Elliott Wave Options: Should You Buy this Dip? … Elliott Wave 4 Confirmed!

Markets may have delivered a Santa Claus rally this week, but the prior week’s sharp selloff may have spooked investors. Investors were disappointed by the Federal Reserve, but then moved higher.

So what’s next for investors? Will fear come back after the holidays? Or was the recent selloff simply a function of investors shifting their expectations quickly? Looking at events now, it’s likely that markets are now ready to trend higher.

The pre-holiday selloff was likely driven by traders who were overleveraged. And as markets sold off on the news that the Fed would slow its pace of rate cuts, additional sale points were hit. The result? A cascading selloff.

Fortunately, reasonable inflation data and the quiet holiday trading season were able to stem the tide. And it’s likely that markets could continue higher into 2025.

After all, interest rates are still on track for some further declines in 2025, which remain bullish. And as long as inflation and unemployment data remain strong, markets can adapt to a slower pace of interest rate cuts.

For now, investors should expect markets to trend higher, albeit at a slower pace. Stocks may face a selloff if the Fed avoids cutting at its next meeting. But interest rates staying higher for longer also means a higher return on cash and other defensive investments.

For the full analysis on where markets could trend next, click here.