #2: The final leg of the upward correction — wave C{-6} within wave 4{-5} — ended at the overnight high and the correction is taking a compound structure. Declining wave X{-6}, a connector wave, has begun and will be followed by a second corrective pattern.

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

What does Elliott wave theory say? Here are the waves that underly the analyses.

Principal Analysis:

• A downtrend, wave 3{-2}, began on July 27 and is underway.
• Within wave 3{-2}, a smaller downtrend, wave 3{-3}, began on September 14 and is in its initial subwave, wave 1{-4}.
• With wave 1{-4}, subwave 5{-5}, an downtrend, is underway, having begun on October 12.
• Wave 5{-5} is in its first subwave, wave 1{-6}.
• Within wave 1{-6}, waves 1{-7}, 1{-8} and 3{-9} are underway

Alternative Analysis #1: Degrees

• The degrees in the principal analysis are lower than they will eventually turn out to be. The present downtrending wave 3{-9} is wave 3{-8} or perhaps even 3{-7}.

Alternative Analysis #2: Compound Correction

• An upward correction, wave 4{-5}, is underway and is forming a compound structure. The first corrective pattern ended on October 12, and a declining connector subwave, wave X{-4}, is underway.

We Are Here.

These are the waves currently in progress under my principal analysis. Each line on the list shows the wave number, with the subscript in curly brackets, the traditional degree name, the starting date, the starting price of the S&P 500 E-mini futures, and the direction of the wave.

• S&P 500 Index:
• 5{+3} Supercycle, 7/8/1932, 4.40 (up)
• 5{+2} Cycle, 12/9/1974, 60.96 (up)
• 5{+1} Primary, 3/6/2009, 666.79 (up)
• 5{0} Intermediate, 12/26/2018, 2346.58 (up)
• S&P 500 Futures and index:
• 4{-1} Minor, 1/4/2022, 4953.25 (down) (futures), 4818.62 (down) (index)
• S&P 500 Futures:
• 3{-2} Minute, 7/27/2023, 3502 (down)

Reading the chart. Price movements — waves – – in Elliott wave analysis are labeled with numbers within trending waves and letters with corrective waves. The subscripts — numbers in curly brackets — designate the wave’s degree, which, in Elliott wave analysis, means the relative position of a wave within the larger and smaller structures that make up the chart. R.N. Elliott, who in the 1930s developed the form of analysis that bears his name, viewed the chart as a complex structure of smaller waves nested within larger waves, which in turn are nested within still larger waves. In mathematics it’s called a fractal structure, where at every scale the pattern is similar to the others.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it 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, October 17, 2023

Disclaimer

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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.