Elliott Wave (EW) describes market moves as repeating waves across different timeframes. It uses a “three steps forward, two steps back” structure and a fractal pattern. EW outlines a preferred price path, but that path changes if key levels break. This analysis looks at the S&P 500 advance since the November 2025 low (green W-4). That move is labelled green Wave-5 and is described as an overlapping ending diagonal (ED). We track the ED as it develops through its expected stages.

Ending Diagonal Structure

An ending diagonal has five overlapping waves: grey W-i, ii, iii, iv, and v. Each grey wave is a three-wave pattern, which creates extra overlap and complexity. The index is back near the same level as late October last year. It has tagged 6985 ten times and has held support near 6780 four times. This suggests a developing range, with: – An upside target near 7190 (6985+6985-6780) – A downside target near 6575 (6780-6985+6780) The key level is the November low at 6521. A break below 6521 would suggest the ED is complete and a larger black W-4 is underway, ideally toward 5500-6125. Holding 6780 is the third warning level. A daily close below 6780 implies a 60% chance the uptrend is over. If 6780 holds, grey W-v is projected to reach 7120-7190 into the April turn date window. If it does not hold, 6575 becomes the next level to watch.

Options Positioning Framework

With the market coiling tightly, the S&P 500 appears pinned between 6780 support and 6985 resistance. This standoff is building pressure and suggests a larger move may be close. For derivative traders, the message is to prepare for a breakout rather than assume the sideways action will continue. This long stalemate has also pushed volatility lower. The VIX recently hit a year-to-date low near 13.5. Low implied volatility makes options cheaper, which can create a good setup for breakout trades. Strategies like straddles or strangles, which benefit from a large move in either direction, look attractive here. If you expect an upside breakout, a sustained move above 6985 would be the trigger to buy calls or set up bull put spreads. The target would be the 7120-7190 zone, using April or May 2026 expirations to give the final wave time to develop. A positive RSI divergence is a small sign that bullish momentum may be building. Recent data also supports the bullish case. The January 2026 CPI report came in at 2.8%, slightly below expectations, which reduces fears of more Fed tightening. That could be the catalyst needed to push through resistance. In options, open interest is building in the 7100 and 7200 April call strikes, suggesting many traders are positioned for this outcome. On the other hand, a daily close below 6780 is the first major warning to turn bearish. That would support buying protective puts or using bear call spreads, with 6575 as the first target. If the November 2025 low at 6521 breaks, it would confirm a major top and point to a much deeper correction. We saw a similar, frustrating range in Q3 2023 before the market launched into a strong year-end rally. That period also had mixed economic signals and high uncertainty, much like today. The eventual break was sharp and directional, showing that long ranges often end with a decisive move. Create your live VT Markets account and start trading now.

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