The S&P 500 ETF, known as SPY, recently followed a pattern identified by the Elliott Wave theory. SPY wrapped up its correction within the Equal Legs zone, also called the Blue Box Area. This setup involved a 3-wave pullback that formed a Double Three, with key numbers between 663.57 and 652.77.

Technical Analysis of SPY

Long positions were opened around 663.57, expecting a three-wave bounce from the Blue Box. When the price hit the 50% Fibonacci retracement level from the red X connector, we adjusted the trades to minimize risk. The stop-loss was moved to breakeven, and some profits were already taken. After SPY found support in the Blue Box area, it climbed past the 50% retracement level from the X red connector. Now, our long positions are risk-free, with new price targets set between 696.53 and 707.42 as SPY aims for higher levels. As long as the price stays above 661.25, wave (5) could keep rising. These strategies showcase trading setups that align with the Elliott Wave theory, using risk management at key technical levels. Recent price movements suggest that the S&P 500 ETF has likely finished its correction, finding solid support around the $661-$663 range. We have already entered long positions from this area, seeing it as the start of a new upward trend. The initial bounce has been strong, allowing us to secure our trades by adjusting stops to our entry point.

Market and Economic Outlook

This market shift is happening as political uncertainty in Washington eases, with a resolution to recent government funding issues on the horizon. The CBOE Volatility Index (VIX) dropped from over 20 during late October fears to below 16 this week, indicating reduced market anxiety. This political relief creates a favorable environment for stocks to rise in the coming weeks. For those trading derivatives, this situation signals a move away from buying downside protection. The CBOE’s total put/call ratio has fallen to 0.70 from a peak of 0.95 two weeks ago, showing a rapid decrease in demand for bearish options. Strategies like selling cash-secured puts at levels below the recent $661 low or starting bullish call spreads could effectively leverage this upward momentum. We expect this new upward movement to target the $696 to $707 range. The overall economic data supports this view; the October jobs report showed a slowing labor market, and last week’s CPI data indicated that core inflation is heading toward 3%. This combination reduces the pressure on the Federal Reserve to tighten further, boosting market momentum as we approach year-end. Create your live VT Markets account and start trading now.

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