Elliott Wave Options: New Bearish Elliott Wave is Bad News

Since the stock market peaked in July, it’s pulled back, making higher highs and higher lows. This type of zig-zag pattern is normal for a market selloff. And while seasonal trends suggest a year-end rally in November and December, it’s possible that investors are now in a final leg down.

As this plays out, the S&P 500 is likely to see some choppy trading in the weeks ahead before it can rally into the final weeks of the year.

The good news? There isn’t much more room for markets to drop. The market started to show some support this week, when the S&P 500 slid to around the 4,150 level.

A further drop from here would likely find much strong support at the 4,100 level. That’s a drop just under than 1 percent from current prices.  

Many investors may be fearful at that point, as the market has now made a 10 percent drop from the summer high. Chances are there will be a lot of talk about the end of the bull market, and the start of a bear market.

However, a 10 percent pullback likely represents a short-term buying opportunity, as they tend to be normal events in longer-term bull markets. From the bottom, stocks will likely see a rally, potentially in the 7-10 percent range.

So while the markets may have some bad news, it’s in the short-term. And it’s setting up for a high probability rally in the final weeks of the year.

To view the full analysis, click here.