Much of the U.S. financial community spent this past Fourth of July setting off celebratory fireworks and singing “Yankee DOW-dle” till the sun came up.
The cause for rejoicing was not, however, the 13 colonies’ independence from Great Britain 235 years ago, but rather the U.S. stock market's independence from Great BEAR-tain two short days earlier.
To wit: On the week ending July 1, stocks registered their biggest weekly rally in two years. Headlining the event was a 648 point gain in the Dow over five consecutive days of gains.
And, according to the mainstream experts, one main catalyst caused the "revolutionary" rise in prices: The authorization of Greece’s new, European Union-approved austerity measures. On this, the following news items from recent days fill in the blanks:
- “US Stocks Soar After Greece Took Action To Avoid A Default. It’s a week of major reversal. It shifted confidence very positively.” (Bloomberg)
- “The major issue that was weighing down the market in the prior five or six weeks was the issue of Greece. Now that’s cleared up, the market’s got a little more clarity.” (AP)
- “World’s biggest economy regains its footing as other tail risks such as Greece’s sovereign debt crisis recede into the background. We believe we’ve come near the end of the ‘gauntlet’ of bad data.” (Financial Post)
Here’s the problem, though. While these stories paint Greece’s new plan in an entirely positive light, the truth is not so one-sided. In reality, the key component of Greece's debt-reducing strategy is to roll over its bonds -- i.e., change the initial terms agreed upon when bonds were first issued. As a result, the S&P ratings agency will downgrade Greece’s debt to default status, which will then seriously compromise the bonds’ collateral value.
The fact that the news stories above (and countless others like them) chose/choose to bury that not-so-rosy lead speaks volumes. Namely, it says, ignorance about the negative facts is bullish bliss.
Need I remind that’s how we got into this mess in the first place?
There’s so much more to the story than the version being told by the financial mainstream. And never has the need for the WHOLE, objective picture of the world’s leading stock markets been direr. Here, EWI’s newest, July 2011 Elliott Wave Financial Forecast writes: “While the attention of the investment world remains riveted to the potential for new highs,” the truth walks out onto the stage with little notice.
The July EWFF shows you one of the most powerful indicators in the technical analysts’ toolbox: the Value Line Arithmetic Index. The VLA is computed using a geometric mean, which places more weight on down stocks. As the JUly EWFF writes, “The VLA goes beneath the surface… and is indicative of the markets growing ‘internal’ technical” strength.
To reinforce the message from the VLA index, the July EWFF also presents a clear chart of the Elliott wave structure underway in the Dow Industrials from its March 2009 low. In both Fibonacci proportion and retracement levels, the two-year-long uptrend fits the bill for one kind of move from here.