The earlier Elliott Wave Principle (EWP) roadmap for a bullish third wave in the S&P 500 (SPX) was framed when the index traded near 7650, with a short-term pullback pencilled in for 7610 +/- 30 before a rally to 8700+. SPX then bottomed at 7616 and rallied to 7844 by 6 October, but the subsequent decline broke key warning levels, prompting a revised count to a larger ending-diagonal (ED) structure. The working scenario is a three-wave final W-v targeting 8000-8125, split into W-a, W-b and W-c; W-b is described as underway, with an ideal zone of 7590-7635 ahead of W-c. The 8125 area is also tied to a 176.40% extension of the March 2020 to January 2022 rally, measured from the October 2022 low, while the pattern requires SPX to hold above the 16 September low of 7507 or a bearish count is implied.

Seasonality is presented as supportive: SPX typically weakens from 21 October through 27 October, then trends higher for almost a year. Despite a down day of more than 1% yesterday, the advancing/declining (A/D) line rose, implying gains in more stocks than declines, with weakness concentrated in technology rather than broad-based. The A/D line is also approaching a test of its major downtrend from the August high, and a break is framed as confirmation that the downtrend has ended. The seasonal timetable cited includes a low due 30 September (seen on 30 September, technically 1 October), a high due 6 October (met on 6 October), and a low due around 9 October (met on 8 October), then a high around 13 October and a low around 19 October, followed by another high and low around 21 October and 27 October; the high printed on 12 October (not on a closing basis), the decline ended on 16 October, and a top is placed yesterday on 21 October.

Late-October Pullback and Derivative Trading Strategy

We advise derivative traders to navigate the current late-October pullback by preparing for a final short-term dip toward the 7590–7635 target zone to complete wave W-b. With seasonal trends historically showing price weakness through October 27, options traders should wait for this lower support zone to establish bullish positions rather than buying prematurely. This temporary move lower offers an ideal entry point before the larger ending-diagonal pattern pushes the index significantly higher.

We must emphasize that all bullish derivative setups require a strict risk management boundary at the September 16 low of 7507. A breach below 7507 invalidates our ending-diagonal count and signals that traders should immediately flip to bearish strategies, such as buying protective puts or selling futures contracts. Maintaining defined risk around this key level is critical, as terminal wave patterns can shift rapidly if key support breaks.

Outlook For SPX Rally And Key Confirmation Signals

Assuming the 7507 level holds, we expect wave W-c to spark a major rally targeting the 8000–8125 region in the coming weeks. Historical seasonality strongly supports this path, as the index has historically logged positive fourth-quarter returns nearly 80% of the time following late-October lows, averaging Q4 gains over 4%. Traders can capture this potential move by deploying upside call spreads or long call options once the target pullback zone is reached.

We are also watching the Advance/Decline line as it tests its major downtrend line stemming from the August high. The recent expansion in market breadth—where advancing stocks outpaced decliners even during technology-led sell-offs—indicates strong underlying market health. A breakout above this downtrend line will give us the ultimate confirmation to confidently expand upside derivative exposure for the next leg up.

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