3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures rose gently during the session, reaching a new high, 4817, for the upward correction now underway.

This morning’s analysis is unchanged. I’ve updated the chart.

2:45 p.m. New York time

Trades. I exited an expiring short Iron Fly position on XSP for a 13.1% profit, entered one day earlier, and have updated the trade analysis with details.

I also entered short Iron Fly positions on QQQ and SPY that expire the next day, and have a posted trade analysis of each.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight to a new high, 4804.25, within the 2nd-wave upward correction that began on October 13, 2022.

What does it mean? The correction is in its 3rd and likely final subwave, wave C, which for four degrees down the fractal structure is in 5th subwaves, and at the fifth subwave down, is in its middle subwave, wave 3.

Wave 3 at that low level will be followed by declining wave 4 and a final subwave, rising wave 5. Once that small 5th wave is complete, it will cascade up the fractal structure, completing wave C and the corrective pattern that is wave 2.

Second waves tend to have a single corrective pattern, and so the present pattern, when it ends, will be the end of the correction and the start of a 3rd wave downtrend. Occasionally a 2nd wave will take a compound form, with two or three corrective patterns, extending the time it takes for the correction to reach an end.

What are the alternatives? As is often the case, a new high may mean that the rise is over and downward movement has began. The principal analysis has wave 3 still underway. It is of equal likelihood that wave 3 ended overnight and wave 4 has begun.

The chart. The chart shows wave C, and I’ve placed a Fibonacci ladder over the chart, in red, showing wave 2’s retracement of the preceding 1st wave, which began on January 4, 2022. The wave C price has exceeded a major Fibonacci pause-or-reversal point, a 78.6% retracement. Under the rules of Elliott Wave Theory, the 2nd wave price cannot exceed a 100% retracement of wave 1 — at 4953.25. If it does, then the analysis is invalidated and must be redone. On this chart, if wave 2 exceeds the start of wave 1, then the decline that began on January 4 of last year is a subwave of the 3rd-wave rise that began on February 23, 2020.

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

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

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 19, 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.