3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures moved above the overnight high to a higher high, 4804, and I’ve moved the label for the end of wave 3{-9} to that session high. Otherwise, no change from this morning’s analysis. The 2nd-wave upward correction that began on January 5 continues to work through its initial subwave, rising wave A{-8}.

I’ve updated the chart.

2:35 p.m. New York time

Trades. Two very routine 1DTE (days to expiration) short Iron Fly positions.

I exited my position on SPY for a 12.2% profit and updated the trade analysis with results.

I entered a new position on XSP and posted a trade analysis.

I plan no trades on Wednesday, the day before the Consumer Price Index is published, or Thursday, the day before the Producer Price Index comes out, with the intent of avoiding surprises.

The next potential trade coinciding with an earnings announcement is on DAL, with a trade on January 11 and the earnings announcement on January 12 before the opening bell.

The earnings announcement season takes off on January 12 and I combed through the schedule for the next week. I’m looking for two characteristics: High volatility, with an Implied Volatility Rank (IVR) of 30% and preferably higher, and a higher price for the underlying shares, $50 a share and preferably higher, along with high liquidity. With volatility so low at present, I anticipate that there won’t be a large number of potential trades during the season.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures drifted lower overnight, from the 4790s to the 4770s.

What does it mean? A low-degree 2nd-wave upward correction began on January 5 and is in its rising initial subwave, an A wave, which in turn is in its declining 4th of five subwaves. All of this is happening within a 3rd-wave downtrend that began on December 27, 2023. The downtrend is five degrees larger than the 2nd wave correction and will eventually reach the low 3500s and most likely well below that level.

What are the alternatives? There are two, unchanged from yesterday.

Alternative #1: The 2nd wave rise that preceded the 3rd wave is still underway and is taking a compound form. The present decline is an X wave, which will link the first corrective pattern within wave 2 to a second corrective pattern. A compound correction contains up to three corrective patterns.

Alternative #2: This is more of a general observation. Assigning a degree to subwaves early in a correction is, frankly, little more than an educated guess. The degrees I’ve assigned may change over time as the downtrend progresses. The degrees on the chart labels are subscripts within curly brackets that follow the wave number. The degree number shows the wave’s position relative to wave 5{0}, an expanding Diagonal Triangle still underway that began on December 26, 2018. Wave 2{-7}, the present upward correction, is seven degrees lower than wave 5{0}.

[S&P 500 E-mini futures at 3:30 p.m., 80-minute bars, with volume]

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

Principal Analysis:

• Wave 5{0}, an expanding Diagonal Triangle, began on December 26, 2018.
• Within it, a downtrend, wave 4{-1}, began on January 4, 2022 and is underway.
• Wave 4{-1} is the parent wave of a downtrend, wave 3{-2}, that began on January 2, 2024 and is in wave 1{-3}, the first of five subwaves.
• Deep within that downtrend’s 1st wave, downtrending wave 5{-8} and its parent, wave 1{-7}, ended at the overnight low, 4702. Wave 2{-7} is now underway, an upward correction of low degree, and within it, wave A{-8} is underway.
• The next-to-the-last subwave within wave A{-8} — wave 4{-9} — is now underway.

Alternative #1:

• Wave 2{-2}, an upward correction that began on October 13, 2022, continues and is taking a compound form.
• Wave X{-3} is underway, connecting the now complete first corrective pattern and the not-yet-begun second corrective pattern.

Alternative #2:

• The upward correction that began on January 5, labeled on the chart was wave 2{-7}, is actually wave 2{-6}, or perhaps wave 2{-5}, or maybe even larger.

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)

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, January 9, 2024

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.