3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures peaked at 4933.25 during the session and then declined, approaching 4900 as the closing bell drew near. The rise and decline are part of a low-degree uptrending 5th wave that began on January 23.

I tentatively count the decline as being a 4th-wave downward correction within the larger uptrend. If the price again rises past the peak then my tentative count is a proper match for the chart. If the decline continues, then the odds increase that wave 5 ended at the session peak. The end of the preceding 1st wave, 4886.25, is the lowest the 4th wave can go under a rule of Elliott Wave Theory. A typical low point for a downward correction is the 4th subwave within the preceding 3rd wave: About where it is now.

I’ve updated the chart.

2:50 p.m. New York time

Trades. I exited by short bull put Vertical Spread on SPY, which I entered yesterday, for a 51% profit and have updated the trade analysis with results.

I entered a short bull put spread on QQQ and posted a trade analysis.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose overnight from the around 4900 into the 4920s.

What does it mean? Using the model of Elliott Wave theory, a 3rd wave uptrend that began on October 27, 2023 is underway and is working through its end game. A subwave two levels lower within the fractal structure of the chart is an uptrending 5th wave within a larger 5th wave.

On the chart, each wave is numbered, and its degree — its placement within the fractal structure — is indicated by a number showing the distance from what in Elliott Wave Theory is called an Intermediate wave — in this case, wave 5{0}, which began on December 26, 2018.

The 3rd wave uptrend is wave 3{-2}. Within it, waves 5{-3}, 5{-4} and 5{-5}.

When the smallest of the set, wave 5{-5}, is complete, it will also mark the endpoint of waves 5{-4, 5{-3} and 3{-2}. A downward correction, wave 4{-2}, will follow. If it is typical of its degree, it will last for months.

What are the alternatives? 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 know for sure.

[S&P 500 E-mini futures at 3:30 p.m., 30-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}. When wave 5{-4} is complete, it will also be the end of waves 5{-3} and 3{-2}, and a downward correction, wave 4{-4}, will begin.

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)

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 24, 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.

Symbols traded today: IBM (17DTE), SPY (9DTE)

I entered two options positions today, using different strategies on each for different purposes.

The first, a short Iron Condor on IBM, is in response to the compan’s earnings announcement, on January 24 after the closing bell. I’ve positioned the short legs of the trade at a bit beyond the expected move, based on the options pricing. I chose the duration as a way of being close to enough to expiration to benefit from a rapid decline in implied volatility, and far enough away to have time for the price to reverse the whipsaw often seen after an event-driven price movement

The second, short bull put Vertical spread on SPY, based on my Elliott Wave Theory analysis of the S&P 500 chart, which shows price to be in a small-sized, largely sideways 4th wave downward correction that will be followed by a trending 5th wave push to the upside. I chose the short put strike based on the expected move, as indicated by the options pricing. The 9DTE duration has been shown, by a study conducted by the brokerage TastyTrade, to be less prone to event-driven spikes than other durations. The implied volatility is low, and that’s not exactly a good thing for this trading strategy. On the other hand, it’s SPY, which is based on the S&P 500, which I analyze every day the market is open. So, I’m going with it. Also, the risk/reward ratio is overly high. Because of the Elliott Wave analysis, I’m fairly sure it won’t come into play.

I exited SPY the next day at 54.6% of maximum potential profit. My goal for trades of this type is 50% of max.

IBM short Iron Condor

LOT:

1

ENTRY DATE:

1/23/2024

Entry and Exit

METRIC	CREDIT
Options premium	$ 1.39
METRIC	ENTRY
Stock price	$ 173.46
Impllied Volatility Rate	65.4
Days to expiration	9

The structure of the position

STRUCTURE	STRIKE	ODDS EXPIRE OTM	DELTA	IN PRICE
Calls
Long	187.50	91.0%	10	$ (0.43)
Break-even	183.89	86.5%	14.5
Short	182.50	82.0%	19	$ 1.06
Puts
Short	165.00	77.0%	11	$ 1.33
Break-even	161.39	83.0%	10.5
Long	160.00	89.0%	10	$ (0.57)

