Stocks Fall: What Clues to Look for Next Time

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Stocks Fall: What Clues to Look for Next Time
Stocks just experienced the worst day of 2012. Here's one probable clue as to why.

By Vadim Pokhlebkin
Fri, 10 Feb 2012 18:15:00 ET

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This is what a chart of the S&P 500 looks like this week (Feb. 6-10; source: Google Finance):

If you saw this chart on Thursday (Feb. 9), would there have been anything to give you a clue that Friday's vertical drop would erase most of the week's gains?

For a conventional investor, the answer is probably no. Most investors have been focused on Greece, and the Greek talks looked promising on Thursday. But if you are an Elliott wave trader, things might be different.

No, Elliott wave analysis wouldn't have told you for sure that the S&P was about to tumble. But here are the clues you saw if you were reading our intensive U.S. Intraday Stocks Specialty Service on Thursday:

S&P 500

Last Price: 1352.07

2/9/2012 3:46:30 PM ET - No new high before trade has begun slumping lower once again raises the potential that the top of a ugly ending diagonal may have been struck at the earlier peak. That said...until trade is under 1338/36 even initial confirming price action that a lasting top may be in place will not have been produced.

Here's how the classic Elliott Wave Principle -- Key to Market Behavior book describes this Elliott wave pattern:

"An ending diagonal triangle occurs primarily in the fifth wave position at times when the preceding move has gone 'too far too fast,' [and implies a] dramatic reversal ahead."

A dramatic reversal in the S&P was indeed what we saw on Friday. Our intensive U.S. Intraday Stocks Specialty Service has more clues for you now as to what likely comes next >>

S&P 500, NASDAQ and DJIA -- Intensive Intraday Forecasts 9 AM - 4 PM Eastern, as the Market Trades

Learn more about EWI's intensive U.S. Intraday Stocks Specialty Service here >>

Tags: Elliott wave, European debt crisis, Greek debt, Nasdaq Composite, Robert Prechter, S&P 500, stock indexes, technical analysis, technical indicators

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