3:30 p.m. New York time

Holiday. U.S. markets will be closed on Monday for the Presidents Day holiday, also known as George Washington’s Birthday. The next Trader’s Notebook will be posted Tuesday, February 20, at 9:35 a.m., shortly after the opening bell.

3:30 p.m. New York time

Half an hour before the closing bell. The downward movement that began overnight, wave B{-4} on the chart, continues. I’ve updated the chart.

2:25 p.m. New York time

Trades. I’ve entered two new options positions today, one of longer duration on IWM and of shorter duration on SPY.

The IWM play is a short Iron Condor with a management date of March 7, which is 21 days before expiration.

The SPY play a short Iron Fly that expires on February 20, after the long holiday weekend. It is intended to take advantage of the price decay over that period. I’ll exit on expiration day, shortly after the opening bell.

I’ve posted trade analyses of the two trades.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reached 5059.35 in overnight trading and then reversed sharply.

What does it mean? I’ve tentatively marked the peak as the end of the rising B wave that began on February 13, a part, several degrees deep, of a 4th-wave downward correction that began on February 12.

In the discussion I’ve used degree indicators as subscripts in curly brackets, showing where a wave stands within the fractal structure of the chart. The smaller the subscript — they’re all negative numbers on this chart –\ the smaller the wave. See the “Reading the chart” section below for more detail.

The overnight peak marked the end of wave B{-4} and its subwave, wave C{-5}. Wave B{-4} is the second subwave within wave A{-3}, which began on February, along with its parent, wave 4{-2}, the downward correction.

Wave B{-4} is followed by declining wave C{-4}, now underway. C waves in Flat corrective patterns generally are at the least as long as the preceding A wave and up to 1.8 times as long. In this case, wave A{-4}, was 120 points long. That suggests the present C wave has a likely price target of 4939.25 to 4843.25.

What are the alternatives? But is the overnight peak truly the end of wave B{-4}? Or is it a head fake? Either interpretation may well play out. I’ve treated the B{-4}-is-over scenario as the principal analysis, and the lower the price goes, the more likely that interpretation is. If the price reverses quickly and moves above 5059.25, then rising wave B{-4} is still underway.

[S&P 500 E-mini futures at 3:30 p.m., 15-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 downward correction, wave 4{-2}, that began on February 12, 2024.
• Wave 4{-2} is in its first subwave, wave A{-3}, which in turn is in wave C{-4}, its third and final subwave.

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:
• 4{-2} Minute, 2/12/2024, 5066.50 (down)
• A{-3} Minuette, 2/12/2024, 5066.60 (down)

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 16, 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.