Elliott Wave (EW) describes market moves as repeating waves across timeframes, using a three-step-forward, two-step-back structure and a fractal pattern. It sets a preferred price path unless key levels are broken, which can change the expected direction.
The focus is the S&P 500 advance since the November 2025 low (green W-4), labelled as green Wave-5 and described as an overlapping ending diagonal (ED). The ED is tracked as it develops through the expected stages.
Ending Diagonal Structure
An ending diagonal has five overlapping waves: grey W-i, ii, iii, iv, and v. Each grey wave is itself a three-wave pattern, which adds complexity and overlap.
The index is at the same level as late October last year, has hit 6985 ten times, and has held support around 6780 four times. This creates a developing range, with an upside target near 7190 (6985+6985-6780) and a downside target of 6575 (6780-6985+6780).
The key level is the November low at 6521. A break below 6521 suggests the ED is finished and a larger black W-4, ideally 5500-6125, is under way.
Holding 6780 is described as a third warning level, with a 60% chance the uptrend is over on a daily close below it. If 6780 holds, grey W-v is projected to 7120-7190 into the April turn date window; otherwise, 6575 is monitored.
Options Positioning Framework
Given the market’s tight coiling, we see the S&P 500 stuck between 6780 support and 6985 resistance. This indecision is creating a buildup of energy, suggesting a significant price move is imminent. For derivative traders, this is a clear signal to prepare for a breakout rather than expect the trendless action to continue.
This prolonged stalemate has compressed market volatility, with the VIX recently touching a low for the year at 13.5. Such low implied volatility makes options contracts relatively inexpensive, presenting a prime opportunity for traders. Strategies like straddles or strangles, which profit from a large move in either direction, are particularly attractive right now.
For those anticipating an upward resolution, a sustained break above 6985 should be the trigger to buy call options or establish bull put spreads. We would target the 7120-7190 zone, using April or May 2026 expirations to allow time for the final wave to develop. The positive divergence forming on the RSI is a subtle clue that bulls may have the underlying momentum.
Supporting this potential upside is recent economic data, as the January 2026 CPI report came in at 2.8%, slightly below expectations and easing fears of further Fed tightening. This backdrop could provide the fuel needed for the market to push through resistance. The options market shows significant open interest piling up around the 7100 and 7200 strike calls for April, indicating many are positioning for this outcome.
Conversely, a daily close below the 6780 support level is our first major warning to shift bearish. This would be a signal to purchase protective puts or initiate bear call spreads, targeting the 6575 level initially. If the November 2025 low at 6521 breaks, it would confirm a major top is in, and we would expect a much deeper correction.
We saw a similar period of frustrating, range-bound action back in the third quarter of 2023 before the market began its powerful rally into year-end. That period also featured conflicting economic signals and investor uncertainty, much like we are experiencing now. The resolution was a sharp, directional move, reminding us that patience in these ranges is often rewarded.
