Last week’s decline presented concerns regarding the SP500’s anticipated trajectory towards 7120. The challenge lies in accurately counting the Elliott Wave patterns, particularly at critical 4th and 5th wave stages. Any miscount in early wave interpretations can affect forecast accuracy.

The daily line chart, updated last on September 4, projected specific wave targets, all falling within a 2% variance of actual index performance. Last week’s low aligned well with prior predictions for a wave pattern, reinforcing continued adherence to the Elliott Wave path.

Potential Wave Discrepancy

The SP500 has yet to reach the expected 7120, stopping instead at 6920, a deviation of 2.8%. This discrepancy may stem from a complex ongoing wave formation. Should the SP500 remain above 6631, a rise to 7120 is possible, while a daily close below 6720 might indicate further decline to approximately 6575 before an eventual rally.

Market analysis continues amid evolving conditions, with the potential for the W-5 toward 7120 remaining. Caution remains essential as markets and their wave structures can be unpredictable. The Elliott Wave perspectives provide some guidance, yet require continual reassessment.

Based on our analysis, the potential for the S&P 500 to reach our 7120 target remains very much alive despite last week’s volatility. We see last week’s closing low of 6720 as a likely end to a corrective wave, setting the stage for the final push higher. Therefore, the primary strategy should be positioned for upside, while remaining cautious of a potential final dip.

To support this outlook, we’ve seen some encouraging economic data. The most recent October Consumer Price Index (CPI) report came in slightly cooler than anticipated at 2.9%, easing fears of further rate hikes from the Federal Reserve. This has caused the CBOE Volatility Index (VIX) to settle back down to around 16, showing that some of the immediate market anxiety is fading.

Trading Strategy and Risk Management

For traders looking to capitalize on the expected rally, this presents an opportunity to use options. We believe setting up bull call spreads with strike prices aiming for the 7100-7120 range for late December 2025 or January 2026 expirations could be a prudent way to capture this final move. This strategy defines the risk while targeting the specific upside we anticipate.

However, we must respect the warning signs. A daily close below the 6720 level would signal that the current bounce is temporary and a further decline toward 6575 is likely before the final rally begins. Traders holding long positions should consider buying protective put options with strike prices just below 6720 to hedge against this short-term risk.

This type of complex price action is not unusual in the final stages of a major rally, as we observed during similar consolidations in late 2023 before the market pushed to new highs in 2024. The current setup suggests that while the ultimate direction is up, the path could involve one more downturn. This makes options strategies that manage risk more appealing than holding outright long futures positions without a hedge.

For those trading S&P 500 futures, the key level to watch is last week’s absolute low of 6631. We view this as the critical line of support for the immediate bullish case. Any break below this level on a daily closing basis would force us to re-evaluate the entire wave count.

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