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

> Source: [https://botensten.com/articles/bofa-sp500-three-wave-correction-warning](https://botensten.com/articles/bofa-sp500-three-wave-correction-warning) (canonical)
> Author: iCharles News — Botensten, https://botensten.com
> Published: 2026-06-29

## TL;DR

Bank of America's technical strategy team, led by Paul Ciana, warned on June 27, 2026 that the S&P 500 is flashing three signals pointing to a "three-wave" or "abc correction" through Q3. In the worst case, the index could fall to 6,850 — a roughly 6% drop from current levels. Despite the near-term caution, BofA remains bullish overall and sees a potential "Santa rally" recovery by Q4.

## 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](https://www.aol.com/articles/bofa-warns-p-500-flashing-091501661.html), 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.

## 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:

| Level | What it signals |
|---|---|
| ~7,741 | Potential "bull trap" — marginal new high to be cautious about |
| ~7,334 (June 10 low) | Likely Elliott Wave four low; break below reinforces correction |
| ~6,850 | Worst-case downside target during corrective phase (~6% drop) |

## Why does summer 2026 look particularly risky for stocks?

The seasonal backdrop adds another layer of concern. As [Investing.com analysis](https://www.investing.com/analysis/market-correction-risk-why-summer-2026-looks-risky-200679612) 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](https://africa.businessinsider.com/markets/bofa-warns-the-sandp-500-is-flashing-technical-signals-that-a-three-wave-stock/8rdsf4c) 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](https://www.investing.com/analysis/market-correction-risk-why-summer-2026-looks-risky-200679612) 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](/articles/oracle-layoffs-21000-ai-expansion) and [AI model access](/articles/trump-eo-ai-model-access) may find capital markets less forgiving if the correction materializes. Investors watching [AI licensing programs](/articles/google-publisher-ai-licensing-expansion) and [AI salary data](/articles/anthropic-salary-h1b-filings-2026) 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.

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## Frequently asked questions

****What is BofA's "abc correction" for the S&P 500?****

Bank of America's "abc correction" — also called a three-wave correction — is a decline that unfolds in three distinct phases. Paul Ciana's technical strategy team at BofA warned in a June 27 client note that the S&P 500 is showing signals this pattern is already underway, with the corrective phase expected to play out through Q3 2026 in a "sideways-to-lower" pattern.

****What is the S&P 500 downside target BofA set for the correction?****

In the worst-case scenario, Bank of America sees the S&P 500 dropping to 6,850 during the corrective phase. That level would represent approximately a 6% decline from the index's levels at the time BofA published its client note on Friday, June 27, 2026.

****What is the TD Sequential "red 13" signal the S&P 500 flashed?****

The TD Sequential is a technical indicator that tracks how long a price trend has run. When it prints a "red 13," it signals the rally has lasted long enough to risk exhaustion. Bank of America's Paul Ciana noted the S&P 500 flashed this red 13 signal on June 1, 2026, one of three technical warnings the team cited in its correction call.

****What does BofA say about stocks for Q4 2026?****

Despite warning of a Q3 correction, Bank of America's technical strategists said they remained bullish on stocks overall. The bank sees markets rebounding from the potential correction in the fourth quarter, possibly in a "Santa rally" at the end of the year. The correction call is a near-term caution, not a call for an end to the broader bull market.

****Why is summer 2026 historically a weak period for the S&P 500?****

Going back to 1950, the May-through-October window has produced an average S&P 500 return of roughly 1.7%, versus over 7% for November through April. In midterm election years specifically, the S&P 500 has averaged a peak-to-trough decline of nearly 19% between April and October, with an average maximum intra-year drawdown of around 17%, materially worse than non-midterm years.