Risk and Reward

Per contract:
Reward	139.00
Risk	361.00
R/R Ratio (n:1)	2.6

---

SPY short Iron Condor

LOT:	4	ENTRY DATE:	1/23/2024
		EXIT DATE:	1/24/2024
		DAYS HELD:	1

Entry and Exit

METRIC	CREDIT (ENTRY)	DEBIT (EXIT)	CHANGE	CHANGE %	ANNUALIZED CHANGE %
Options premium	$ 1.00	$ 0.49	$ 0.51	104.1%	37782%
	ENTRY	EXIT	CHANGE	CHANGE %	ANNUALIZED CHANGE %
Stock price	$ 483.92	$ 487.58	$ 3.66	0.8%	276%
Implied Volatility Rate	6.2	4.0	-2.2
Days to expiration	9	8	-1

The structure of the position

STRUCTURE	STRIKE	ODDS EXPIRE OTM	DELTA	IN PRICE	OUT PRICE	NET PRICE
Puts
Long	474.00	86.0%	14	-0.71	0.32	$ (0.39)
Break-even	481.00	78.0%	22.5
Short	480.00	70.0%	31	1.71	-0.81	$ 0.90
						======
					NET TOTAL:	0.51

Risk and Reward

Per contract:
Reward	108.00
Risk	708.00
R/R Ratio (n:1)	6.6

By Tim Bovee, Portland, Oregon, January 23-24, 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.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures remained between the 4870s and the 4890s during the session. The low-degree 4th-wave downward correction within a series of larger uptrends continues. I’ve updated the chart.

3 p.m. New York time

Trades. I’ve entered two options positions, using different strategies on each for different purposes.

The first, a short Iron Condor on IBM, is in response to the company’s earnings announcement, on January 24 after the closing bell. The second, a short bull put Vertical Spread, is on SPY, based on my Elliott Wave Theory analysis of the S&P 500 chart.

I’ve posted trade analyses of the two positions.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures traded narrowly in the 4870s for most of the night, rising slightly into the 4890s as the opening bell approached and then declining sharply in the moments before the session began.

What does it mean? The 3rd-wave uptrend that began on January 5 has entered its 4th of five subwaves, a downward correction that will be followed by a final push to the upside that will end the 3rd wave and begin a larger 4th-wave downward correction. The decline overnight may well be the 3rd and final subwave of that 4th-wave downward correction.

This is all happening within a larger 5th-wave uptrend that began on September 27, 2023, which is in its final subwave. When that subwave is complete, it will mark the end of the parent wave, a 3rd-wave uptrend that began on October 25, 2023 and will trigger an even larger 4th-wave downward correction.

What are the alternatives? 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 know for sure.

[S&P 500 E-mini futures at 3:30 p.m., 30-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 1{-2}, that began on October 25, 2023 and is in wave 3{-3}, the middle of five subwaves.
• Wave 3{-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 3{-3}, and a downward correction, wave 4{-3}, will begin.

Alternative analysis:

• Wave 3{-3} in the principal analysis may be of a lower degree, wave 3{-4}, perhaps, or wave 3{-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 23, 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.

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.

Symbols traded today: QQQ SPY (3DTE)

I’ve entered short Iron Fly options positions on QQQ and SPY, held them over the weekend, and exited January 22, which was expiration day. Each position showed a small loss, a second indicator that a strategy that had worked isn’t working as well. I’m referring to the 1DTE short Iron Fly strategy.

These particular trades were entered under one analysis of the market. The S&P 500 moved in a way that forced a re-analysis, and the analytical universe in which the trades were exited was quite different.

See the January 22 Trader’s Notebook for a discussion of the change. The analytical tool is Elliott Wave Theory.

