BofA: S&P 500 Flashing 3-Wave Correction Signals

What is BofA warning about the S&P 500 right now?

Bank of America is warning that the S&P 500 is heading into a three-wave "abc correction" through the third quarter of 2026. A team led by Paul Ciana, BofA's global head of technical strategy, laid out the call in a client note published Friday. The bank's worst-case target puts the index at 6,850 — roughly 6% below current levels.

The note describes the expected pattern as "sideways-to-lower." Ciana's team flagged three distinct technical signals that together point to a corrective phase already underway.

What are the three warning signals BofA identified?

According to Business Insider via AOL, Ciana's team is watching these three signals:

1. Diverging momentum The S&P 500's price has risen, but momentum gauges have not kept pace. The 14-day Relative Strength Index (RSI) — a measure of how quickly prices are moving — cooled to around 49 on Friday. That divergence signals fading buying power and a price trend at risk of reversing.

2. A "red 13" exhaustion signal The TD Sequential is a technical indicator that tracks how long a trend has run. When it prints a "red 13," the rally has lasted long enough to risk running out of steam. The S&P 500 flashed that red 13 on June 1, Ciana noted.

3. Entry into Elliott Wave four Elliott Wave Theory is a framework that says markets move in five-wave cycles. Wave four is a small pullback before the final phase. The S&P 500 traded around 7,334 on June 10, a level BofA believes represents that fourth wave. A drop below 7,334 would "reinforce that a corrective phase is underway," the bank said.

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What is BofA's specific price target for the correction?

BofA's downside scenario puts the S&P 500 at 6,850. That would represent a 6% decline from where the index was trading when the note was published. The bank also flagged a level to watch on the upside: a move toward approximately 7,741 could be a "bull trap consistent with an expanding flat," Ciana warned.

Here's a summary of the key levels BofA is tracking:

Why does summer 2026 look particularly risky for stocks?

The seasonal backdrop adds another layer of concern. As Investing.com analysis reported in May, the May-through-October window has historically produced an average S&P 500 return of roughly 1.7%, compared to over 7% for the November-through-April window. June through September accounts for the bulk of that weakness.

The same analysis noted that 2026 is a midterm election year. Going back to 1962, the average maximum intra-year drawdown in midterm election years has been around 17% — materially worse than the roughly 13% average for non-midterm years. The S&P 500 has averaged a peak-to-trough decline of nearly 19% between April and October of midterm years.

Breadth is also deteriorating. The equal-weight S&P 500 declined about 1% over the same period that the cap-weighted index rallied roughly 14% off its late-March low. The percentage of S&P 500 stocks above their 200-day moving average dropped to roughly 56% even as the index printed new highs.

How are tech stocks performing as this warning lands?

The Nasdaq 100 ended the week around 4% lower. The selling was concentrated in chip and memory names. Business Insider's reporting noted Broadcom fell 10% for the week, Nvidia dropped 8%, and Intel declined 7%.

Those moves reflect broader doubts about the strength of the bull market, particularly as the rally in chips and memory stocks pauses.

Does BofA still think stocks go higher by year-end?

Yes. Despite the near-term caution, Ciana's team said they remained bullish on stocks overall. The bank sees markets rebounding from the correction in Q4, possibly in a "Santa rally" at the end of the year.

Here's what we know so far: BofA is not calling an end to the bull market — it is calling a rough patch through Q3, with recovery expected to follow.

The key near-term risks the bank is monitoring:

• A marginal new high near 7,741 that could act as a bull trap
• A break below the June 10 low of 7,334, which would confirm the corrective phase
• A worst-case drop to 6,850 if the correction deepens

This warning lands as broader stock market correction risk is being flagged by multiple strategists — not just BofA. The convergence of weak seasonality, midterm-year volatility patterns, and deteriorating breadth is unusual. Companies racing to fund AI expansion and AI model access may find capital markets less forgiving if the correction materializes. Investors watching AI licensing programs and AI salary data for signals of sector health will want to track whether tech leadership continues to narrow.

BofA's next concrete milestone to watch: whether the S&P 500 breaks below 7,334 — the June 10 low the bank identified as the likely Elliott Wave four bottom.