3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell sharply during the session, from the 4830s to the 4760s. As a result, I’ve changed this morning’s analysis: The low-degree 3rd wave within the final subwave, wave C, in the upward correction that began on October 13, 2022 ended at the overnight high, 4830.75, on December 19. The declining 4th wave has begun.

On the chart, the 3rd wave just ended is labeled wave 3{-8}, the {-8} being the size of the degree, and the declining wave that has begun is wave 4{-8}. All of this is happening with wave C{-3}, the final wave of the corrective pattern formed by the upward correction, wave {-2}.

The 4th wave will be followed by a rising 5th wave, whose completion will cascade up the fractal chain of larger 5th waves, completing them along with wave C and, possibly, the 2nd wave upward correction. The caveat is that the correction could take a compound form, containing two or three corrective patterns, which would delay its completion.

2:35 p.m. New York time

Trades. I exited short Iron Fly positions on QQQ and SPY, both entered the day before and exited on expiration day, and have updated the trade analyses with details.

I won’t be entering new 1DTE positions today because a GDP update will be released before the opening bell tomorrow, and that can on occasion cause significant price moves that a short-lived position doesn’t handle well.

I entered a longer term position, a short Iron Condor play on IWM that expires in 37 days, on January 26, 2024. My intent is to exit the position at 50% profit or at 21 days before expiration, on January 5. Also, I’ve penciled in two prices that may trigger an exit if they should be crossed. I’ve posted an analysis of the trade.

9:35 a.m. New York time

What’s happening now? Another night, another new high in the S&P 500 E-mini futures’ upward correction that began on October 13, 2022. The peak, 4824.25, brings the price to within 129 points of the correction’s upper limit under the rules of Elliott Wave Theory. The price then retreated from the peak by nearly 20 points.

What does it mean? The correction is a rising 2nd wave. The preceding 1st wave began from 4953.25. Under the rules discovered by R.N. Elliott, a 2nd wave never moves beyond the start of the preceding 1st wave of the same degree. If it is does, then it’s not a 2nd wave, something else is going on, and the analysis will be redone.

The 2nd wave’s corrective pattern is in its 3rd and final subwave, wave C, which in turn is in its 5th and final wave. It’s 5th waves for four degrees down the fractal chain, and the fifth degree down is either a 3rd wave or a 5th wave, either of which may have ended at the overnight high. Or not.

It’s an equal likelihood either way.

What are the alternatives? I’m keeping the analysis that I’ve had since last week — the 3rd wave of small degree is underway — until I have clear evidence that I should change it. That’s the principal analysis. The other likelihoods described above are the alternative analysis.

The chart. I’ve placed the Fibonacci retracement ladder on the chart, in red, to show how close to a 100% retracement the correction has traveled.

[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 19 high.
  • In the afternoon analysis today I switched the 4th wave scenario to the principal analysis slot, and relegated the 3rd wave scenario to alternative status.

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 20, 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

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Based on a work at www.timbovee.com.