3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 climbed midway through the session, around noon, and then fluctuated in a sideways range as the closing bell approached. I’ve updated the chart below.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to decline overnight and has retraced 38.2% of the previous rise since January 17. That level is a Fibonacci percentage, one of several points where reversals are common. And indeed, as the opening sounded, the price rose a bit. (I’ve superimposed a Fibonacci grid, in red.)

What does it mean? The decline has been large enough to persuade me that the high of 3859.75 on January 21 is indeed the end of the rise and the beginning of a decline, which was my principle analysis in yesterday’s post. The decline could go further, but if I squint my eyes, the correction internally appears to have traced three waves and so has met the minimum requirements for a correction. However, the internal waves seem overly small to me, so my expectation is that there will be more downside.

What does Elliott wave theory say? The decline, beginning on January 21 from 3859.75, is wave 2 of Submicro degree. It will be followed by a wave 3 rise to higher highs, then a shallow correction followed by a 5th wave push up even higher. Submicro 5’s completion will mark the end of wave 5 of Micro degree and Subminuette degree, and wave 3 of Minuette degree.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued a shallow and slow slide, leaving the choice between the principle analysis and the alternative still up in the air. I’ve updated the chart below.

10:20 a.m. New York time

What’s happening now? The S&P 500 E-mini futures hit a peak overnight of 3859.75 and dropped back a little. The peak was five points below the 1.382 Fibonacci level, a common turning point for prices.

What does it mean? The peak by my principle count marks the end of the first leg of the rise that began January 17 from 3740.50. It will be followed by a correction, likely a Zigzag pattern that will take back much of that rise before resuming an upward course to still higher prices.

What is the alternative? The first leg rise may in fact not yet be over. If that’s the case, then the S&P 500 will quickly see a resumption of the rise without the intervention of any significant correction

What does Elliott wave theory say? Whether my principle or my alternative count prevails depends upon how we read the internal structure of the rise since October 17, which was wave 1 of Submicro degree. A first wave has five waves internal to it, stairstepping up to the end. If five waves are complete, then the next move will be wave 2 of Submicro degree. If the peak represents the end of wave three within Submicro 1 — the alternative count — then there will be a final push to the upside — Submicro wave 5 — after a shallow and brief Submicro wave 4 correction is complete.

Which count prevails depends upon how far the present decline travels. The further it goes below the overnight peak, the more likely that the principle count will prevail.

This is all happening within (smaller to larger) wave 5 of Micro degree within wave 5 of of Subminuette degree within wave within wave 3 of Minuette degree within wave 5 of Minute degree within wave 1 of Minor degree. The end of Micro 5 will trigger a 4th wave correction two degrees higher, within the Minuette degree, which will be seen as a potentially significant market reversal.

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12:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued its rise throughout the trading session. The E-mini futures had reached a high of 3849 as the closing bell approached, and the index, a high of 3856.25. The index broke above the 1.382 Fibonacci retracement level. By my principle count, wave 1 of Submicro degree continues, within wave 5 of Micro degree. I’ve updated the chart below.

9:55 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to rise overnight, reaching a high of 3816.25 by the opening bell.

What does it mean? The upward push, when complete, will mark the end of the middle wave up within the rise that began October 30 from 3225. One possible endpoint would be the 1.382 Fibonacci retracement level, at 3864.88, although the rise could go higher. The end of the middle wave will be followed by a downward correction, although likely a shallow one.

What does Elliott wave theory say? The rise overnight is wave 1 of Submicro degree within wave 5 of Micro degree within wave 5 of Subminuette degree within wave 3 of Minuette degree, all within wave 5 of Minor degree. The shallow correction that will follow the end of this rise will be wave 4 of Subminuette degree.

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12:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 E-mini futures continued to rise, reaching what can be counted as a 5th and final subwave wave of wave 1 of Submicro degree. I’ve updated the chart below.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued the rise that began on January 17 from 3740.50.

What does it mean? The rise is the beginning of the end of the uptrend that began in October 2020. It will be followed by a downward correction, although a shallow one, likely reaching below 3000 and perhaps into the 2700s.

