The recent analysis of the S&P 500 ETF (SPY) shows a positive trend beginning from its low in April 2025. This trend is part of a five-wave pattern. Wave (4) ended at 646.17, and wave (5) is currently forming a nested five-wave structure. Wave ((i)) peaked at 665.13, then dropped to 653.17 in wave ((ii)). Wave ((iii)) climbed to 665.83, wave ((iv)) fell to 660.28, and wave ((v)) hit a high of 670.23, completing wave 1.

Ongoing Bullish Movement

Next, the ETF corrected in wave 2, creating a zigzag pattern that bottomed at 651.41. From the peak of wave 1, wave ((a)) dropped to 658.93, then wave ((b)) rose to 668.71. Finally, wave ((c)) decreased to 651.41, completing wave 2. The ETF is now moving upward in wave 3. From the low of wave 2, wave ((i)) rose to 672.99, and wave ((ii)) fell to 663.30. A brief pullback is expected, looking for support at 646.17 during 3, 7, or 11 swings. This setup indicates a continuing bullish trend, supported by established levels. Given the current positive market trend, the S&P 500 ETF is advancing vigorously in wave 3. Traders should view any near-term pullbacks as chances to start or increase long positions. Key support lies at the recent low of 663.30, with a stronger support level at 651.41. This optimism is strengthened by positive economic news from early October 2025. The latest CPI report shows core inflation has dropped to a manageable 2.8% year-over-year, reducing worries about further tightening from the Federal Reserve. Additionally, Q3 GDP growth of 2.5% creates a favorable environment for stocks.

Strategies For Derivative Traders

For those trading derivatives, this situation supports strategies like buying call options or selling out-of-the-money put spreads. The VIX recently dipped to 13.2, making long call options cheaper than they have been for months. A low CBOE equity put/call ratio of 0.58 indicates strong bullish sentiment, with traders favoring upside positions. We consider the 651.41 level as crucial for the next upward move. This pattern is similar to the market behavior we observed in the second half of 2023, where a mid-year consolidation led to a strong rally into year-end. As long as the broader support at 646.17 holds, the trend continues to look favorable for further gains. Create your live VT Markets account and start trading now.

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