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U.S. Stocks: Is the Rally for Real?
The Short Term Update can be your near-term market guide
By Bob Stokes
Mon, 11 Jun 2012 17:30:00 ET
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Last week, the stock market rallied in the face of
 
  • Europe's debt crisis
  • Higher unemployment
  • Prospects of a "fiscal cliff"
  • Far East economic slowdowns
  • Middle East political turmoil 

Some market commentators point to the market's resilience, valuation measures, a weak but improving economy and a financial system that's more stable than it was during the 2008 crisis. 

During the May decline, many of these observers said "This is a great opportunity for investors on the sidelines to get in at a better price."
 
It's clearly true that last week's rally was a nice bounce off the recent low. But keep in mind what our June 6 Short Term Update said after the Dow closed higher 286 points:
 
Some of the market's biggest jumps occur in bear markets, as overleveraged shorts are forced to square their positions when stocks turn up from a deeply oversold condition. Both the Dow and S&P were up 2.3% today, while the higher-beta NASDAQ leaped 2.4%. The NYSE advance/decline ratio closed at 6.81:1, its strongest day since December 20, when it finished at 7.15:1. NYSE up volume as a percentage of total volume was 91.8%, its strongest showing since December 20, too. As always, context is key...
 
So what is the context of last week's market gain?
 
Well, the Friday (June 8) Short Term Update began the answer by saying
 
This daily S&P 500 chart places the waves into a larger context.
 
That chart displays the Elliott wave count going back a full year. 

This revealing chart comes with three paragraphs of commentary that put the recent rally into perspective. The issue also has twelve more paragraphs and eleven more charts: You'll read and see exactly what our conclusion is regarding the larger trend.

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Tags: Elliott wave, investment decisions, investment strategy, investor psychology, long-term trend, market forecasts, S&P 500, Short Term Update, technical analysis
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