What is the alternative? The rise could be separating two, back-to-back corrective patterns. If that’s the case, then rise will be followed by a second corrective pattern.

What does Elliott wave theory say? Under my principle count, the rise from January 17 is wave 1 of Submicro degree within wave 5 of Micro degree within wave 5 of Subminuette degree, all of that happening within wave 3 of Minuette degree. Submicro wave 1 appears to be in its 4th subwave.

The alternative count labels the rise from January 17 as wave X of Submicro degree, a separator wave that will be followed by a three-wave corrective pattern (A-B-C) or a five-wave Triangle structure.

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9:52 a.m. New York time

Market holiday. Markets in the United States are closed today for the holiday honoring Martin Luther King. The S&P 500 E-mini futures were traded overnight in other countries.

What’s happening now? The S&P 500 E-mini futures reversed at 3740.50 in overnight trading on January 17 after a decline that began on January 14 from 3817.75.

What does it mean? The reversal marks the start of a final uptrend within the larger rise that began October 30 from 3225.

What is the alternative? The rise that began overnight might be a separator between two corrective patterns, which is called a compound correction. It could also be that the downtrend that began January 14 is still in progress.

What does Elliott wave theory say? The large uptrend that began October 30 is wave 3 of Minuette degree. By my principle count, the reversal overnight marked the end of wave C of Submicro degree within wave 4 of Micro degree within wave 5 of Subminuette degree. It is the beginning of wave 5 of Micro degree.

An alternative count sees the correction as developing into a compound structure. Last night’s reversal under this view marks the beginning of wave X of Submicro degree, which will separate the A-B-C pattern just completed from another, not yet visible corrective pattern.

I’ve marked the chart as though the overnight low was indeed an end to Submicro C, but in fact it could still be underway. If that’s the case, then the down-pointing arrow that had appeared the chart’s “C {-6}” label will need to be restored, and likewise on the “4 {-5}” label.

My trading strategy. The next options entry period under my rules begins on January 26 and lasts through February 9, with February 2 being the midpoint, 45 days before expiration on March 19.

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3:30 p.m. New York time

Half an hour before the closing bell. Close up, the S&P 500 has retraced nearly all of its decline. The question remains open whether the rise is the start of wave 5 of Micro degree or the beginning of a wave X, separating two corrective patterns.

Big picture, the S&P 500 remains below the 1.382% Fibonacci retracement level, which would be a typical turning point for the rise since February 23.

I’ve updated the near-term chart below. I’ve also corrected the last graf Elliott wave discussion to label the red line as the upper boundary (not lower) of the Diagonal Triangle that began in December 2018.

10:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures fell at the opening, entering the third and final segment of the correction that began January 8.

What does it mean? The end of the correction will be followed by either a rise that will be the end of the uptrend that began January 4, or will rise and form a second corrective pattern in a compound correction.

What does Elliott wave theory say? The present wave down is wave C of Submicro degree within wave 4 of Micro degree. The chart contains an anomaly, discussed yesterday, that casts doubt on the wave 4 analysis. Wave B failed to retrace 90% the preceding wave A, which is required under the Elliott wave rules for a Flat pattern.

I can’t see a clear alternative count to the Flat pattern. So perhaps instead of a Flat, the correction is a Zigzag, with 5-3-5 as the pattern within the A, B and C waves.

In any case, the magnitude of the fall suggests that Subminuette wave C has begun, making the question moot. Moving on.

The target for the parent wave, the 4th of Minuette degree, is to move back below the red line, which the upper boundary of a Diagonal Triangle that began in December 2018. So we’re looking at the lower 3700s as a start.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 E-mini futures dropped in trading today. The price of wave B of Submicro degree never retraced 90% of the preceding wave A, and that retracement is a firm necessity under the Elliott wave rules. So, we’re left with two choices: Either wave B is not yet complete, or the pattern we’re seeing isn’t a Flat structure. I’ve updated the chart below, marked on the assumption that wave B is still underway.

9:55 a.m. New York time

My position on IWM, which I exited on Tuesday, was a big loser. I’ve added a “lessons learned” section to the analysis, which says:

The loss on this trade was compounded by my rule that requires an exit 21 days before expiration for profitable positions. This position was unprofitable at 21 days, and grew even more unprofitable in the last weeks of its life. A better rule would be to exit 21 days before expiration whether a position is profitable or not.

