The S&P 500 index has shown complex behaviour using Elliott Wave analysis. The W-iii wave peaked at $6099 in December, while W-iv possibly bottomed at $5773 in January; W-v reached $6147 on February 19.
The index encountered Fibonacci target zones, but fell short of its anticipated peak. Currently, if it maintains above $5732, it could potentially rise to $7122-7746. A failure to hold above $5900 may lead to a drop towards $5116.
Bearish Sentiment And Market Reversal
Bearish sentiment remains high at 57% for three weeks, with the CNN Fear & Greed Index showing Extreme Fear, indicating potential for an upward bounce in the near future.
What this data tells us is that the broader market remains in a delicate technical position. If prices stay above $5732, broader sentiment and technical factors suggest a potential rally to new highs, possibly exceeding $7000. However, if prices slip below $5900, the risk of a larger drop to around $5116 comes into play.
The index has stalled near key Fibonacci levels, which means we might be seeing either exhaustion in the prevailing trend or a pause before further movement. The fact that W-v halted at $6147 without reaching an extended peak signals hesitation. When markets fail to decisively break above expected Fibonacci targets, it often suggests either waning momentum or a deeper structural correction ahead.
Bearish sentiment is elevated, holding at 57% for several weeks. When negativity remains this high, it historically sets up conditions for an eventual reversal upwards. This aligns with the CNN Fear & Greed Index displaying “Extreme Fear”—a level that has often preceded rebounds in the past. If short positioning has become excessive, mean reversion could drive prices higher in the coming weeks.
Risk Management And Trade Positioning
For risk management, keeping a close eye on how the index behaves around $5900 should be a priority. If that level fails to provide support, a larger retracement may take shape, perhaps approaching $5116. But as long as $5732 holds, technical setups favour another leg higher.
Trade positioning should weigh these probabilities carefully. If bearish sentiment unwinds through short covering, this could accelerate upward momentum. On the other hand, if support breaks, liquidity-driven selling may bring about deeper declines. Watching volume spikes near support and resistance zones can provide clues about whether a trend shift is gaining strength.
