Elliott Wave Options: Forecasting an Election Correction? Wave 5 Top?
The stock market has bucked seasonal trends. While September and October are historically the two weakest months for stocks, stocks trended higher. And while the market’s volatility index has ticked higher to 20, it’s done so without a selloff.
This break from the historic norms isn’t unusual. Markets can often be unpredictable. And historic trends are never 100% certain. Traders need to be nimble for such trend breaks.
Going forward, however, markets may continue to buck the trend. That could mean a post-election pullback. Stocks typically rally after the uncertainty of an election period has passed.
Yet on a technical basis, markets are overbought. And markets took a breather after a six-week rally higher. With key earnings underway, there will be significant daily volatility. But it may not mean stocks continue to trend to new all-time highs for a few more weeks.
Using Elliott Wave theory, markets could be reaching a Wave 5 extension. That could push the S&P 500 to 6,000. But from there, investors may face a correction that lasts for a few weeks.
Even with a correction, markets remain on track for a strong year. Traders may want to take off leveraged positions before the election. And use any market pullback to buy back into the market.