Here’s the thing about summer on Wall Street—it’s supposed to be chill. But Bank of America just showed up with a technical analysis that basically says “not so fast.” Their strategists are waving red flags about the S&P 500, and honestly, they’ve got some pretty compelling reasons to be nervous.
The bank’s technical team, led by Paul Ciana, is calling it a “three-wave correction.” Sounds like a surfing term, but it’s actually code for “the market’s about to get bumpy.” They’re predicting the S&P 500 could drop as much as 6% through the third quarter—which might not sound like much until you realize that’s real money if you’ve got a decent portfolio.
So what’s got them spooked? Three main things.
First, momentum is losing steam. The S&P 500’s Relative Strength Index—basically a measure of how hard the market’s been buying—has cooled down to around 49. When that number drops, it means fewer people are throwing money at stocks with the same enthusiasm they were before. It’s like watching a party wind down; people are still there, but nobody’s dancing anymore.
Second, there’s this thing called a “red 13” signal. (Yes, technical analysis has the most dramatic names.) The TD Sequential indicator flashed one on June 1st, which is basically the market’s way of saying “this rally has been going on for way too long.” It’s exhausted. Think of it like running a sprint—eventually, you hit a wall.
Third, the market entered what’s called the “fourth wave.” Elliott Wave Theory (which sounds like it should be a band) suggests markets move in five-wave cycles. Wave four is the small pullback before the final push. The S&P 500 hit a low around 7,334 on June 10th, and if it drops below that, it confirms the correction is really happening.
Now, here’s where it gets interesting: BofA isn’t doom-and-gloom about all this. They’re actually still bullish long-term. They think the market rebounds in Q4, possibly with a “Santa rally” at year-end. So this summer correction? It’s more like a necessary reset than a full-blown crash.
The real pain right now is concentrated in the chip stocks that had been on fire. Broadcom’s down 10% for the week, Nvidia’s down 8%, Intel’s down 7%. These were the darlings of the AI boom, and they’re taking a breather.
The bottom line: If you’re a long-term investor, this is probably just noise. But if you’re thinking about making big moves this summer, maybe wait until the market stops throwing a tantrum. And if you see the S&P 500 creeping toward 7,741, BofA warns that could be a “bull trap”—basically the market faking you out before the real correction hits.
Summer’s supposed to be relaxing. Apparently, your portfolio didn’t get the memo.
