3:30 p.m. New York time

Half an hour before the opening bell. The S&P 500 futures continued to descend, reaching a session low in the 4120s. Alternative #1 once again wins the day. The B wave, the middle wave of three, within the 4th wave upward correction is still underway. The C wave has not yet begun.

The decline is deep enough that I’m considering a new alternative analysis. I won’t chart it today because of time constraints. If the downtrend continues when trading resumes Sunday night, then the Monday morning post will reflect this new alternative.

Under the new tentative alternative, the 4th wave upward correction that began on October 23 was truncated severely. The peak on October 24, now labeled A{-10}, is under this new scenario wave C{-10}, the final subwave of wave 4{-9}, the upward correction. The decline that began on that date is downtrending wave 5{-9}.

Aesthetically, I dislike this new alternative. The 4th wave is too short, and internally, it doesn’t clearly match the pattern for a full Zigzag or Flat correction. It’s a bit messy. On the other hand, there’s little good to say about a C-wave stretching so far below the start of the upward correction. The whole decline from October 24 is a bit ugly.

The good news in the new alternative, for me and my bull position on SPY entered in anticipation of an upward wave C: Wave 5 will be followed by a 2nd wave upward correction one degree larger.

3 p.m. New York time

QQQ iron fly position entered. I’m trying out a new strategy today. I’ve opened an iron fly (an iron condor with the short call and put a the same strike price) on QQQ. The next trading is expiration, and I’ll exit within five minutes after the opening bell on Monday. It makes small money, but it is a trade with a rapid turn-around, so small money works fine. I’ve posted an analysis of the trade. When you read it, take note of the risk/reward ratio. Most vertical spreads I trade have a 3.8:1 risk to reward. This iron fly? The risk/reward ratio is a thing of beauty. Truly.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reached 4185 overnight and then retreated to 4160.75, rising again as the opening bell approadhed

What does it mean? The price remained above the October 26 session low, 4146.25. The C wave in the 4th-wave correction that began on October 23 continues it’s rather slow start. The C wave will be the end of the correction and the start of a 5th wave downtrend, unless the correction takes a compound form, stringing two or three corrective patterns together. A compound correction will delay the start of the 5th wave downtrend.

If the 4th wave is typical, its final wave — the C wave — will end within the range of the 3rd subwave within the 4th wave of the 3rd-wave downtrend that preceded the 4th wave. That gives a target range of 4320.75 to 4366.50. The range boundaries are shown on the chart in red.

What are the alternatives?

Alternative #1: The B-wave continues. When the chart is bottom-fishing, as it has been for the past few days, then it’s always possible that there may be a bit more downside left. Under this scenario, the B wave within the 4th wave correction is underway and the C wave has not yet begun.

Alternative #2: Bigger and Smaller. Ascertaining the the size of the waves, their degrees within the fractal structure of the chart, is a difficult and often an impossible chore. Under this scenario, the degree labels on the chart are lower than the reality of the chart. For example, the degree {-8} waves on the chart ought to be labeled {-7} and the {-9} wave changed to {-8}.

[S&P 500 E-mini futures at 3:30 p.m., 30-minute 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} and 1{-8} are underway.
• Within 1{-8}, a downward correction ,wave 4{-9}, is underway and is in wave C{-10}, the last of three subwaves.

Alternative Analysis #1

• Within wave 4{-9}, wave B{-10}, the middle wave of three subwaves, is underway.

Alternative Analysis #2

• 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}.

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 27, 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.