The 3-Year Rally: It Doesn’t Have to End This Way – Or Does It?

Here is great chart which shows another divergence in the stock market. If you have been following my weekly stock market outlooks, published each Friday, you will know I am in agreeance with the article below. My outlook continues to be that we are in a bear market rally. That means the current push higher may go a bit further but is likely to tucker out before, or very near, the 52-week high. Check out the full analysis tomorrow, but in the meantime this article looks at a couple issues with the current market environment.

~Cory Mitchell, CMT
VantagePointTrading

The 3-Year Rally: It Doesn’t Have to End This Way – Or Does It?
The market’s trend is set to accelerate 
August 09, 2012

By Elliott Wave International

Is it wise to forecast financial markets based on what central bankers say?

Look no further than a chart of long-term stock market prices for the answer: No major trend change ever followed any of those announcements.

Even so, the financial media spends obscene amounts of time analyzing every utterance of central bankers, especially during the past few years of global economic distress.

Elliott Wave International takes a different approach:

The positive seasonals at the end of July, beginning of August are now dissipating…Equally important, a whole host of inter-market divergences are occurring.

The Fed made their announcement today, the ECB’s governing council meets tomorrow and the U.S. unemployment statistics are posted on Friday. These seem to be the main focus of the financial media. On the other hand, our focus is on the markets and in particular, the wave structure.

The Financial Forecast Short Term Update, August 1

That issue of the Short Term Update shows charts of the Dow’s and S&P 500′s wave structure, and it provides insightful commentary about a high-confidence near-term forecast.

The quote above mentions “a whole host of inter-market divergences.” The chart below from the Aug. 1 Short Term Update reveals one of them:

The publication adds:

Each successive up leg within the push from early June has occurred with slightly lesser upside momentum…This chart, which we published Monday (July 30), shows the percentage of S&P stocks above their 10-day moving average. By this measure, the most recent rise from July 24 has been the weakest so far.

Please note that this analysis makes no mention of comments from Federal Reserve Chairman Ben Bernanke or European Central Bank President Mario Draghi.

The U.S. stock market rally that began in March 2009 is now more than three years old. Yet many experts forecast that the trend will continue higher.

You deserve an independent alternative to the conventional wisdom. See what we see in the Elliott wave pattern to learn where prices are headed from here.

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