Elliott Wave Options: Zig-Zag Pattern May Reach Above 4600?

The market continues higher, following its strong gains for the year so far. It’s even defied expectations for a summer decline, which tends to be in line with historical monthly trends.

Stocks even continued higher following a rebalancing in the market index. The goal of rebalancing was to take some of the weight out of the tech stocks that have led the market this year.

It’s now possible on a technical basis that the market could continue higher with a zig-zag pattern. The market has reached a potential point of resistance when looking at an Elliott Wave pattern. However, stocks could break through that resistance and move higher.

If so, the S&P 500 could rally a bit more, hitting 4,600, as it did on Thursday, before a potential correction. If there’s a correction, stocks could drop to 4,320. That’s a drop of a bit over 5 percent that could play out in the final weeks of summer.

Earnings season may help push stocks higher. This year, investors have expected the economy to perform poorly. Yet it’s held up well, with a strong labor market and corporate earnings.

However, as inflation remains high, and pressures to keep it high remain, investors shouldn’t expect the market’s runaway performance to continue indefinitely.

The Treasury market remains somewhat rangebound, which suggests that the bond market sees more reasons to be cautious than stocks right now.

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