A "Blow-Off Top"? For Stocks, There Is a Better Topping Indicator
Bulls markets in stocks end "with a subtly slowing ascent"
by Bob Stokes
Updated: June 26, 2020
Many investors believe that bull markets in stocks always end with what is termed a "blow-off."
Today, they again may be expecting that final spike higher as a sign that the rally from the March lows really is over.
But our research of stock market history shows that "blow-offs" are not a must. In fact, here's a quote from our December 2013 Elliott Wave Theorist:
...the stock market has been losing upside momentum for seven months.
This is how market tops have always formed, not with a rocket blast but with a subtly slowing ascent.
Even in 1929 the market did not blow off; the rise that year was slower than the market's rise in the second half of 1928.
Looking at recent history, signs of a slowdown in market momentum were also showing up right before the Oct. 9, 2007 market top. On Sept. 28, 2007, our Elliott Wave Financial Forecast showed subscribers this chart and said:
The chart shows that while the DJIA has retraced approximately 92 percent of the decline from the July high and the NYSE Composite Index 87 percent, the NYSE advance-decline line has retraced just 42 percent. In other words, the rally is narrow, as the majority of NYSE stocks are underperforming. ... Taken as a whole, the majority of stocks are not keeping pace with the push in the major stock indexes, which is bearish behavior.
The stock market top that occurred less than two weeks after that analysis did not end with a blow off. The bear market that followed saw the Dow Industrials lose 54% of its value.
Now, bull markets in commodities -- gold, oil and the like -- do usually end with major price spikes. We'll explore this topic in another article, though. Today, let's stay focused on stocks.
In stocks, as we've established, it's the loss of upside momentum, not a "blow-off," that is a better signal of a forming top.
With that in mind, here's what Robert Prechter says in his new, June 2020 Elliott Wave Theorist:
I have been paying close attention to momentum figures.
Prechter goes on to provide specific momentum data -- plus, insights into volume measures and price chart formations -- that would be highly useful to today's investors.
It's well-researched, critical, timely analysis -- whether you're a bull or a bear.
The Theorist is part of EWI's flagship investor package. You can review its latest analysis for 30 days without any obligation.
Follow the link below and you can see the new Theorist on your computer screen in moments.
The NEW Elliott Wave Theorist Describes "Infrequent" Chart Formation
This classic yet "infrequent" formation recently appeared in the DJIA's price action: It's best to follow it very closely.
The reason why is simple: Big price moves almost always follow.
What's more, another "famous technical pattern" has also formed in the Dow's price chart.
This analysis alone would be well worth the price of admission, yet you'll also find useful commentary on momentum and volume.
The bottom line: The June Elliott Wave Theorist is a must read for all investors.
Make the decision to review the new Elliott Wave Theorist -- a monthly publication which is part of our flagship investor package.
Follow the link below to learn about our risk-free trial.
On June 5, our Metals Pro Service showed subscribers a gold chart and said a price action was "opening the door to considering bullish potential" beyond the 2020 highs. The $140 per ounce rally to 9-year highs followed this analysis.
When the trend turns in major stock indexes, a curious thing often follows: certain traders think the old trend is still unfolding. In this video, EWI's Brian Whitmer shows you exactly how this happens and why it's so dangerous.
Our July Global Market Perspective notes that there has been a "distinct relationship" between two economic / monetary indicators over the past 20 years. The annual change in one of them has "collapsed." Learn what our global analysts expect for the other indicator "over the next 18 months or so."