Posted Friday, July 13, 2007
by Alan Hall
The Dow's sharp spike into record territory yesterday (Thursday, July 12) caught many investors by surprise. It blindsided traders too, forcing them to cover short positions and add points to the rally, the largest one-day gain in almost four years. This sudden move occurred despite bad news fundamentals that you can read about in our cover story later today.
This chart and commentary were published in Wednesday's Elliott Wave Short Term Update. This forecast provides an excellent example of how Elliott analysis can prepare you for unexpected and fundamentally illogical market moves.
"[Bottom Line]: The major stock indexes remain in an up trend. Odds continue to favor new highs before an important top is established."
"I’m glad we published the triangle potential in the DJIA in Monday’s Update because this pattern is what appears to have formed. Yesterday’s decline drew prices beneath 13,524.50 (Jun. 29), the previous wave (i) of v (circle) high. This “overlap” is not allowed under Elliott’s rules so when it occurred we knew that the decline from 13,670.50, Monday’s high, could not be a fourth wave within a still-developing five-wave rally pattern. Instead, the highest probable explanation is that the entire sideways, overlapping move from 13,692 (June 1) is a wave iv (circle) triangle, as seen above."