The S&P 500 Index (SPX) has finished its recent pullback and is now on the rise. The overall bullish trend is still strong, with the price respecting key support levels, confirming that the pullback has ended. After reaching a previous high, SPX dipped in wave ((ii)). This decline happened as an A-B-C correction and ended near the 1.618 Fibonacci extension at around 6693, coinciding with blue box support on the chart.

Start of a New Bullish Phase

After stabilizing near the lows, SPX began to increase, signaling the end of wave ((ii)). The index is now entering a new bullish phase in black wave ((iii)), beginning with wave (i) and a small pullback in wave (ii). As long as the price stays above 6519.34, we expect the index to continue in wave (iii), aiming for the 100%-161.8% Fibonacci extension of wave (i), which targets a range of 6854-6914. The Elliott Wave pattern points to further upward movement, signaling the continuation of the larger bullish trend for SPX. It’s not advisable to sell, as any declines should be temporary and will likely find support. With the pullback looking complete, the overall uptrend in the S&P 500 appears ready to continue. The recent low around 6693 has proven to be strong support, and the bounce back is the first indication of a new bullish phase. We are anticipating a sustained upward move, confirming that the market has absorbed recent selling pressure. This positive outlook is supported by favorable economic data. The latest CPI report showed core inflation has eased to 2.1% year-over-year. The Federal Reserve’s neutral comments this week have eased worries about near-term rate hikes. Additionally, the VIX, which measures market volatility, has dropped from recent highs back into the mid-teens, indicating that trader anxiety is diminishing.

Trading Strategies

Given the immediate upside target of 6854-6914, purchasing call options seems like a solid strategy. Traders might consider January 2026 expirations to allow enough time for this move to unfold, targeting strike prices around 6850 or 6900. This strategy directly benefits from the anticipated upward trend while clearly defining the risk. For a more cautious approach that generates income, selling out-of-the-money put credit spreads looks promising. By placing the short strike of the spread below recent lows, around the 6600 level, traders can profit from both a rising market and time decay. This strategy fits with the belief that any further dips will be minor and will find support well above the 6519 invalidation point. We saw a similar situation in late autumn 2024 when a quick market dip was followed by a strong rally into the new year. That time demonstrated how buying during a downturn in a strong uptrend can be very effective. This historical example serves as a useful guide for the price action we expect in the coming weeks. Create your live VT Markets account and start trading now.

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