Elliott Wave Options: S&P Ignores Fed Concerns at Key Level

The stock market’s strong rally in the past few weeks has taken stocks back to levels last seen in early September. Chart data shows a number of daily gaps – where the price jumped higher than the day before.

While markets may move to retest those gaps, Elliott Wave theory looks at how markets tend to make percentage moves higher or lower from key levels. Using October’s low as a key level, markets may be at a pivot point today.

That could mean the market rally takes a pause before moving higher. That’s a possibility known as consolidation.

Stocks had a brief last week consolidation when the S&P 500 got to the 4,400 level, but Tuesday’s positive inflation data sent the index soaring to 4,500.

If we don’t get an outright pause in the coming days, it could mean that markets pull back. It won’t be much of a drop, just enough re-test a recent gap around 4,450, and then “fill” the gap before they start to trend higher.

Either way, while the inflation data is improving, markets are soaring higher and overlooking the Fed’s lingering concerns.

That could set up a market pullback, although at this point it will likely be after the holiday season. For now, traders should bet on a small decline, then a market rally into the end of the year.

To watch the full video and key chart levels, click here.