They say most New Year's Resolutions are broken within weeks of making them. And, that certainly seems to be the case with regard to the U.S. stock market.
See, according to the mainstream experts, the world's equity leader made one single promise for the near-term future: Put the pain of 2008 behind it AND start 2009 off on a strong, confident foot.
The fundamentals were stacked in its favor: A new, invigorating President was entering the White House, bringing widespread hopes of "change," and subsequent "Obama Rally." A new, go-getter administration, a new $760-plus Billion stimulus package, a Federal Reserve interest rate cut to zero-percent -- AND a near 20% rally in the Dow Jones Industrial Average from its November 21, 2008 five-year low.
As far as the usual pundits could see, the only way for stocks to go was UP -- as these early January news items make plain:
- "A number of professional investors and economists argue that the stock markets have probably hit bottom. Anxiety appears to be easing its stranglehold on Wall Street." -- Boston Globe
- "Stocks start the new year with 250 point rally. We like to see the market shrug off bad news. That's typically a sign that we're forming a bottom." -- Atlanta Journal Constitution
- "The market's will see beyond the current bad economic data and begin a broad-based move upward…The worst has been seen." -- Bloomberg
Yet, from its January 5 high, the Dow took one step down in a precipitous fall to a three-month low -- culminating in its worst January decline EVER.
In the end, no amount of wishful thinking, government bailouts, or monetary easing can reverse the downtrend in stocks. Only a "change" in mass social mood, as reflected in the Elliott wave patterns unfolding in prices, can.
For this reason, our January 5 Short Term Update foresaw that the U.S. stock market would NOT keep its widely expected "resolution" to rally. In STU's own words:
"Hourly momentum is now rolling over, which removes the wind from the back of the near-term advance. Taken as a whole, the evidence suggests the market is rapidly approaching a period of decline.
A good deal of 'hope' is present as the market leaves the horrid 2008 and enters 2009. Hope can be a deadly emotion right now because bear markets descend a 'Slope of Hope,' a phrase that Bob Prechter coined many years ago. As such, we'd rather be slightly early than too late in anticipating a countertrend high."
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