(Please Note: Today's discussion on the U.S. stock market observes the passing of legendary pop artist Michael Jackson. In honor of his music, several memorable song titles are italicized in bold.)
As the U.S. stock market continues its white-knuckle hold on a 20%-plus rally from early March, the mainstream experts are singing along to one song in particular: "We've Got Blue Skies" ahead in the world's leading economy. "2009 could be the year that we put the worst behind us," observes a recent Associated Press.
Okay then, what about this song title: "Remember the Time" -- i.e. the second-half of 2007. The major U.S. averages were soaring to their highest levels amidst a five year-long "nominal" bull market (measured in U.S. dollars). And, according to those very same experts, the Dow Jones Industrial Average was one rocket ride away from doing the "Moon Walk." Here, the following news items from the time say plenty:
- "An Aging Bull Can Still Be A Raging Bull." (New York Times)
- "There's an overriding feeling that we will keep the problems in the credit markets and residential real estate sector from spilling over to the broader economy. That has investors excited about stocks again." (LA Times)
- "What Bad News? Stocks Roar To Record Highs. It's all good, that's the motto right now." (Wall Street Journal)
YET -- from its all-time high on October 11, 2007, the Dow endured a 17-month long free-fall to its lowest level in 12 years. When the dust had finally cleared in early March 2009, bullish sentiment was "fighting for its life inside a killer, thriller tonight."
In the words of one March 2009 Wall Street Journal:
"Analysts are just slashing numbers and people are trying to extrapolate that earnings plunge into Dante's Inferno."
YET, again -- From its March 9, 2009 bottom, the DJIA embarked on a powerful 30%-plus rally to five-month highs.
Here's the thing: As soon as the majority of marketgoer's believe stocks are going one way -- "Don't Stop Till You Get Enough" -- they are likely set to go the other. The mainstream experts can't see this because they themselves are part of the crowd.
Elliott Wave analysts step outside of the herd and examine financial markets through the objective lens of technical analysis. This way, staying IN FRONT OF the major turns of trend in stocks has been as easy as "ABC." On this, the following archive of our Financial Forecast Service publications takes the wheel:
July 17, 2007 The Elliott Wave Theorist:
"Aggressive speculators should return to a fully leveraged short position now. We may be early by a couple of weeks, but the market has traced out the minimum expected rise, and that's enough to act on."
Soon after, as the DJIA neared its own historic October 11, 2007 apex, the October 9 and 10 Short Term Update amped up the urgency of its analysis and wrote:
“Odds have increased that a market high is in place. The structure, coupled with turns in the other markets, suggests a top is in place. The potential, at the least, is four a large selloff... Watch Out! The market faces a stout correction."
The 50%-plus sell-off that followed took none of our subscribers by surprise.
Then again: One week before the U.S. stock market landed at its 12-year low of March 9, our February 27, 2009 Short Term Update utilized a specific turning pattern to outline a specific time window for the onset of a major upside reversal. In STU's own words:
"By all indication, this pattern is back on track... the turn will come on or near March 10, 2008. Anywhere in this time period may mark a turn, which will obviously be a market low."