3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose during the session, reaching into the 4260s so far as it picked up the pace after the Federal Open Market Committee issued a statement holding the Fed Funds Rate steady at 5-1/4% to 5-1/2%.

The rise carried the price top the 38.2% Fibonacci retracement level. The 2nd-wave upward correction continues and is in its first subwave, a rising A wave.

I’ve updated the chart.

3 p.m. New York time

SPY bear call vertical spread entered. I’ve entered a short bull put vertical spread on SPY that expires in nine days (a 9DTE position and have posted an analysis of the trade.

11:05 a.m. New York time

IWM short iron fly exited. I’ve exited my short iron fly spread for a 5.9% return before fees and have updated the trade analysis with full results.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded sideways overnight, rising sharply with the release of the ADP sneak-preview of the employment numbers as the opening bell approached. The government’s Employment Situation Report will be released on Friday, November 3.

What does it mean? The 2nd-wave upward correction that began on October 27 continues hovering around the 23.6% Fibonacci retracement level. The correction is retracing a downtrending 1st wave that began on October 12 from 4430.50.

On the chart, the correction is labled wave 2{-8}.

Under the rules of Elliott Wave Theory, a 2nd wave never moves beyond the start of the preceding 1st wave, making 4430.50 an absolute upper limit for this wave 2. If the price rises above that level, then the analysis no longer matches the chart and a new analysis must take its place.

Otherwise, we’re left with the common Fibonacci retracement levels. A 61.8% retracement is often seen, which would carry the price of the corection up intothe 4310s. A 50% retracement isn’t unheard of — the 4270s. And a 78.6% retracement is within the realm of possibiity — the 4360s.

A 2nd wave correction normally has three subwaves and tends to take the form of a Zigzag, with the A wave containing five smaller waves, the B wave three internal waves and the C wave, five internal waves. Those internal counts will help us understand how far along the correction’s subwaves are. The present subwave appears on the chart as wave A{-9}.

Also, the 1st wave took two weeks to run its course, and the present 2nd wave will be roughly proportional to that, although “proportional” has no robust definition in Elliott Wave Theory.

So we have some tools for understanding where this upward correction is in its journey. We could wish for a more precise tool kit but must make do with what we have. As a former lawyer of mine was wont to say, at least once daily, “It is what it is.”

What are the alternatives? Unchanged from yesterday.

• My prior principal analysis could indeed match the chart, with a scenario that the decline from October 24 is a C wave within a 4th wave upward correction that is still underay. If the price reverses now and moves below 4122.25, the October 27 low, then it will have broken a rule of Elliott Wave Theory: A 2nd wave never moves below the end of the preceding 1st wave. If it does, then the analysis no longer matches the chart. That leaves the 4th wave scenario as a viable principal analysis.The 4th wave scenario interprets the October 24 high as being the end of wave A{-10} within wave 4{-9}, an upward correction, the October 27 low as the end of wave B{-10}, and the present rise as wave C{-10}.
• The degree of the subwaves within the rise so far from October 27 are a bit up in the air. What we see is certainly part of the A wave — Wave A{-9} within wave 2{-8}. But are they of the {-10} degree, or something lower — subwaves within subwaves? It’s not yet clear on the chart.

[S&P 500 E-mini futures at 3:30 p.m., 35-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 waves 1{-6} and 1{-7} are underway.
• Wave 1{-7} is in its 2nd subwave, an upward correction, wave 2{-8}.
• Internally, wave 2{-8} is in its first subwave, rising wave A{-9}.

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, November 1, 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.