QQQ short Iron Fly

LOT:	2	ENTRY DATE:	1/19/2024
		EXIT DATE:	1/22/2024
		DAYS HELD:	3

Entry and Exit

METRIC	CREDIT	DEBIT	CHANGE	CHANGE %	ANNUALIZED CHANGE %
Options premium	$ 2.41	$ 2.52	$ (0.11)	-4.4%	-528%
METRIC	ENTRY	EXIT	CHANGE	CHANGE %	ANNUALIZED CHANGE %
Stock price	$ 419.71	$ 423.77	$ (4.06)	0.97%	118%
Impllied Volatility Rate	16.8	19.0	2.2
Days to expiration	3	0

The structure of the position

STRUCTURE	STRIKE	ODDS EXPIRE OTM	DELTA	IN PRICE	OUT PRICE	CHANGE
Calls
Long	423.00	76%	24	$ (0.58)	$ 1.68	$ 1.10
Break-even	422.41	63%	36.5
Short	420.00	50%	49	$ 1.67	$ (3.99)	$ (2.32)
Puts
Short	420.00	50%	51	$ 1.91	$ (0.25)	$ 1.66
Break-even	418.41	65%	36
Long	416.00	80%	21	$ (0.59)	$ 0.04	$ (0.55)
						======
					NET TOTAL:	$ (0.11)

Risk and Reward

Per contract:
Reward	241.00
Risk	109.00
R/R Ratio (n:1)	0.5

---

SPY short Iron Fly

LOT:	3	ENTRY DATE:	1/19/2024
		EXIT DATE:	1/22/2024
		DAYS HELD:	3

Entry and Exit

METRIC	CREDIT	DEBIT	CHANGE	CHANGE %	ANNUALIZED CHANGE %
Options premium	$ 2.04	$ 2.23	$ (0.19)	-8.5%	-1031%
METRIC	ENTRY	EXIT	CHANGE	CHANGE %	ANNUALIZED CHANGE %
Stock price	$ 481.36	$ 484.24	$ (2.88)	0.60%	73%
Impllied Volatility Rate	13.5	11.5	-2.0
Days to expiration	3	0

The structure of the position

STRUCTURE	STRIKE	ODDS EXPIRE OTM	DELTA	IN PRICE	OUT PRICE	NET PRICE
Calls
Long	484.00	75.0%	24	$ (0.50)	$ 1.01	$ 0.51
Break-even	483.04	59.5%	39
Short	481.00	44.0%	54	$ 1.67	$ (3.35)	$ (1.68)
Puts
Short	481.00	56.0%	45	$ 1.30	$ (0.12)	$ 1.18
Break-even	480.04	68.5%	32
Long	478.00	81.0%	19	$ (0.43)	$ 0.03	$ (0.40)
						======
				`	NET TOTAL:	$ (0.39)

Risk and Reward

Per contract:
Reward	204.00
Risk	2996.00
R/R Ratio (n:1)	14.7

By Tim Bovee, Portland, Oregon, January 19-20, 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.

3:45 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures climbed during the session, reaching into the 4840s. In so doing, it broke a firm rule of Elliott Wave Theory: A 2nd wave correction cannot move beyond the starting point of the preceding 1st wave. And yet it did. The 1st wave ended at 4841.50. The 2nd wave so far today has reached a high in the 4870s.

The S&P 500 index also reached a new high. So did the S&P 500 exchange-traded fund SPY.

I’ve marked the chart according to the alternative analysis laid out this morning, showing that wave 2 is still underway. And yet, it can’t be. Something else is going on.

Elliott Wave Analysis provides a map of the price movements across the terrain, which is the chart. When the map no longer matches terrain, then it’s time to change the map. And that will be my project this weekend.

The simplest change will be to change the analysis to show wave 3{-1} never ended, that the massive rise from the February 23, 2020 end of the Covid Crash, 2191.86 on the S&P 500 index, to the January 4, 2022 peak at 4818.62 is still underway.

I’ll also look for other alternatives, but at first glance the continuing wave 3{-1} scenario seems the most likely.