The position would have lost under either version of the 21-day rule, but the loss would have been less had I exited earlier rather than later.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continue the middle wave of a Flat correction of the rise since January 4, having so far failed to reach a minimum retracement under the rules of Elliott wave analysis.

What does it mean? Once the correction is complete, I’m expecting a final rise to the upside, and then a downtrend.

What is the alternative? The form of the correction is ambiguous. If it’s not a Flat pattern, then the minimum retracement rule may not apply.

What does Elliott wave theory say? The middle wave in question is wave B of Submicro degree within wave 4 of Micro degree. The 4th wave is a downward correction, and the internal wave B is an upward correction within the downward correction. The beauty of Elliott wave analysis is that it recognizes that a chart contains trends within trends, in a fractal universe where patterns are built from smaller self-same patterns.

A B wave must retrace 90% of the preceding A wave. On this chart, that would be 3819.55 (blue line). Submicro B yesterday hit a high of 3817.75, leaving it 1.8 points below the mandatory retracement level.

My trading strategy. The next options I can trade under my rules will be the monthlies expiring March 21. The ideal entry date would be February 2, but I’ll settle for a date between January 26 and February 9. At this point my list of liquid ETFS are showing low implied volatility ranks; only a metal, SLV, has an IVR high enough to meet my standards.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has traded in a very narrow range today. I’ve updated the chart below.

10 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continue to work through an upward retracement within a downward correction that began January 8.

What does it mean? The retracement will be followed by a downward move that will mark the end of the correction, which will be followed by a final upward push, completing the rise that began January 4.

What is the alternative? If the correction develops as a compound pattern, then the retracement will be followed by an upward separator move and then second corrective pattern.

What does Elliott wave theory say? The S&P 500 is in wave B of Submicro degree within wave 4 of Micro degree within wave 5 of Subminuette degree, all within wave 3 of Minuette degree. Fourth waves tend to be shallow, and have a tendency to produce compound patterns. Although not always, and the only way to know if a compound pattern occurs is to wait and see.

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3:30 p.m. New York time

I have updated IWM Analysis with results, and updated the S&P 500 chart, below, half an hour before the closing bell.

2:50 p.m. New York time

I’ve exited my short bear call options spreads on IWM, for a loss. I’ll update the entry analysis with results.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continue a shallow correction that began January 8. The price is presently working through the middle wave of the three-wave pattern.

What does it mean? The end of the downward correction will be followed by a push to a new high.

What does Elliott wave theory say? The correction is wave 4 of Micro degree within wave 5 of Minuette degree within wave 3 of Minuette degree. The present subwave is wave B of Submicro degree within a Flat structure. In Flats, wave B must retrace 90% of the preceding wave A.

My trading strategy. My short bear call options spread on IWM remain about 17 points above the profit zone. I shall make a decision about when to take the loss.

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3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 E-mini futures continue their downward correction at a small degree. Wave A of Submicro degree is complete and the price is working through Submicro wave B of a three-wave pattern. I’ve updated the chart, below.

I shall continue to hold my losing IWM options, whose last day of trading is Friday, in the hope of a wave C decline on Tuesday.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to drop from the high of January 8.

What does it mean? The decline marks the first steps in what will likely be a shallow correction that will be followed by another high, and then a significant reversal.

What’s the alternative? If the price reverses today and moves above 3824.50, then the correction has not yet begun. The description of what will follow the correction stands in either case.

What does Elliott wave theory say? I’ve marked up a near-term chart to trace course of the S&P 500 since late December. The count clearly shows that the January 8 was was the end of wave 3 of Micro degree. Within it, the peak marks the end of wave 5 of the Submicro degree. The correction now underway is a 4th wave of Micro degree. The typical 4th wave is a sideways correction, a Flat pattern in the parlance of Elliott wave analysis, with an internal structure of three wave — A, B and C — each with three subwaves.

My trading strategy. I’ll be looking again at my IWM options and make a decision on whether to exit or hold.

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