3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures traded narrowly during the session, fluctuating from the 4970s to the 4990s.

A low-degree 4th-wave downward correction within wave 3{-5} may have begun, although the degree of the pause is not yet entirely clear.

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

2:15 p.m. New York time

Trades. I exited two short Iron Fly positions that I held over the weekend, QQQ and SPY. Each produced a loss.

The market changed course in a major way from the time of entry to the time of exit. In terms of Elliott Wave Theory, I entered under an upward correction within a long-running downtrend, and I exited under an uptrend within a long-running larger uptrend.

The S&P 500 is trending up under both analysis. The difference is one of confidence, confidence impacts volatility, and volatility often plays a starring role in determining whether an options positions produces a profit or a loss.

QQQ went to a 4.4% loss, and SPY, for a 16% loss.

I didn’t enter any positions today, as I think through how to change my strategy. Generally, among trades held for a shorter time, things go better with lower volatilities. I’m thinking 0DTE or 1DTE trades. For a slight longer holding period — a 9DTE position, for example — I tend to go for a short Iron Condor and a higher volatility.

Or it could be that since the S&P 500 is in a 5th-wave uptrend, a pure directional play would do best, which means short Vertical Spreads, given the rules that guide my traders.

I’ve updated the QQQ and SPY trade analyses with results.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose into the 4890s after trading resumed overnight, continuing to set record highs

What does it mean? The 3rd-wave uptrend that that began on October 13, 2022 continues and is in its 3rd subwave. Internally, that 3rd wave is in its 5th subwave, which in turn is in its middle subwave, all uptrending.

In broader sense, the futures are just beginning to rise. Closer to where we are today, a rise is nearing its end, and a downward correction willl\ follow.

When we left the S&P 500 on Friday, the price had broken a rule of Elliott Wave Theory. The rules says that if a 2nd wave moves beyond the start of the preceding wave, it’s not a 2nd wave. Instead, something else is going on.

I’ve spent a large part of the weekend a quest for that something else. The following is a renewed Elliott Wave analysis that has drawn a new map of terrain, which on Friday no longer matched the old map.

In the discussion that follows I use wave numbers, each followed by subscript, in curly brackets, showing its position within the fractal hierarchy of the chart. R.N. Elliott, who developed the theory that bears his name, called such a position a degree within the hierarchy. For more, see the “Reading the Chart” section below.

Here’s how I’ve changed my analysis:

My starting point was the January 4, 2022 peak, which until Friday was highest point the S&P 500 had ever reached. In both the old and new analyses, it is labeled wave 3{-1}, the third of five subwaves within an expanding Diagonal Triangle, wave 5{0}, that began on December 26, 2018

From that peak the price fell, reaching a reversal point on October 13, 2022. The old chart had labeled that point as the end of a subwave, wave 1{-2}. The new analysis makes it the end of a three-wave downward correction, wave 4{-1}.

In order to avoid the violation of Elliott Wave Theory rules, the rise that began on October 13, 2023 couldn’t be an upward correction. The price had risen above starting point of the decline that began on January 4, 2022, and so the rise had to be a trending impulse wave, with five subwaves.

That was the key decision in the reanalysis. It was the problem solver. Once that change was in place, it was simply a matter of labeling subwaves within wave 4{-1} and within the uptrending wave that follows, wave 5{-1}, which is still in progress.

Wave 5{-1} by my count is in wave 1{-2}, the first of five subwaves. Wave 1{-2}, in turn, is in its fifth and final subwave, wave 5{-3}, which began on October 27, 2023.

What are the alternatives?

Alternative #1: As always, there is rarely clarity about the degrees in relation to a fixed level. For example, is wave 5{-3} really at degree {-3}, or should it be {-4}? There’s no way to say for sure.

Charts. The upper chart shows the S&P 500 futures, focusing on uptrending wave 5{-3} and its internal structure, all subwaves of wave 3{-2}, which appears on the lower chart.

The lower chart is a big picture view of the entire expanding Diagonal Triangle that began on December 26, 2018, as traced by the S&P 500 index, showing everything down to wave 3{-2}.

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

[S&P 500 index at 9:34 a.m., 3-day bars]

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, an uptrend, wave 5{-1}, began on October 13, 2022 and is underway.
• Wave 5{-1} is the parent wave of a uptrend, wave 1{-2}, that began on October 25, 2023 and is in wave 1{-3}, the first of five subwaves.
• Wave 1{-3} is in turn in its last subwave, wave 5{-4}. When wave 5{-4} is complete, it will also be the end of wave 1{-3}, and a downward correction, wave 2{-3}, will begin.

Alternative analysis:

• Wave 5{-3} in the principal analysis may be of a lower degree, wave 5{-4}, perhaps, or wave 5{-5}.

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:
• 5{-1} Minor, 10/13/2022, 3502 (up) (futures), 3491.58 (up) (index)
• S&P 500 Futures:
• 1{-2} Minute, 10/27/2023, 4143.50 (up)
• 5{-3} Minuette, 10/27/2023, 4143.50 (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 22, 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.