Paul Ciana, Head of Technical Research at Bank of America, has issued a rare warning: the S&P 500 Index has shown signs of weakness since its June peak and could undergo a "three-wave correction" over the coming months, with a downside target as low as 6,850—representing a potential decline of approximately 7.6% from current levels. He explicitly advised adopting a "defensive stance" between July and September and cautioned that any move to new highs might be a trap, placing his view in stark contrast to Wall Street’s prevailing bullish sentiment.
The head of technical research at Bank of America warned that the index’s recent rally is already showing signs of fatigue, and investors should prepare for a potential "three-wave correction" in the months ahead.
In a research report released on Thursday, Paul Ciana, Head of Technical Research at Bank of America, stated that$S&P 500 Index (.SPX.US)$the index has risen nearly 17% since its March low, but since reaching a recent high on June 2, the rally has exhibited clear signs of exhaustion. He projects the index could fall as low as 6,850, representing a decline of roughly 7.6% from current levels. “The summer roadmap is a three-wave correction,” Ciana wrote in the report.
Ciana noted, “The post-ceasefire rebound is becoming increasingly volatile, and correction risks continue to accumulate.” He described price action as appearing “overextended,” with momentum waning, implying investors should adopt a “defensive stance” from July through September. He also warned that any move toward a new high near 7,741 could merely be a “false breakout.”
Downside Targets and Support Zones
In his report, Ciana clearly outlined key support levels along the downside path. He expects the S&P 500 Index to find sequential support at 7,200, 7,025, and 6,850, with 6,850 serving as his base-case minimum correction target.
He also highlighted deeper risks: “With summer just beginning, a more prolonged double-correction pattern extending into October remains a key risk.” This suggests both the duration and magnitude of the current correction could potentially expand further.
Divergence from Wall Street’s Bullish Consensus
Ciana’s caution stands in sharp contrast to the current mainstream optimism on Wall Street. Last week, Société Générale strategists raised their year-end target for the S&P 500 Index from 7,300 to 8,000; JPMorgan and Fundstrat similarly maintain bullish year-end outlooks for the index.
However, Ciana is not the only one at Bank of America expressing caution. Earlier this month, Bank of America strategist Savita Subramanian and others warned investors that the current market presents "excessive risks" and recommended "taking profits." Building on this view, Ciana further provided a specific technical outlook on potential market adjustments, offering investors holding positions a reference point for risk management.
Editor/melody