Credit: Original analysis by EWM Interactive
Elliott Wave Analysis: S&P 500 as of July 21st, 2025
The S&P 500’s behavior has long been a barometer for broader market sentiment, and when examined through the lens of Elliott Wave Theory, it offers a structured and often predictive insight into investor psychology and market cycles. As of July 21st, 2025, the current wave structure sheds light on where the market might be headed next and what that means for traders and investors alike.
Overview of Elliott Wave Theory Principles
Before analyzing the recent price action of the S&P 500, it’s helpful to briefly revisit the foundational structure of Elliott Wave Theory. According to this principle, market prices evolve in repetitive wave patterns caused by collective investor psychology.
– A complete Elliott Wave cycle typically consists of 5 waves in the direction of the main trend, followed by 3 waves in a corrective phase.
– Impulse waves (waves 1, 3, and 5) move in the direction of the market trend.
– Corrective waves (waves 2 and 4) retrace parts of the preceding impulse waves.
– These cycles can nest within one another, creating fractal structures at various degrees.
Now, let’s examine how these concepts apply to the S&P 500 as of late July 2025.
Long-Term Structure: Post-2020 Rally Completion
Since the COVID-19-induced crash in early 2020, the S&P 500 has embarked on a multi-year bullish rally that most analysts attribute to central bank liquidity injections and strong corporate earnings. However, from an Elliott Wave perspective, this entire rally appears to be unfolding in a five-wave cycle that may now be nearing completion.
Key elements of the long-term wave analysis include:
– Wave 1: The initial recovery from the March 2020 lows saw rapid expansion as high-beta stocks led the rally.
– Wave 2: A modest correction followed in mid-2020, consolidating gains and resetting technical conditions.
– Wave 3: Often the strongest and longest wave, this occurred from late 2020 through 2022, powered by tech stocks and reopening dynamics.
– Wave 4: A larger correction in late 2022 amid inflation fears and interest rate hikes tempered investor enthusiasm.
– Wave 5: The final leg of the rally, which began in early 2023 and appears to have extended through the first half of 2025.
The Elliott wave count suggests that, unless this structure evolves into a rare expanding diagonal, the recent price moves signal the end of this multi-year uptrend.
Wave Count as of July 2025
Based on the daily chart and applying classical Elliott Wave interpretation, EWM Interactive observes the following:
– Wave 5 peaked in early July 2025 and indicates possible truncation.
– The terminal wave unfolded in a clear five-wave pattern, further confirming it as the final wave of the larger sequence.
– Evidence from momentum divergences and declining market breadth support the theory that buying enthusiasm weakened during the final leg.
Importance of Fifth Wave Truncation
A potentially truncated fifth wave is notable. This occurs when the final wave fails to move beyond the top of Wave 3, often indicating that the prevailing trend lacks the strength to sustain itself further. In this case:
– The S&P 500’s final highs during Wave 5 did not exceed the momentum or breadth metrics recorded during Wave 3.
– Divergence is seen in key market indicators such as the RSI and MACD, highlighting investor hesitation at higher levels.
– This kind of structure often precedes a sharp reversal, particularly if followed by a breach of key support levels.
Corrective Phase: The First Wave Down
The most telling evidence from Elliott Wave analysts comes from what happens after the peak. The S&P 500 has registered a notable decline since peaking in July 2025, which could very well be the beginning
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