Week 44/5 of 52 | SPX Is Another 20% Correction Coming?S&P 500SP_DLY:SPXRobert_V12The SPX S&P 500 is still in a bull market. But I'm starting to question how much longer this rally can continue without a major correction. Looking at the weekly chart, something caught my attention. Over the past several years, the S&P 500 has followed a remarkably consistent rising channel. Every major pullback has eventually attracted buyers, and the market has continued making new highs. But there's another side to that story. In 2022, we saw a major correction of roughly 19% within the structure highlighted on my chart. In 2025, another sharp decline of approximately 20% followed. Now, as we approach the end of 2026, the index is once again trading near the upper boundary of that long-term channel. I'm not saying history has to repeat itself. But I think the risk of another significant correction deserves more attention than it's getting. 1. The Rising Channel: Are We Running Out of Room? The first thing I want to highlight is the long-term ascending channel. For years, the S&P 500 has moved between these two rising trendlines. The lower boundary has generally offered opportunities for buyers, while the upper boundary has marked periods when the market becomes increasingly extended. We're currently dealing with the second situation. The SPX recently reached a high near 7,845, entering the potential exhaustion zone I've marked between 7,750 and 8,000. Since then, the market has struggled to maintain its momentum. On October 30, the index closed at 7,580, following a sharp 1.82% decline. Does reaching the upper channel mean the market has to crash? Absolutely not. A strong bull market can remain overextended for much longer than investors expect. But buying near the upper boundary of a mature trend usually comes with a different risk/reward profile than buying near its lower boundary. The channel doesn't tell us when to sell. It tells us where we should start paying closer attention to risk. And right now, that risk looks increasingly interesting. 2. The RSI Is Telling a Different Story This is probably the most important part of my chart. While the S&P 500 has continued trading near record highs, the weekly RSI has been losing momentum. Notice the descending blue trendline I've drawn across the recent RSI peaks. Price has remained elevated, but the strength behind the move appears to be fading. The weekly RSI is now around 53.57, compared with its RSI moving average near 62. Why does this matter? Because momentum often begins to deteriorate before the price structure clearly breaks down. A bearish RSI divergence occurs when price makes a higher high while RSI makes a lower high. This suggests buyers are still pushing prices higher, but with less momentum than before. Of course, divergence alone is not a sell signal. We've seen plenty of situations where RSI weakened while the market continued climbing. But when momentum deterioration appears near the upper boundary of a long-term rising channel, I believe it's worth taking seriously. The market doesn't need to collapse tomorrow for this divergence to matter. It could simply be an early warning that the current rally is becoming exhausted. 3. The 40-Week Moving Average: The Line I'm Watching I've also added the 40-week simple moving average to the chart. For long-term investors, this is one of my favorite ways to distinguish a normal pullback from a more meaningful deterioration in market structure. At the moment, the 40-week SMA sits near 7,318, while the S&P 500 is trading around 7,580. That means the index remains above an important trend reference. And this is why I'm not ready to declare the bull market over. Here's what I'd be watching. First: A sustained decline below 7,500 would suggest that the recent selling pressure is developing into something more meaningful. Second: A weekly close below the 40-week SMA, currently around 7,318, would raise questions about the health of the intermediate trend. Third: If the index breaks that average, rebounds, and then fails to reclaim it, I'd become considerably more defensive. That last situation would be especially important. A temporary break below a moving average can easily become a bear trap. But a failed recovery, followed by a lower high, would provide stronger evidence that sellers are gaining control. The difference between anticipating a correction and confirming one is important. Right now, I'm anticipating the possibility, not claiming confirmation. 4. Elliott Wave: Could This Be the Final Stage? I've also marked a possible five-wave structure on the chart. According to Elliott Wave Theory, markets can advance through five-wave impulsive structures, often followed by a corrective phase. My interpretation is that the current advance could represent a late stage of the broader bullish cycle. However, I want to be careful here. The wave labels are a speculative interpretation rather than a fully validated textbook impulse. In particular, the overlap between the proposed first and fourth waves means the count should not be treated as a conventional impulse without further qualification. Still, I find the broader concept interesting. We have a mature advance, weakening momentum, and prices trading near the upper boundary of a multiyear channel. None of these factors individually predicts a top. Together, they make me question whether the market is entering a period where upside becomes more difficult and downside risk increases. 5. What Would a 15–20% Correction Actually Look Like? This is where things get interesting. Using the recent high near 7,845 as our reference: A 10% correction would bring the SPX toward approximately 7,060. A 15% correction would bring it toward approximately 6,670. A 20% correction would put the index near 6,275. These aren't random targets. They're percentage-based scenarios drawn from the recent high. The first major area I'm watching is around 7,300–7,000, where the moving average and additional trend references become relevant. If that region fails, the lower portion of the long-term channel becomes much more interesting. A deeper move toward 6,250–6,400 would bring the index closer to the magnitude of the historical corrections highlighted on my chart. Here's an important distinction. Just because the market experienced two corrections of similar magnitude doesn't mean a third one is statistically due. Markets don't operate on a schedule. The purpose of comparing those declines is to understand the potential downside within an otherwise bullish long-term structure. A 20% decline would be painful, but it wouldn't automatically mean the end of the secular bull market. That's something I think investors often forget. 6. What Could Trigger the Correction? Technical setups become more interesting when market conditions start supporting them. Recently, investors have become increasingly sensitive to technology valuations and the enormous amount of capital being spent on artificial intelligence infrastructure. The October 30 selloff showed how quickly sentiment can shift when expectations are already high. For me, the concern isn't necessarily that corporate America suddenly stops growing. It's that investors may already be pricing in an extraordinary amount of future growth. And when expectations become too demanding, even good results can disappoint. That's how strong companies can experience substantial stock-price corrections without their businesses completely falling apart. A change in earnings expectations, weaker economic data, or further pressure on highly valued technology stocks could become catalysts. But I wouldn't pretend to know which event, if any, will trigger the next major decline. 7. What Would Prove This Bearish Idea Wrong? I always like to establish what would make me reconsider an idea. If the S&P 500 successfully reclaims the 7,750–7,845 region, breaks above 8,000, and maintains that breakout with improving weekly momentum, the bearish scenario would become considerably weaker. An expanding bull market can invalidate overbought or exhausted-looking technical setups. And I wouldn't want to fight a confirmed breakout simply because the channel looks extended. The stronger bullish case would involve new highs accompanied by improving RSI, rather than another divergence. That's why I'm watching both possibilities. I'm not interested in predicting an exact market top. I'm interested in recognizing when the balance between risk and reward starts changing. Final Thoughts The S&P 500 has rewarded investors who stayed bullish for years, and the long-term trend is still technically intact. But I don't think we should ignore what's happening underneath the surface. We're near the upper boundary of a multiyear rising channel. Weekly momentum has weakened. A possible late-cycle wave structure is developing, and the 40-week moving average is now becoming an important level to monitor. My base case is not an immediate 20% crash. I think the market could first test the 7,300–7,000 region. If that area fails and the index begins forming lower highs, a deeper correction toward 6,250–6,400 becomes a scenario worth preparing for. For now, I'm cautious near these levels. The biggest mistake may not be missing the final few percentage points of this rally. It may be assuming that the next correction can't happen simply because the market has been so strong. What do you think? Are we looking at a healthy pause before another leg higher, or is the S&P 500 finally approaching a more significant correction? This is a speculative technical analysis, not a prediction or financial advice.