BofA Warns of Three-Wave S&P 500 Correction, Potentially Dropping to 6,850
Claire Weston
Bank of America's technical strategy team warns the S&P 500 is entering a three-wave correction spanning Q3, with a worst-case drop to 6,850 — roughly 6% below current levels — while maintaining a bullish full-year outlook for a Q4 rebound.
What is a "three-wave correction," and how bad could it get?
BofA's global technical strategy head Paul Ciana labels this pullback an abc three-wave structure — a pattern from Elliott Wave theory where prices decline in three distinct legs.
The correction is expected to play out across Q3 in a "sideways-to-lower" grind, not a sharp crash.
Worst case: the S&P 500 drops to 6,850, about 6% below current levels. This means → even under the most bearish scenario, BofA sees a technical correction within a bull market, not a trend reversal.
Why are three technical signals flashing red at once?
Signal one: momentum divergence. Price remains near highs, but the 14-day RSI — a gauge of buying vs. selling pressure — has slipped to roughly 49. In plain terms = the index is holding up, but the energy behind it is fading.
Signal two: TD Sequential fires a "red 13." The S&P 500 triggered this signal on June 1. It flags that the rally has run long enough for exhaustion risk to rise.
Signal three: Elliott Wave fourth-wave low. The index hit 7,334 on June 10; Ciana's team reads that as the fourth-wave trough. This means → a break below 7,334 would confirm the correction is underway.
What does "bull trap" mean here?
Ciana's team flags a specific risk: if the index bounces and prints a marginal new high near 7,741, investors should be wary.
That move could form an "expanding flat" pattern — price fakes a breakout above the prior peak, then reverses hard. In plain terms = it looks like a breakout but works as bait — buyers who chase it get caught.
This reflects BofA's stance on any near-term rally: it may happen, but the next leg up could be unreliable.
Are the Nasdaq and chip stocks already pricing this in?
The Nasdaq 100 fell roughly 4% this week, with pressure arriving ahead of the broader market.
Broadcom dropped 10%, Nvidia 8%, Intel 7% — chip and memory names led the selloff.
This means → the S&P 500's correction signals are not isolated; heavyweight tech stocks are already voting with their feet.
Can you still be bullish for the full year?
Despite the short-term caution, Ciana's team maintains a bullish full-year stance.
They expect the market to rebound from the correction in Q4, with a possible "Santa Claus rally" into year-end.
The key level to watch right now: whether the S&P 500 holds 7,334 — its critical wave-structure support. Hold it and the correction stays contained; lose it and the pullback deepens.
Content is for reference only, not financial advice.