A June 12 update framed the S&P 500 (SPX), then near $7,422, as set for a bounce into $7,440-$7,525 before a decline towards $6,840-$7,075 under the Elliott Wave Principle. The index later peaked at $7,577 on June 15, dropped to $7,294 on June 26, rebounded to $7,551 on July 6 and was trading around $7,475 at the latest reading. The \u201ctop and drop\u201d scenario played out, though the downside target was not met, and price action since May 14 has remained close to current levels, consistent with the view that a 4th wave correction is unfolding.<\/p>\n
Attention is on whether price can push down into the grey and green targets, with confluence near the black 138.20% Fibonacci level at $7,121, alongside the black 100.00%, 123.6% and 161.8% extensions. The alternative is an extension of the June 26 rally towards $7,679-$7,739, close to the 161.80% Fibonacci extension at $7,741, with confluence cited at $7,739 versus $7,741. Upside confirmation would require breaks above $7,551 and then the June 2 all-time high at $7,721; downside confirmation would be a break below today\u2019s low and then $7,348, implying a first target near ~$7,140 +\/- $50 before any renewed attempt at $7,740.<\/p>\n
We are currently navigating a complex and choppy market, with the S&P 500 trading around 7,475. This sideways price action since mid-May is characteristic of a larger corrective phase, which we identify as a 4th wave. The recent June CPI report, which came in slightly hotter than expected at 3.1%, has only added to this uncertainty, keeping traders on edge about future Fed policy.<\/p>\n
This kind of environment, where the market is caught between conflicting signals, is why the VIX has been hovering in the high teens, around 18. This level reflects uncertainty rather than outright fear, which is perfectly aligned with the unpredictable nature of a corrective wave. With Q2 earnings season kicking off next week, we expect this indecision to continue until the market is given a clearer catalyst.<\/p>\n
For derivative traders, this means we must be prepared for two distinct possibilities and use specific price levels as our triggers. A decisive break below the recent low and then the June 28 low of 7,348 would signal that a move down toward the 7,140 area is underway. In this scenario, we would look to initiate positions using put options or bearish spreads to capitalize on the downward momentum.<\/p>\n
Alternatively, if the market finds its footing and pushes above the July 6 high of 7,551, our focus will shift to a potential final rally. A sustained move higher would target the 7,679-7,739 zone, representing a classic corrective pattern before a more significant decline. This would be our signal to use call options to ride the wave up to that clearly defined resistance area.<\/p>\n
Given the market\u2019s unclear state, we are not predicting which direction will prevail but are instead remaining flexible. We are using these price levels as our guideposts, allowing the market to show its hand before we commit significant capital. This disciplined, reactive approach is essential for managing risk until a more definite trend emerges from the current consolidation.<\/p>\n\n\n\n