The S&P 500 (SPX) is currently experiencing a diagonal Elliott Wave formation from the November 21, 2025 low. This structure is playing out with five waves, exhibiting an overlap between the first and fourth waves. Wave ((I)) advanced to 6903.46, followed by a correction in wave ((II)) ending at 6719.8. The index then climbed in wave ((III)), which broke down into further impulsive waves, culminating as wave (v) achieved 6945.77.
Related Market Movements
Subsequently, a corrective zigzag pattern took place in wave ((iv)), with wave (a), (b), and (c) completing at 6824.31. The S&P 500 has renewed its upward movement in wave ((v)), initiating with wave (i) reaching 6965.69. A pullback in wave (ii) is projected, with potential for additional upward movement as buyers may emerge in a sequence of three, seven, or eleven swings. This pattern is documented in the 45-minute chart as of 01.07.2026.
Accompanying with this technical analysis, various related market movements include the fall in Malaysia’s gold price, Australian dollar showing weakness due to trade data, and the US Dollar Index remaining steady above 98.50. Such trends observe cautious behaviour among market participants.
Based on the current Elliott Wave structure, we see the S&P 500 in the final upward leg of a pattern that began in November 2025. We anticipate a minor pullback in the very near future, which should be viewed as a buying opportunity before the next move higher. This aligns with recent data showing the December 2025 unemployment rate holding steady at 3.9%, suggesting underlying economic strength.
For traders, this suggests positioning for more upside in the coming weeks. Buying call options on the SPX or SPY with February 2026 expiration dates could be a viable strategy to capitalize on the expected rally in wave ((v)). Selling cash-secured puts at strike prices near the anticipated pullback zone, perhaps around the 6900 level, is another way to gain bullish exposure.
Caution and Hedging Strategies
However, caution is warranted as this is the fifth and final wave of the diagonal sequence. Historically, we have seen that the completion of such patterns can lead to a significant and sharp reversal. This final advance, supported by strong Q4 2025 holiday retail sales figures which showed a 4.2% year-over-year increase, could be setting the stage for a market top.
Therefore, while being positioned for the immediate upside, traders should also consider hedging their portfolios. As the index pushes towards new highs, purchasing out-of-the-money put options for March or April 2026 could provide cheap insurance against a sudden downturn. Volatility, as measured by the VIX, has been trading below its 50-day average of 14.5, but this could change rapidly once this final wave concludes.
We also note that the US Dollar Index has been firming above the 98.50 level. While the market is focused on equity momentum right now, a persistently strong dollar could become a headwind for earnings later this year. This is a factor to monitor closely as we navigate the final stages of this upward market structure.