See the January 12 Trader’s Notebook showing a long-term chart of the S&P 500 index, as analyzed before today’s violation of an Elliott Wave Theory rule.

I’ve retained this morning’s outdated chart, for comparison, and have posted a chart with the new analysis.

[S&P 500 E-mini futures at 3:30 p.m., 40-minute bars, with volume]

2:35 p.m. New York time

Trade CORRECTION. I’ve updated the SPY trade analysis to correct the strike price of the short call option.

2:10 p.m. New York time

Trades. Two out, two in.

I exited my 1DTE short Iron Fly positions on JPM and NKE. I selected them for their low volatility after my usual trading vehicles for 1DTE trades — SPY and QQQ — saw a rapid increase in volatility. It turned out to be a poor decision, leading to a 42.7% loss on JPM with a far smaller, 3.4%, loss on NKE.

I had found constructing the positions to be difficult because the strike prices changed by a larger increment relative to the stock price, which made it impossible to place the short strikes close to the 50% delta.

Meanwhile, QQQ and SPY saw their volatility decline to a level that meets my trading rule, and so I entered short Iron Fly positions on both to hold over the wekend. The 3DTE positions expire on Monday, January 22.

I’ve updated the analyses for the JPM and NKE trades, and posted trade analyses for the QQQ and SPY positions.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reached 4841.25 in overnight trading, putting the price within 25 cents of the December 27, 2023 peak.

What does it mean? A relatively small upward correction, wave 2, has been underway since January 5 and is now nearing the end of its third and final subwave, wave C. Or, perhaps, it may have ended already. Here’s why.

The December 27 peak was the starting point of wave 1 in the same five-wave series that wave 2 is part of.

A firm rule of Elliott Wave Theory is that a 2nd wave cannot move above the starting point of the preceding 1st wave. So if the price goes 25% higher, the Elliott Wave referee pulls out the red penalty flag, as in what the Americans call soccer and the rest of the world calls football. The penalty, of course, is to declare the present analysis to longer be valid and to be required to do a new analysis where there was no violation.

Or has the penalty been triggered? R.N. Elliott developed the theory that bears his name in a much simpler time. All he had to work with was each day’s open-high-low-close of the Dow Jones Industrial Average market index.

Nowadays when we refer to a market index, we’re speaking of a wide range of products. Trader’s Notebook tracks the S&P 500 index futures. They’re derived from the S&P 500 index. So is the most traded, most liquid S&P 500 derivative, the SPY exchange-traded fund. And in the nature of things it isn’t unusual for one product to beak the rule and get the red-flag penalty while the other related product remain penalty free.

After all, the smallest price movement of the S&P 500 index is one cent, about 1/4700 of the price at present. The index moves in 25-cent increments, around 1/1200 of the price. And the SPY exchange-traded fund moves in one-cent increments but the price is lower, so each move is about 1/470 of the price.

And each product is traded separately, so there can certainly be small variations in the fluctuation of the bids, asks and fills among the products.

Which S&P 500 triggers the penalty? Elliott is no help. I seriously doubt that he imagined that his method would have to deal with such complexity.

In any case, as the opening bell approached the price pulled back slightly from its overnight peak, and on the chart I’ve marked the upward correction, wave 2{-7}, as having ended at that point, 4841.25. It’s possible that the price will fish for a top, reaching 4841.50 before the day is out. But it can go no higher without triggering a red-flag penalty.

Under this principal analysis, downtrending wave 3{-7} has begun and is in its first subwave, downtrending wave 1{-8}, the first of five subwaves.

Third waves also have a limit: They always move beyond the end of the preceding wave 1. In this case, wave 1{-7} ended on January 5, at 4702.

Under another rule of Elliott Wave Theory, the third wave is never the shortest trending subwave. So wave 3{-7} will be either the longest or the second longest among waves 1, 3 and 5. It is far more common than not for a 3rd-wave correction to move significantly below the end of the preceding 1st wave.

