3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures, the S&P 500 index and the S&P 500 exchange traded fund, SPY, all moved above the mid-October that was the beginning point of a 1st wave. The rise above that level was labeled as a 2nd wave, and in moving above the 1st-wave starting point, wave 2 broke a firm rule of Elliott Wave Theory: No 2nd wave can move beyond the start of the preceding 1st wave. If it does, then something else is going on.

As the 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.”

When the map no longer matches the territory, then the map must change. When the analysis no longer matches the chart, it’s back to the Elliott Wave drawing board.

Which is how I’ve spent my time since about 2 p.m. New York time today.

The following discussion will make use of wave numbers and their degree subscripts (the number in curly brackets). The degree subscript shows the number of degrees removed from what classical Elliott Wave Theory calls the Intermediate degree. Since the numbers are negative on this chart, we know that the waves are subwaves of wave 4{0}, which began in January 2022.

Under the new chart: Rising wave 4{-5} is underway and is in its first subwave, also rising, wave A{-6}.

Wave 4{-5} replaces what had been, under the former analysis, wave 2{-8} and its 1st subwave, wave A{-9}.

The Elliott Wave Theory rule for 4th waves is that they never move beyond the endpoint of the preceding 1st wave of the same degree. Wave 1{-5}.

Here a chart showing the new analysis. I’ve retained this morning’s old analysis below for comparison. This is definitely a work in progress, and I’ll be working further on the analysis over the weekend.

[S&P 500 E-mini futures after the closing bell., 210-minute bars, with volume]

One thing that is likely to happen with the new analysis is that the degree labels will be changed. As always, the degree of wave is more a guess than a certainty.

2 p.m. New York time

Entered IWM 10-day position. I’ve entered a short Bear Call Vertical Spread on IWM, 10 days to expiration, based on Elliott wave analysis, and have posted an analysis of the trade.

11:40 a.m. New York time

A look ahead to next week. Two market-moving economic reports will be released next week, The Consumer Price Index on Tuesday and the Producer Price Index on Wednesday, each at 8:30 a.m., an hour before the U.S. markets open. I’ll be avoiding entry of any 1DTE (one day to expiration) trades the day before each report is published. That means no 1DTE in-trades on Monday and Tuesday.

My longer positions, such as the 9DTEs, will be trades as usual.

11:15 a.m. New York time

Exited SPY, XLE 1-day positions. I’ve exited my short Iron Fly positions on SPY and XLE, on expiration day, and have updated their trade analyses with results. Both were profitable.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded sideways overnight, staying close to the 78.6% Fibonacci retracement level, which is in the 4360s . The Fibonacci ladder is shown on the chart in red. As the opening bell approached, the price rose into the 4380s.

What does it mean? If the price breaks sharply below that Fibonacci level, then it becomes more likely that the first subwave, rising wave A, of the 2nd-wave upward correction that began in late October is complete, and the second subwave, declining wave B, has begun.

If the price rises noticeably above the Fibonacci level, then the likelihood increases that wave A is not yet complete and will almost certainly move above the correction high so far, 4413.

A wave B tends to retrace 38% to 79% of the preceding A wave. If the B wave is truly underway then typically it would end more or less between 4302 and 4182. That’s a tendency, not a rule.

If the A wave is truly still underway, under a rule of Elliott Wave Theory a 2nd wave cannot move beyond starting point of the preceding 1st wave. That limits the A wave on the upside to 4430.50 and below.

What are the alternatives? Different day, same verse. Under the principal analysis, the whole degree structure on the chart may be larger than the underlying reality. Elliott Wave Theory contains no robust way of determining which degree a wave belongs to. So the wave I’ve labeled as wave 2{-8} may well be larger or smaller than degree {-8}. The only indication is to compare the size of the wave in question to the size of prior waves in the same position tend to be proportional to other waves in the same position. Sussing that out will be a project for the weekend.

[Outdated. See the new chart above. S&P 500 E-mini futures at 9:35 a.m., hourly bars, with volume]

What does Elliott wave theory say? Here are the waves that underly this afternoon’s analyses.

• A downtrend, wave 3{-2}, began on July 27 and is underway.
• Within wave 3{-2}, an upward correction, wave 4{-5}, began on October 27 and is in its initial subwave, wave A{-6}.

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:
• …
• 4{-5} Minute, 10/27/2023, 4122.25 (up)

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 10, 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.

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Based on a work at www.timbovee.com.