The structural rally in the S&P 500 from the 3492 cyclical panic low created a multi-year impulse that still remains intact. The first impulse leg pushed aggressively toward 6165, completing a wave consistent with a re-leveraging phase reinforced by liquidity expansion, narrowing volatility, and a notable shift in institutional COT positioning.
The subsequent retracement toward 4842 which also aligns with January 4th, 2020, pre-COVID high at 4804 formed a technically significant pivot. This zone has acted as a primary consolidation shelf, where long-only funds and asset managers accumulated exposure while commercial dealer hedging decreased.
From that stabilizing base at 4842 – 4804, the index accelerated into a steep vertical ascent toward 7000, driven by a combination of trend-following flows and systematic volatility compression. The market behavior above 6900 has been consistent with the “parabolic exhaustion” pattern. This phase leveraged funds aggressively add spreads while outright directional net long exposure begins to flatten or even decline. This phenomenon is visible in the COT structure: leveraged funds are holding large short positions as hedges, while asset managers still retain the majority long exposure. Dealer intermediaries remain heavily short because they absorb the other side of institutional demand, but their sharp weekly changes (+73k long, +140k spread) confirm increased hedging activity rather than new directional conviction.
The current price behavior, hovering near 7000 and pressing toward 7240, suggests the market is entering the late phase of an intermediate cycle. If the index clears 7240 with volume support, the next resistance cluster emerges around 7480–7550, but the stronger magnet remains the 7800 zone, which aligns with:
- 1.618 extension of the 3492 → 6165 primary impulse
- 2.0 extension of the 4804 → 7000 secondary leg
- Planetary-based cycle timing: Saturn–Jupiter harmonic (Gann 180°/360° overlays)
- Long-term 45-degree angle from the 3492 low (Gann Square of Price)
This confluence makes 7800 a high-probability terminal level for the next major swing.
Before that higher leg materializes, the market is likely to see a sharp corrective pullback from 7240, which is a natural exhaust point based on both time and momentum symmetry. A retracement toward 6600–6420 is reasonable, and in an extended flush, the mid-year cycle could test 5140, which is a historical magnet from longer-term Gann cycles and matches the midpoint of the 3492–7000 structure. This would not break the long-term bull trend but rather reset market internals before the final push toward 7800.
The structural trend remains bullish in the long horizon, but the market is entering a compression-to-exhaustion stage. A pullback from 7240 appears likely before a renewed surge into 7800+, which may complete the long-term expansion cycle begun at 3492. Traders should be prepared for heightened volatility, large hedging adjustments, and the possibility of a multi-week corrective phase before the final advance unfolds.
Source: https://www.fxstreet.com/news/beyond-the-noise-sp-500s-true-long-term-direction-202601012352
