This Usually Spells Trouble for the Stock Market (It’s Happening Now)
“Even short term, diverging trends can signal an unhealthy market”
by Bob Stokes
Updated: April 13, 2022
If you've been an investor for any appreciable length of time, no doubt you've noticed that all of the stock market indexes usually move in unison.
For example, when the Dow Industrials rally, the S&P 500 and NASDAQ usually do so too -- the same applies during a broad downtrend.
As our April 8 U.S. Short Term Update noted:
Think of the final days of [the big down wave] in March 2009, at the end of the Dow's 54% decline from October 2007. Nearly every stock index made a low within days of March 9, 2009--blue chips, technology, small caps, transports, secondary stock indexes--and all rallied in unison thereafter.
However, when stock indexes begin to diverge, this is usually a sign that the existing trend is about to reverse.
As a case in point, let's return to that 2007-2009 bear market that was just mentioned. However, this time, let's look at its beginning.
This chart and commentary are from the Sept. 26, 2007 U.S. Short Term Update:
Here's the structure in the DJIA, which is the strongest of the blue-chip indexes. The pattern is similar in the S&P with the main difference being that the S&P did not push above last week's high... leaving a short-term inter-market bearish divergence.
About two weeks after that analysis, the Dow and S&P topped -- kicking off a nearly year-and-a-half bear market.
Let's return to 2022 and additional commentary from the April 8 U.S. Short Term Update:
Even short term, diverging trends can signal an unhealthy market, depending of course on context.
Short term trends are diverging.
The very next trading (April 11), the Dow Industrials tumbled more than 400 points. And, as of this intraday writing on April 12, the Dow is down about 145 points.
As you might imagine, the Elliott wave model puts the recent, short-term diverging trends into context.
Learn if those 400- and 145-point drops are part of a short-term correction or the start of a prolonged downtrend.
You can do so by reading the latest U.S. Short Term Update, which is part of our flagship Financial Forecast Service.
Just follow the link below to get started.
An Entire Team of Elliott Wave Experts on Your Side
When clashing stock market opinions fill the financial press -- like now -- it's good to know that you have a deep bench of experienced Elliott wave analysts at work to show you the unfolding chart patterns.
Realize that the message of the market can change in a single day!
Rest assured: You will know shortly after we know.
Read our latest outlook for stocks, bonds, gold, silver, the U.S. dollar and more as you follow the link below.
Financial Forecast Service
All month long, Financial Forecast Service helps you stay ahead of the waves in the U.S. markets on the timeframes that matter the most. FFS covers the stock indexes, bonds, gold, silver, the U.S. dollar, as well as market psychology and cultural trends. It is our most popular service.
Comprises the monthly Elliott Wave Financial Forecast, 3x-per-week Short Term Update and at least 12x-per-year Elliott Wave Theorist.
There is a curious 8-year cycle in the euro's strength and weakness. And now that it's near parity with the U.S. dollar, it's worth talking about a curious pattern in the dollar's bouts of strength, too. Watch your Market Trek host Brian Whitmer show you a couple of eye-opening charts with big implications for global stability. (Brian's destination today is Madrid, Spain.)
Supersonic flight is making a comeback. And the timing couldn't be better. Our Head of Global Research explains why.
In January 2021, the euro was on fire, soaring to its highest level against the U.S. dollar in three years. Mainstream forex experts saw a fixed image of a giant euro bull as the demand for the "safe-haven" buck dipped amidst a widely expected post-pandemic recovery. But that image looked a whole lot different through the telescope of Elliott waves.