3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures remained below the overnight high, 4841.50, working its way down to the 4820s as the closing bell approached. No changes in this morning’s analysis, except to add an important note: The lower the price goes, the more likely the alternative analysis becomes. The alternative scenario says the 4th subwave of the low degree wave that I’m tracking began at the that high. I’ve updated the chart.

1:50 p.m. New York time

Trades. I exited a short Iron Fly options position on XSP for a 21.2% profit and entered short Iron Fly position on SPY that expires the next day. Both exchange-traded funds are based on the S&P 500 Index. I alternate between them on these very short-term positions to avoid triggering the SEC’s Pattern Day Trader sanctions.

I’ve updated the XSP trade analysis with results and posted an analysis of the SPY trade.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose into the 4840s overnight.

What does it mean? The final subwave, wave C, of a 2nd-wave upward corrective pattern that has been underway for 14 months continues. Four levels of increasingly smaller subwaves are in their last legs, and the fifth level is the middle wave of five.

The overnight peak was a new high for the wave 2 correction.

What are the alternatives? When a price movement is close to its end, each new high is potentially the end of the 3rd subwave of low degree and the beginning of 4th subwave. I’ve chosen to mark wave the 3rd subwave as being underway. There’s an equal likelihood that the 4th subwave has begun its decline. In any case, wave 4 will be followed by rising wave 5, which will complete the much larger corrective pattern.

[S&P 500 E-mini futures at 3:30 p.m., 2-hour 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}.
• Within wave 5{-7}, the middle subwave is underway, wave 3{-8}, an uptrend, began with the December 6 low.

Alternative Analysis

• Within wave 5{-7}, the next-to-the-last subwave is underway, wave 4{-8}, a downward correction, began with the December 27 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 28, 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.