3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell to the 4550s during the session and then returned to the 4570s. The price stayed within the range of the present small final wave — wave 5{-8} on the chart — whose end will trigger the end of the much larger A wave within the 4th wave upward correction that began on October 27. This morning’s analysis is unchanged. I’ve updated the chart.

2:10 p.m. New York time

Trades. I’ve entered short Iron Fly positions on QQQ and DTE, each with one day to expiration (1DTE), and have posted an analysis of the trades.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures declined in a gentle slope after trading resumed overnight, a calm start to a week of potential economic drama, picking up the pace as the opening bell approached.

The ADP sneak preview of employment will be released on Wednesday and the government’s full November employment situation report on Friday, each before the opening bell. There’s also a possibility — not a certainty — that the most sensitive metric of a business downturn, the Sahm Rule, will signal on Friday that a recession is already underway.

The trigger point is 0.50. The last Sahm update, a month ago when the October employment numbers were published, came in at 0.33. The Sahm metric has been backtested to March 1949. From then to the present, the Sahm Rule has moved to 0.33 or above 14 times, and only once, in 1951, did a recession fail to follow.

No metric is perfect, but the Sahm Rule has an excellent record of calling a recession within the first three months after it began

What does it mean? On the chart, the 4th wave upward correction that began on October 27 is underway and is very close to the end of its initial subwave, the A wave. The smallest level that I’m tracking is in its 4th wave, with a 5th wave yet to come. When it is complete, the completion will cascade up four levels of increasingly larger 5th waves, ending them and the A wave.

A declining B wave will follow. If it’s typical, it will retrace 38% to 79% of the preceding A wave.

It is a firm rule of Elliott Wave Theory that a Zigzag correction like this correction will remain below the starting point of the preceding 1st wave, 4634.50. Any move above that level means something else is going on and the chart will be reanalyzed in light of that new information.

What are the alternatives? Of equal likelihood, the small 4th wave may have already ended and the December 1 peak, 4607.75, may have been the end of the 5th wave. Under this scenario, wave B began on December 1. The further the price falls, the more likely this scenario becomes.

In either case. Elliott wave patterns are independent of events. The timing of the patterns, on the other hand, is often influenced by events. If the two employment reports come in worse than expected, or if the Sahm Rule is triggered, indicating a recession is underway, then that could be sufficient to send the B wave tumbling down.

[S&P 500 E-mini futures at 3:30 p.m., 70-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}, an upward correction, wave 4{-3}, began on October 27.
• The initial wave of the correction, wave A{-4}, continues.
• Wave A{-4} has reached its 5th and final subwave, wave 5{-5} and a series of smaller 5th waves, down to wave 5{-8}.
• Within wave 5{-8}, declining wave 4{-9} is underway. It will be followed by rising wave 5{-9}.
• When wave 5{-9} is complete, it will cascade up the fractal structure, also ending wave 5{-5} and its parent, wave A{-4}.

Alternative Analysis:

• Wave A{-4} ended on December 1 and wave B{-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)
• 4{-3} Minuette, 10/27/2023, 4122.25 (up)
• A{-4} Subminuette, 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, December 4, 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.