What are the alternatives? There are two:

Alternative #1: Wave 2{-7} has not yet ended and will reach 4841.50, reaching completion at that point.

Alternative #2: 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. So for example, wave 2{-7} on the chart could well be wave 2{-6} or 2{-5}.

[OUTDATED: S&P 500 E-mini futures at 9:35 a.m., 40-minute bars, with volume]

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

Principal Analysis (Proven incorrect):

• 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 2{-7}, ended at the overnight high, 4841.25. Wave 3{-7} is now underway, a downtrend of low degree, and within it, falling wave 1{-8} is underway.

Alternative #1:

• Wave 2{-7} is very close to completion but is not yet complete. It’s maximum possible end point is 4841.50.
• The above is correct: Wave 2{-7} hasn’t ended. But incorrect: It moved past 4841.50.

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:
• [A violation of an Elliott Wave rule on 1/19/2024 calls what follows into question. I’ll post a new analysis on Monday, January 22.]
• 4{-1} Minor, 1/4/2022, 4953.25 (down) (futures), 4818.62 (down) (index)
• S&P 500 Futures:
• 3{-2} Minute, 12/27/2023, 4841.50 (down)
• 1{-3} Minuette, 12/27/2023, 4841.50 (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, January 19, 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.

Symbols traded today: Short Iron Flies on JPM and NKE, both 1DTE

I’ve entered short Iron Fly positions on JPM and NKE, both low-volatility stocks, using options that expire the next day. The idea behind the strategy is to capture the volatility decline as the options near expiration. I exited the next day with losses on both.

JPM short Iron Fly

LOT:	1	ENTRY DATE:	1/18/2024
		EXIT DATE:	1/19/2024
		DAYS HELD:	1

Entry and Exit

METRIC	CREDIT	DEBIT	CHANGE	CHANGE %	ANNUALIZED CHANGE %
Options premium	$ 1.57	$ 2.74	$ (1.17)	-42.7%	-15500%
METRIC	ENTRY	EXIT	CHANGE	CHANGE %	ANNUALIZED CHANGE %
Stock price	$ 165.91	$ 167.73	$ (1.82)	1.10%	400%
Impllied Volatility Rate	8.9	7.3	-1.6
Days to expiration	1	0

The structure of the position

STRUCTURE	STRIKE	ODDS EXPIRE OTM	DELTA	IN PRICE	OUT PRICE	NET PRICE
Calls
Long	170.00	96.0%	4	$ (0.03)	$ 0.05	$ 0.02
Break-even	166.57	83.0%	17
Short	165.00	70.0%	30	$ 1.31	$ (2.78)	$ (1.47)
Puts
Short	165.00	71.0%	29	$ 0.31	$ (0.02)	$ 0.29
Break-even	161.57	82.5%	17.5
Long	160.00	94.0%	6	$ (0.02)	$ 0.01	$ (0.01)
						======
				`	NET TOTAL:	$ (1.17)

Risk and Reward

Per contract:
Reward	157.00
Risk	343.00
R/R Ratio (n:1)	2.2

---

NKE short Iron Fly

LOT:	1	ENTRY DATE:	1/18
		EXIT DATE:	1/19/2024
		DAYS HELD:	1

Entry and Exit

METRIC	CREDIT	DEBIT	CHANGE	CHANGE %	ANNUALIZED CHANGE %
Options premium	$ 0.84	$ 0.87	$ (0.03)	-3.4%	-1252%
METRIC	ENTRY	EXIT	CHANGE	CHANGE %	ANNUALIZED CHANGE %
Stock price	$ 100.39	$ 100.53	$ (0.14)	0.14%	51%
Impllied Volatility Rate	8.8	6.5	-2.3
Days to expiration	1	0

