Last week’s drop raised worries about the S&P 500’s expected path to 7120. The main issue is accurately identifying the Elliott Wave patterns, especially during important 4th and 5th waves. Any mistakes in the early wave counts can impact forecast accuracy. The daily line chart, last updated on September 4, indicated specific wave targets that were within 2% of the actual performance. Last week’s low matched earlier predictions for the wave pattern, confirming the ongoing adherence to the Elliott Wave structure.

Potential Wave Discrepancy

The S&P 500 hasn’t hit the anticipated 7120, stopping at 6920, which is a 2.8% difference. This gap may be due to a complex wave formation still unfolding. If the S&P 500 stays above 6631, it could rise to 7120. However, a daily close below 6720 might point to a further drop to around 6575 before any eventual rebound. Market analysis is ongoing as conditions evolve, but the potential for Wave 5 to reach 7120 is still possible. Caution is crucial since markets and wave structures can be unpredictable. The Elliott Wave insights offer guidance but require regular updates. Despite last week’s fluctuations, our analysis suggests that the S&P 500 could still reach our 7120 target. We view last week’s closing low of 6720 as a likely end to a corrective wave, paving the way for a final upward push. Our main strategy should focus on potential gains while being mindful of a possible dip. Recent economic data also supports this view. The latest October Consumer Price Index (CPI) report was slightly lower than expected at 2.9%, easing concerns over future interest rate hikes from the Federal Reserve. This has led the CBOE Volatility Index (VIX) to drop back to around 16, showing that immediate market anxiety is subsiding.

Trading Strategy and Risk Management

For traders looking to make the most of the expected rebound, this is a good chance to use options. We suggest setting up bull call spreads with strike prices targeting the 7100-7120 range for late December 2025 or January 2026 expirations. This strategy limits risk while aiming for the desired upside. However, we need to heed warning signs. A daily close below 6720 would suggest that the current upward movement is temporary and that a further decline toward 6575 may happen before the final rally. Traders with long positions might consider buying protective put options with strike prices just below 6720 to safeguard against short-term risks. This type of complex price movement can happen during the final stages of a major rally, similar to what we saw in late 2023 before the market reached new highs in 2024. The current situation hints that the overall direction is upward, but it may include one more downturn. This makes options strategies that manage risk more appealing than holding long futures positions without a hedge. For those trading S&P 500 futures, the key level to watch is last week’s lowest point of 6631. We see this as a crucial support line for the current bullish outlook. A break below this level on a daily closing basis would require us to reevaluate the entire wave count. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now