The short-term outlook for the S&P 500 ETF (SPY) shows a steady upward trend that began after the April 2025 low. This trend is marked by a five-wave impulse pattern. Wave (4) ended at 646.17, and the final leg, wave (5), consists of five smaller waves.
Wave Analysis
Wave ((i)) reached a peak of 665.13, then fell to 653.17 in wave ((ii)). It climbed again to 665.83 in wave ((iii)) and dropped to 660.28 during wave ((iv)). Finally, wave ((v)) peaked at 670.23, completing wave 1. Subsequently, wave 2 formed a zigzag shape that bottomed at 651.41.
In wave 2, wave ((a)) fell to 658.93, wave ((b)) rose to 668.71, and wave ((c)) dropped to 651.41, marking the completion of wave 2. The ETF is now moving up in wave 3, where wave ((i)) increased to 672.99 and wave ((ii)) fell to 663.30.
A pullback is expected to find support around 646.17, setting the stage for further upward movement. Overall, this analysis suggests strong upward momentum and clear support levels.
The S&P 500 ETF is indicating a strong upward trajectory, as we appear to be in a robust third wave of an upward cycle. Any short-term dips should be viewed as temporary setbacks, not the start of a new downward trend. The market’s trend remains upward in the weeks ahead.
Trading Strategy
For derivative traders, this means we should consider taking bullish positions on dips, particularly around the recent low of 663.30. Buying call options or setting up bull call spreads during pullbacks toward this level could provide a favorable risk-reward opportunity. If the price retraces further to around 651.41, it may offer an even better entry point for longer-term options.
This positive outlook is supported by last week’s strong economic data, which showed a 2.5% annual growth rate for Q3 2025 GDP. Additionally, the Core PCE inflation rate was 2.8%, showing a continued cooling trend since summer. This economic backdrop supports ongoing gains in equities without indicating an overheating economy that might prompt action from the Fed.
The Cboe Volatility Index (VIX) is currently around 18, which is high enough to make option premiums appealing for sellers. This situation resembles the choppy yet bullish market conditions of late 2023 when selling puts during dips proved to be consistently profitable. We could use cash-secured puts or bull put spreads at strikes below key support levels to generate income while awaiting entry points.
From a risk management standpoint, the critical support level remains at 646.17. Maintaining prices above this level is essential for keeping the bullish trend intact. If the price drops below this mark, it would indicate that the upward wave that started in April 2025 has failed. As long as prices stay above this support, the main strategy should focus on positioning for further gains.
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