Elliott Wave Analysis: S&P 500 Can Look For Deeper Correction After Relief Rally, as Key Support Levels Break

The US stock market turned sharply lower last week following weak US economic data. On Friday, the S&P 500 moved toward its channel support from January 12th, but since that channel was broken, along with the 6020 swing support, we now have important warning signals, suggesting a more complex correction is unfolding and that pause on stocks will be a bit longer. More weakness can follow after a relief rally.

At this stage, we remain neutral on US stock indexes, but based on Elliott wave analysis, I see a chance for further short-term weakness after a relief rally. The current pattern on illustrated chart below suggests a potential ongoing flat correction, meaning the price could even drop toward 5800, which is a key support level, especially considering that 5784 was the swing low after Trump won the US election in November 2024. So plenty of stops can be around that price and massive liquidation "would help" to stabilize the move.

Before that, there is another important support zone at 5882, which aligns with a large gap on the cash market from January 15th—a level that could provide temporary stabilization. Notice that usually when this big gaps are filled, price will tend to reverse.

But what's the most important right now is that at the smaller time frame, the drop from 6162 on SP500 appears impulsive on the hourly chart (first chart above), which is crucial when defining the temporary trend. Given this structure, after a relief rally, we should prepare for more downside.

Additionally, the put-call ratio has been rising slightly over the last week, but it is not yet at extreme levels like those seen in August, September, November, or December of 2024. This suggests that fear is still not fully there yet, meaning the market may need more downside before stabilizing.

*source stockcharts

But despite this sell-off in last few trading days, the SP500 still appears to be forming only a higher-degree correction within a larger uptrend, rather than a top in place. So, I believe uptrend can still resume ahead of summer.

If you like this analysis and want more updates on the S&P 500, I cover this market daily in the ForexAnalytix members section, along with FX pairs, gold, silver, and even some cryptocurrencies.

Have a great day!

Grega Horvat

Forex Analytix