3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures fell from the 4820s to the 4780s during the session and retraced a portion of that decline. This morning’s analysis stands unchanged. I’ve updated the chart.

The Christmas holiday is on Monday, December 25. My next Trader’s Notebook will be posted the morning of Tuesday, December 26.

3 p.m. New York time

Trades. I’ve exited my EWZ short Iron Fly position, one day after entry, for a loss. One option in the position, the short call, was out of the money and causing an overall loss. I bought that option and am allowing the rest to expire out of the money. I’ve updated the trade analysis with results.

I entered a short Iron Fly position on XSP that expires in four days, the day after Christmas, and have posted a trade analysis.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose above 4800 after the Personal Consumption Expenditures Price Index (PCE), an inflation measure, was published. The price remained below the December 19 high, 4830.75.

What does it mean? At his point the low degree wave that is driving the the analysis is in its declining 4th wave. If the price moves above the December 19 high, then there are two possibilities of equal likelihood:

• Either the prior analysis was a miscall and the rising 3rd wave is still underway and the 4th wave has not yet begun.
• Or the 3rd wave ended on December 20 and the rising 5th wave has begun.

Begun unable to choose between the two, based on the evidence at hand, I’ve chosen to retain the earlier principal analysis: Declining wave 4 is underway.

The low-degree waves under discussion are subwaves of a larger wave C, the third wave of a 2nd-wave upward correction that began on October 13, 2022. The smaller 4th wave is five levels below the C wave, and upon it depends the end point of that wave C and possibly the entire correction.

What are the alternatives? Unchanged from Thursday. It’s possible to count the low degree wave 3 as having ended on December 14. If that proves to be the case, then the December 19 high was the end of the 5th subwave buried within the C wave of the correction, the correction may have ended along with that C wave, and the decline that followed is the early stage of a downtrending 3rd wave that will carry the price a great deal lower.

[S&P 500 E-mini futures at 3:30 p.m., 115-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.
  • I’ve chosen the 4th wave scenario as the principal analysis, and the the 3rd wave scenario as an alternative status, although the two have equal likelihood of describing what will eventually become clear.

Alternative Analysis

• Wave 3{-8} ended on December 14.
• Wave 5{-8}, along with wave C{-3} and possibly wave 2{-2} ended on December 19.
• The present decline is wave 1{-3} within downtrending wave 3{-2}.

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 22, 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.