3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures continued their decline during the session, reaching the 4750s. The low since the December 14 peak was 4746.25, and if the price drops below that level then I’ll most likely change the chart labelling to show the low-degree 3rd wave I’ve been tracking to have ended at the peak, and to show that the 4th wave is underway. All of this happening with the final subwave, wave C, within the 2nd wave upward correction that began in October 2022.

I’ve updated the chart.

2:10 p.m. New York time

Trades. I’ve exited a 1DTE Iron Fly position on XSP for a 9.9% profit and entered a 3DTE Iron Fly position on SPY, which expires on Monday, with a 0.8:1 risk/reward ratio.

I’ve updated the XSP trade analysis with full results of the exit, and have posted a trade analysis of the SPY entry.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures climbed from the 4760s to the 4780s overnight and the returned to the 4760s, falling rapidly after New York Federal Reserve Chair John Williams, in an interview with CNBC, said, “We aren’t really talking about rate cuts right now”, continuing that the focus is on the question, “have we gotten monetary policy to sufficiently restrictive stance in order to ensure the inflation comes back down to 2%?”

The comment coincided with the release of a survey showing business declining in New York state. The price remained below the December 14 peak of the upward correction, 4791.25.

What does it mean? The 2nd-wave upward correction that began in October 2022 continues and is working through its end game.

The smallest wave I’m tracking, six degrees below the wave 2 correction, is either a 3rd wave or a 4th wave. The failure of the price to break through the December 14 peak increases the likelihood that the 4th of five waves has begun. Wave 4 is a downward correction and will be followed by a 5th-wave rise that will cascade up the fractal structure and end the third subwave of the correction, wave C, and possibly the correction itself.

I say “possibly” because the correction will end with the present rise only if wave takes a simple form, containing one corrective pattern. Most wave 2s take that form, but a few will take a complex form, containing two or three corrective patterns. Which form will this correction take? We’ll have to wait and see.

Despite the uncertainty — wave 3 or wave 4? — I’ve chosen to retain the 3rd-wave labelling on the chart. The two possibilities are of nearly equal likelihood, and my habit it is keep the labeling as it is unless I have clear evidence to back up a change.

So far, the present low-degree structure lacks clarity.

What are the alternatives? t’s possible that the subwaves within wave C should be lower down in the fractal structure than I’ve labeled them. If that proves to be the case, then wave C is further from completion than the principal analysis would have it.

[S&P 500 E-mini futures at 3:30 pss.m., 105-minute bars, with volume]

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

Principal Analysis:

• Principal Analysis:
• A downtrend, wave 4{-1}, began on January 4, 2022 and is underway.
• Within wave 4{-1}, an upward correction, wave 2{-2}, began on October 13, 2022.
• The third wave of the correction, wave C{-3}, is underway.
• Wave C{-3} has reached its 5th and final subwave, wave 5{-4} and a series of smaller 5th waves, down to wave 5{-7}.
• Wave 5{-7} internally contains two possiblilities of nearly equal likelihood. Either…
  • … the middle subwave, rising wave 3{-8}, is underway, or…
  • … the next-to-the-last subwave, a 4{-8}, a downward correction, began with the December 14 high.

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:
• 2{-2} Minute, 10/13/2022, 3491.58 (up)
• C{-3} Minuette, 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 15, 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.