3:30 p.m. New York time

Half an hour before the closing bell. The middle subwave, wave B, of the 4th-wave downward correction that began on January 30 continues.

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

3:29 p.m. New York time

Trades. I exited my longer-term position short Iron Condor position on USO. It was unprofitable on management day, and I exited for a wash: No profit, no loss. I’ve updated the trade analysis with results.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight into the 4990s and then pulled back slightly.

What does it mean? The rise places the 4th-wave downward correction that began on January 30 in its middle subwave of three.

Yesterday’s sharp decline after the Federal Open Market Committee held interest-rates steady broke a rule of Elliott Wave Theory: A 4th wave can’t move beyond the end of the preceding 1st wave. If it does, then the map no longer matches the territory — the analysis no longer matches the chart — and must be redrawn.

In the following discussion I shall use degree designations along with the wave numbers. The degree shows a waves position in relation to other waves within the fractal structure of the chart. The developer of Elliott Wave Theory, R.N. Elliott, gave the degrees names. I find it more convenient to use numbers showing how many degrees distant a wave is from what Elliott called the Intermediate degree. A negative degree number, shown as a subscript within curly brackets, means the wave’s degree is smaller than Intermediate, positive means larger, and {0} is the Intermediate degree.

The new analysis relies on a truncated 5th, a slightly unusual construction at the end of wave 3{-7}. which began on January 25. A 5th wave normally covers significant distance beyond the end of the preceding 3rd wave, but occasionally a 5th wave will come up short, failing to move below the 3rd wave’s end point.

In this case, wave 5{-8}, a subwave of wave 3{-7}, ended exactly where wave 3{-8} had ended, at 4958.25, making it a truncated 5th. The end of wave 5{-8} was also the end of wave 3{-7}. Wave 4{-7}, a downard correction, began on January 30.

A 4th wave typically ends within the 4th subwave of the preceding 3rd wave of the same degree. Wave 4{-7} has blown completely past the level, and has done so with a somewhat ambiguous five-wave pattern. Which leads to the alternative analysis.

What is the alternative? An ongoing alternative has been that the degrees are different than what I considered to be the most likely structure in my analysis. Under the alternative, the January 30 peak was the end of wave 3{-5}. In that case, the decline that began on January 30 would be wave 4{-5} and would have reached the 4th subwave within wave 3{-5}.

I’ll be working with the two analyses to see which best matches the chart. Meanwhile, I’ll keep in mind that with both a principal analysis and the alternative analysis, a 4th-wave downward correction is underway. The unanswered question is how large — at what degree — the correction is.

[S&P 500 E-mini futures at 3:30 p.m., 50-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, an uptrend, wave 5{-1}, began on October 13, 2022 and is underway.
• Wave 5{-1} is the parent wave of a uptrend, wave 3{-2}, that began on October 25, 2023 and is in wave 5{-3}, the last of five subwaves.
• Wave 5{-3} is in turn in its last subwave, wave 5{-4}, which is also in its final subwave, wave 5{-5}.
• When wave 5{-5} is complete, it will also be the end of waves 5{-4}, 5{-3} and 3{-2}, and a downward correction, wave 4{-2}, will begin.
• At a very small degree — hours rather than days — wave 5{-6} is underway.
• Within wave 5{-6}, wave 3{-7} ended on January 30 and wave 4{-7} began on that date.

Alternative Analysis:

• Within wave 5{-4}, wave 3{-5} ended on January 30 and wave 4{-5} began on that date.

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:
• 3{-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, February 1, 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.