Elliott Wave Options: Elliott Wave 4 Break Down? Cryptic Fed Leaves Traders Guessing
The market has seen more volatility in the past few weeks after a quiet run higher since the start of the year. The increased activity reflects growing uncertainty in markets by traders and investors alike.
One reason for that increased volatility has come from the Federal Reserve. They’ve continued to raise interest rates this year. Since the start of the rate hike cycle, they’ve gone from zero percent to over five percent. And they’ve hinted at more hikes to come.
The start of rate hikes, which vastly increased the cost of capital for borrowers, fueled last year’s bear market. And with rates still going higher, this year’s market rally may look premature.
That can be seen with traders mixed as to whether or not the Fed will raise rates in November.
In the meantime, that’s leading to mixed signals in the market as well. The potential Elliott Wave 4 drop of the past few weeks should lead to a Wave 5 that takes stocks to new highs.
However, with rising uncertainty, the market is also showing a head and shoulders pattern right now. That’s a bearish sign that stocks could have more room to decline.
In the short-term, that bearish sign may prevail in the coming weeks before a strong rebound. Seasonally, that also makes sense, given that August and September are poor performing months for the market. And October tends to have the worst one-day drops of all.