Bank of America just dropped a technical analysis that basically says: buckle up, because the S&P 500 is about to get weird this summer.
Here’s the deal: BofA’s technical strategists are seeing a cluster of warning signs that suggest we’re heading into what they’re calling an “abc correction”—fancy Wall Street speak for a three-wave decline that could drag on through Q3. Paul Ciana, the bank’s global head of technical strategy, put it bluntly: “Summer roadmap is a three-wave correction. Potential for double correction.”
Translation? The market might be setting up for a rough ride, and if you see the S&P 500 hitting around 7,741, don’t get too excited. That could be a “bull trap”—basically the market’s way of faking you out before things get messy.
What’s Got BofA Spooked?
Three things are flashing red on their technical dashboard:
First, momentum is diverging from price. The S&P 500 keeps climbing, but the Relative Strength Index—basically a measure of buying power—is cooling off. When these two stop dancing together, it usually means the party’s ending.
Second, the TD Sequential indicator (a technical tool that measures trend exhaustion) flashed a “red 13” on June 1st. That’s the market equivalent of a smoke detector going off—it means the rally has been running so long it’s running out of gas.
Third, the index entered what Elliott Wave Theory calls the “fourth wave”—a small pullback before the final phase of a market cycle. The S&P 500 hit around 7,334 on June 10th, which BofA thinks marks this wave. If it drops below that, it confirms the correction is officially underway.
The Worst-Case Scenario
In a true doomsday scenario, BofA sees the S&P 500 potentially dropping to 6,850—that’s about a 6% decline from current levels. Not catastrophic, but definitely worth paying attention to.
The good news? Strategists remain bullish overall. They think markets will rebound in Q4, possibly with a “Santa rally” at year-end. So this summer correction might just be a speed bump on the way to a stronger finish.
Meanwhile, chip stocks are already taking it on the chin. Broadcom’s down 10% for the week, Nvidia’s off 8%, and Intel’s sliding 7%. The Nasdaq 100 ended the week down 4%, which tells you where the real pain is concentrated.
Bottom line: Don’t panic, but don’t ignore the warning signs either. Summer’s shaping up to be a test of your portfolio’s resilience.
