On 7 May, when the S&P 500 was near $7,340, the update said the index faced late-stage rally risk as it neared the end of a smaller third wave (grey W-iii) or a final fifth wave.
Since then, the index has traded as low as $7,356, removing gains made since that update. It formed nine blue waves into last Thursday’s high at $7,517, reaching a 323.6–361.8% Fibonacci extension zone.
Fibonacci Extension Signals Late Stage Rally Risk
The text notes that 123–161.8% is a more typical third-wave target, while 323.6–361.8% is more common for extended third waves. It adds that fifth waves more often reach 176.4–200%, supporting a peak in grey W-iii of green W-5 rather than the wider black W-3.
It also reports fewer participants in the advance/decline line during the rally, and says it took almost 4 weeks for price to respond. A prior 4-week divergence from weeks ending 13 May to 10 June 2024 was followed by a further ~4.5% rise, then an approximately 10% correction.
The outline expects a small fourth-wave pullback (grey W-iv) to $7,310–7,420, which it says has happened, then a fifth-wave rally (grey W-v) to 376.4–400.0%: $7,650–7,720. It then projects a >1000p bear market.
The S&P 500 has pulled back into our target support zone of $7,310-$7,420, effectively testing the lows of early May. We see this dip as a potential entry point for a short-term bullish position. Buying near-term call options or setting up bullish call spreads could capture the expected final rally.
The index is likely in a small fourth-wave pullback before a final fifth wave higher. Our analysis points to a potential target of $7,650-$7,720 in the next few weeks. This would complete the larger rally structure that has been building.
Positioning For Final Rally Then Major Downturn
This view is supported by recent market internals, as the CBOE VIX has remained relatively subdued, closing last week at 15.2, suggesting this pullback is not driven by widespread panic. Furthermore, the equity put/call ratio climbed to 0.68 on Friday, showing an increase in hedging activity that often appears near short-term market bottoms. This indicates that while the rally’s breadth was narrowing, the current dip is building a base for another move up.
Looking back from our perspective today in 2026, we saw a similar pattern between May and June of 2024. Back then, a comparable market breadth divergence was followed by a final 4.5% push higher before a significant 10% correction wiped out those gains. This historical precedent reinforces our expectation for one last surge before a more substantial decline.
Traders should therefore prepare to shift their strategy once the $7,650-$7,720 target is approached. Protective puts or bearish put spreads could be used to position for the major downturn we anticipate will follow this final high. The expected drop of over 1000 points suggests a significant opportunity for those positioned correctly.
Weakening forward guidance on corporate earnings, with recent S&P Global data showing a downtrend in Q3 2026 margin expectations, supports a major top being near. Additionally, recent commentary from Federal Reserve governors has dampened hopes for policy easing this year, creating a headwind for equities at these valuations. This macro backdrop aligns with our technical view that the market is nearing exhaustion.