The structure of the position

STRUCTURE	STRIKE	ODDS EXPIRE OTM	DELTA	IN PRICE	OUT PRICE	NET PRICE
Calls
Long	102.00	88.0%	12	$ (0.09)	$ 0.06	$ (0.03)
Break-even	100.84	64.0%	37
Short	100.00	40.0%	62	$ 0.73	$ (0.86)	$ (0.13)
Puts
Short	100.00	60.0%	38	$ 0.33	$ (0.16)	$ 0.17
Break-even	99.84	71.5%	27.5
Long	99.00	83.0%	17	$ (0.13)	$ 0.09	$ (0.04)
						======
				`	NET TOTAL:	$ (0.03)

Risk and Reward

Per contract:
Reward	84.00
Risk	66.00
R/R Ratio (n:1)	0.8

By Tim Bovee, Portland, Oregon, January 18-19, 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.

3:30 p.m. New York time

Half an hour before the closing bell.The S&P 500 futures rose during the session, pushing above 4800. as the C wave continues within the upward 2nd-wave correction that began on January 5. This morning’s analysis is unchanged. I’ve updated the chart.

2:35 p.m. New York time

Trades. I’ve entered short Iron Fly positions on JPM and NKE, each one day before expiration, and have posted analyses of the trades.

I attempted to structure short Iron Condor and a short Vertical bull put spread on JNJ, which poublishes earnings on January 23, but was unable to produce sufficient return to make the trade worthwhile. So I passed on it.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose back into the 4790s overnight, reversing from the prior day’s session low, 4746.

What does it mean? The upward correction that began from January 5 continues and is in its final subwave, wave C., by what I consider the be the most likely interpretation of the chart. The decline that began on January 11, wave B, carried the price into that subwave’s target price range, and the present rise has risen to above the price range’s upper boundary.

However, as is often the case in Elliott Wave analysis, the are multiple ways of viewing the chart. See a discussion of alternatives below.

Meanwhile, the wave C scenario is my principal analysis, and the question is how high can we expect it to rise.

The wave 2 correction is taking the from of a Zigzag. In that corrective pattern, wave C often is about the same length as the preceding wave A. The A wave was 136 points long, running from 4702 to 4838. Wave C began from 4846.25. If it rises by 136 points, then that sets the price target at 4846.25.

But there’s a problem. It’s a firm rule of Elliott Wave Theory that a 2nd wave never moves beyond the starting point of the preceding 1st wave. Downtrending wave 1 on the chart began on December 27, 2023 from 4841.50, about five points below the wave C price target. So the highest wave C can rise is by by 95.25, to 4841.50.

C waves on occasion fall short of their price targets. That will be the case with this wave C.

On the chart, I’ve marked the wave C price target with a solid red line, and retained the wave B price target range as blue dotted lines.

The C wave in a Zigzag has five subwaves. I’ve leveled the present rise as the first subwave within wave C.

What are the alternatives?

Alternative #1: The 2nd wave rise (wave 2{-2} on the chart) that preceded the 3rd wave (wave 3{-2}) is still underway and is taking a compound form. The decline from January 11 was 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. So for example, wave 2{-7} on the chart could well be wave 2{-6} or 2{-5}.

Alternative #3: Wave B{-8} within wave 2 is not yet complete.

[S&P 500 E-mini futures at 3:30 p.m., 40-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, rising wave C{-8} is underway and is within wave 1{-9}, the first of five subwaves.

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.

Alternative #3:

• Downward wave B{-8} is underway.

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:
• 3{-2} Minute, 12/27/2023, 4841.50 (down)
• 1{-3} Minuette, 12/27/2023, 4841.50 (down)
• {1-4} Subminuette, 12/27/2023, 4841.50 (down)
• 1{-5} Micro, 12/27/2023, 4841.50 (down)
• 1{-6} Submicro, 12/27/2023, 4841.50 (down)
• 2{-7} Minuscule, 1/5/2024, 4702 (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 18, 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.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 futures continued to fall during the session, reaching into the 4740s as the closing bell approached. This morning’s analysis is unchanged. I’ve updated the chart.

1:40 p.m. New York time

Trades. I exited my short Iron Fly 1DTE positions on XSP and QQQ, hour before expiration. Both positions showed a loss, XSP of 13.1% and QQQ of -25.3%. I’ve updated the trade analyses with full results.

