Elliott Wave Options: Expect More Weakness… Elliott Wave 4 Downside
The market downtrend of the past few weeks reflects a few concerns. That includes the market’s strong performance since the start of the year. And concerns about a slowing economy. The latest data out of China suggests slow growth there.
The good news? With the labor market holding up well, and with investors adjusting to today’s level of interest rates, the market’s downside is limited. However, there is still some more downside ahead.
On a technical level, the S&P 500 index spent little time testing the 50-day moving average, following its drop there on Tuesday. The index seemed to have some support slightly lower at the 4,400 level but broke below that on Thursday.
That leaves a final potential move lower to the 4,250 range. From there, traders can likely expect some consolidation.
The stock market is in the 4th wave of the Elliott Wave pattern. So the good news is that once this down wave is completed, a fifth wave will likely lead to a further rally.
Such a move should move higher than the peak of the third wave. That indicates the current market selloff is setting up conditions for a rally in the coming weeks that could lead markets to new highs.
That may take a few months to play out. Markets are seasonally weak in August and September. On average, markets fare well in October, but the month has a number of historically poor-performing years.