S&P 500: Wave 4 Pullback or Breakdown? Key Levels to Watch

The market is testing a key technical boundary. S&P 500 futures have fallen from their January 13 peak, with the decline carrying them to a low of 6923.25 earlier today. That move strengthens the case for a corrective wave 4 pullback within a larger uptrend. The primary support zone to watch is 6810-6845. This area has held firm in recent weeks, acting as a floor for the rally from the October lows.

The immediate setup hinges on two critical thresholds. A sustained break below the recent low of 6923.25 would confirm the wave 4 count is underway. Conversely, a decisive recovery above 6986 would weaken that conclusion and suggest the pullback is just a shallow correction. The Elliott Wave framework adds a structural constraint: wave 3 was longer than wave 1, so wave 5 cannot be longer than wave 3, or the entire count becomes invalid.

For now, the bounce from the low has lacked staying power, indicating sellers are in control near the key support. The market remains in a state of ambiguity, caught between the bullish impulse of the recent advance and the need for a corrective pause. The next few days will show whether this is a healthy wave 4 or the start of a deeper breakdown.

Supply and Demand Mechanics: Volume and Momentum

The bounce from yesterday's lows has been a classic case of weak supply meeting strong demand. The market found support near 6923, but the subsequent recovery has lacked the volume and conviction to carry prices higher. This is the tell-tale sign of sellers stepping in to take profits at key levels, capping the rally and reinforcing the downtrend.

Volume tells the story. Recent sessions have seen trading exceed 5 billion shares, indicating active participation in the move lower. Elevated volume on down days confirms that the selling pressure is not coming from thin air-it's being met with real selling interest. This isn't a quiet, orderly pullback; it's an active distribution of shares.

Momentum indicators back up the bearish picture. The 14-day RSI sits at 47.58, which is neutral but not oversold. That's a critical detail. An oversold RSI often signals a potential bounce, but here the index is simply in a range where the downtrend can continue without the momentum signal turning bullish. The MACD is negative at -0.570, another clear bearish signal that the short-term trend is down.

The bottom line is one of imbalance. Buyers have shown up at support, but they haven't been able to push prices decisively higher. Sellers, meanwhile, have been aggressive enough to keep the market pinned below key resistance. This dynamic suggests the path of least resistance remains to the downside, at least until the market can demonstrate a surge in volume on the upside to break the current range.

The Path of Least Resistance: Key Levels and Targets

The market's next move is defined by a clear technical fork in the road. The immediate resistance is the 6986 level. A decisive daily close above this point would invalidate the current wave 4 pullback count and signal a resumption of the primary uptrend. That's the bullish path. For now, the failure to hold above that mark confirms sellers are in control.

If the wave 4 count holds, the corrective wave is contained within a range from 6810 to 6986. The lower boundary, 6810-6845, is the critical support. A break below that zone would accelerate the decline toward the next major floor. That level is the 6550 support region, a long-term floor that has held multiple tests.

The bearish target is stark. If wave 4 completes within the current range, the subsequent wave 5 rally would be constrained by Elliott Wave rules. Since wave 1 was longer than wave 3, wave 5 cannot exceed wave 3's length. That sets a hard ceiling. The ultimate downside target, if the breakdown continues, is the prior primary low of 4835. That would represent a decline of over 30% from current levels-a massive move that would require a complete breakdown of all major support.

The bottom line is one of defined risk. The path of least resistance is down unless the market can reclaim 6986 with conviction. The 6810 support is the immediate line in the sand. A break below it opens the door to a test of the 6550 zone, with the 4835 low as the ultimate bearish target if the wave 4 count is confirmed. Traders must watch these levels for the next decisive signal.

Catalysts and Risks: What Could Break the Pattern

The technical narrative is now binary. The market is caught between two clear triggers that will define the immediate path. The first is a breakdown. A sustained daily close below the 6810 support zone would be the bearish catalyst that confirms the wave 4 pullback count is intact. That break would invalidate the current range and open the door to a test of the next major floor at 6550, with the ultimate downside target of 4835 becoming the new focus.

On the flip side, the bullish catalyst is a decisive rally. A strong, volume-driven move back above the 6986 resistance level would invalidate the wave 4 count entirely. That move would signal that the recent decline was just a shallow correction within a stronger uptrend, and the path would be clear to resume the primary advance.

The risk here is the market's current indecision. The bounce from yesterday's lows lacked the volume to carry prices higher, showing sellers are stepping in to take profits. This failure to reclaim key resistance reinforces the bearish bias. Yet, the support at 6810 is still holding, keeping the door open for a bullish reversal. The pattern will break when one side gains decisive control at these critical levels.

For traders, the setup is about waiting for the signal. Watch for a failure of the 6810 support to hold on a daily close-it would be a clear bearish signal for the immediate term. Conversely, a strong break above 6986 with volume would be the green light to look for higher prices. Until then, the market is in a holding pattern, and the next major move is dictated by which key level gets taken out.