The short Iron Fly strategy for 1DTE trades is based on declining volatility. For each of these symbols, the Implied Volatility Rate (IVR) rose sharply.

My rule of thumb for 1DTE trades using the short Iron Fly is that the IVR must be 20 or below. QQQ and XSP no longer qualify for the strategy. Neither does SPY, which now has an IVR above 26%.

So that brings what had been a productive strategy to a halt, for now at least. The longer term strategies, which rely on a high IVR for entry (roughly 25% or above) remain, as do earnings plays, and it could be that options with weekly expirations may be open for 1DTE trades. But 1DTE daily expiration symbols are now off the table.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures drifted lower overnight, from 4800 plus change to the 4760s.

What does it mean? The 2nd-wave upward correction that began on January 5 is in its 2nd subwave, wave B, which is nearing its end.

In the discussion that follows I’ll need to use the wave numbers and degree numbers in order to cut through the complexity of the chart’s fractal structure. A fractal structure means that large waves encompass smaller waves, which in turn are built from still smaller waves, and whatever the level, the degree, the waves all follow the same rules and form the same patterns.

The degree number, a subscript in curly brackets, shows a wave’s position within the waves of various levels. The degree subscripts are negative because they are subwaves of wave 5{0}, the years-long 5th wave that began on December 26, 2018 and is taking the form of an expanding Diagonal Triangle. The triangle will have five subwaves and is presently in downward wave 4{-1}, its next-to-the-last subwave. And that sets the scene for what appears on the chart below.

The chart tracks wave 3{-2}, a downtrend that began on December 27, 2023 that is in its initial subwave, wave 1{-3}. Move four degrees lower, and we find the wave that has dominated the chart since it began on January 5: Wave 2{-7}, an upward correction that is taking the form of a Zigzag.

The Zigzag will have three subwaves and is presently in downward wave B{-8}, the middle subwave of the trio. Wave B{-8} will have three subwaves and is presently in the last of the three: Downward wave C{-9}. One degree smaller and we find that wave C{-9} is in the last of five subwaves, downtrending wave 5{-10}.

Wave 5{-10} has carried the price decisively into wave B{-8}’s target range. B waves in a Zigzag will typically retrace 38% to 79% of the preceding A wave. That gives wave B{-8} a likely endpoint between 4786 and 4730. I’ve marked those range boundaries on the chart in red, and the current price of wave B{-8} is within those boundaries.

So what happens next?

Wave B{-8}, when complete, will be followed by a rising final subwave — wave C{-8} — of the upward correction. Most likely the end of the C wave will also be the end of the parent wave 2{-7}. I say likely because corrective waves sometimes form a compound pattern, containing two or three corrective patterns. Such compound corrections are more in 4th waves, but they aren’t unheard of for 2nd waves. It’s not a high probability outcome, but it could happen.

Wave 2{-7} will be followed by a powerful downtrend, wave 3{-7}, that will carry the price at a minimum to wave 2{-7}’s starting point, 4702. Most likely, wave 3{-7} will move significantly below that level.

Eventually — after a corrective wave 4{-7} and a downtrending wave 5{-7} — the parent wave 1{-6} will reach its end, to be followed by four more waves at degree {-6} that will end the parent wave 1{-5}. And so it goes, the subwaves of each degree ending in turn until wave 3{-2} reaches its end, to be followed by an upward correction, wave 4{-2}.

And so it goes.

What are the alternatives? There are two.

Alternative #1: The 2nd wave rise (wave 2{-2} on the chart) that preceded the 3rd wave (wave 3{-2}) 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. So for example, wave 2{-7} on the chart could well be wave 2{-6} or 2{-5}.

[S&P 500 E-mini futures at 3:30 p.m., 35-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, declining wave B{-8} is underway and is within wave C{-9}, the last of three subwaves.
• Wave C{-9} is in its last of five subwaves, wave 5{-10}.

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:
• 3{-2} Minute, 12/27/2023, 4841.50 (down)
• 1{-3} Minuette, 12/27/2023, 4841.50 (down)
• 1{-4} Subminuette, 12/27/2023, 4841.50 (down)
• 1{-5} Micro, 12/27/2023, 4841.50 (down)
• 1{-6} Submicro, 12/27/2023, 4841.50 (down)
• 2{-7} Minuscule, 1/5/2024, 4702 (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 17, 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.

Symbols traded today: Short Iron Fly positions QQQ and XSP, both 1DTE.

I entered the two positions a day before expiration as overnight trades. I exited each for a loss shortly after the opening bell on January 17. The short Iron Fly strategy for 1DTE trades is based on declining volatility. For each of these symbols, the Implied Volatility Rate (IVR) rose sharply. My rule of thumb for 1DTE trades using the short Iron Fly is that the IVR must be 20 or below. QQQ and XSP no longer qualify for the strategy

QQQ short Iron Fly

LOT:	1	ENTRY DATE:	1/16/2024
		EXIT DATE:	1/17/2024
		DAYS HELD:	1

Entry and Exit

METRIC	CREDIT	DEBIT	CHANGE	CHANGE %	ANNUALIZED CHANGE %
Options premium	$ 2.27	$ 3.04	$ (0.77)	-25.3%	-9194%
METRIC	ENTRY	EXIT	CHANGE	CHANGE %	ANNUALIZED CHANGE %
Stock price	$ 408.28	$ 404.97	$ 3.31	-0.81%	-296%
Impllied Volatility Rate	18.8	27.7	8.9
Days to expiration	1

The structure of the position

STRUCTURE	STRIKE	ODDS EXPIRE OTM	DELTA	IN PRICE	OUT PRICE	CHANGE
Calls
Long	412.00	84%	17	$ (0.32)	$ 0.03	$ (0.29)
Break-even	411.27	64%	36.5
Short	409.00	44%	56	$ 1.18	$ (0.18)	$ 1.00
Puts
Short	409.00	44%	56	$ 1.85	$ (4.19)	$ (2.34)
Break-even	407.27	62%	37.5
Long	405.00	80%	19	$ (0.44)	$ 1.30	$ 0.86
						======
					NET TOTAL:	$ (0.77)

Risk and Reward

Per contract:
Reward	227.00
Risk	123.00
R/R Ratio (n:1)	0.5

---

XSP short Iron Fly

LOT:	4	ENTRY DATE:	1/16/2024
		EXIT DATE:	1/17/2024
		DAYS HELD:	1

Entry and Exit

METRIC	CREDIT	DEBIT	CHANGE	CHANGE %	ANNUALIZED CHANGE %
Options premium	$ 1.92	$ 2.21	$ (0.29)	-13.1%	-4763%
METRIC	ENTRY	EXIT	CHANGE	CHANGE %	ANNUALIZED CHANGE %
Stock price	$ 476.24	$ 473.26	$ 2.98	-0.63%	-228%
Impllied Volatility Rate	16.2	24.9	8.7
Days to expiration	1

The structure of the position

STRUCTURE	STRIKE	ODDS EXPIRE OTM	DELTA	IN PRICE	OUT PRICE	CHANGE
Calls
Long	479.00	81%	19	$ (0.34)	$ 0.02	$ (0.32)
Break-even	477.92	65%	36.5
Short	476.00	49%	54	$ 1.43	$ (0.23)	$ 1.20
Puts
Short	476.00	53%	46	$ 1.15	$ (2.91)	$ (1.76)
Break-even	474.92	68%	32
Long	473.00	83%	18	$ (0.32)	$ 0.91	$ 0.59
						======
					NET TOTAL:	$ (0.29)

Risk and Reward

Per contract:
Reward	192.00
Risk	108.00
R/R Ratio (n:1)	0.6

By Tim Bovee, Portland, Oregon, January 16-17, 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.