U.S. Stocks: Stronger Wall Street Winds Ahead?

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U.S. Stocks: Stronger Wall Street Winds Ahead?
Has the turbulence only started?

By Bob Stokes
Tue, 15 May 2012 17:00:00 ET

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For the past few months, S&P 500 trading was quiet -- too quiet.

Volatility was absent as the market mainly traded sideways. Many participants were complacent. Some opined that the market was simply gathering its strength before the next leg up.

We viewed the lackluster market action as the calm before the storm. Read this excerpt from the April Financial Forecast

The chart [below] shows the S&P’s daily percentage swing (daily range divided by the previous day’s close). This year there has been a dearth of wide-ranging market days. Notice the difference between daily S&P moves from August to December and the much narrower range now. The unwavering, incremental step higher reminds us of the middle of the Great Asset Mania, when significant pullbacks became exceedingly rare events. In a May 1997 piece titled “Bulls, Bears and Manias,” The Elliott Wave Theorist observed that when markets “become smoothly-trending and free of fractal variations, they depict an unhealthy patient and signal an impending ‘heart attack.’” Once again, the market has entered a state where it appears largely free of fractal variation, a strong sign of impending trouble. As the February issue of EWT observed, “a dull, narrow, low-volume market can be bullish when pessimism reigns, but that is not the condition today.”

Indeed, market volatility has recently spiked as stock prices have turned south.

The CBOE Volatility Index is considered the best gauge of market fear. On May 14, it reached its highest level in three months as the S&P 500 lost 1.11 percent. Moreover, 5.8 stocks fell for every share that rose; that's the highest ratio since the start of the Dow Industrials decline on May 1.

Now, keep in mind that we've already experienced the calm.

The question is: what is our forecast?

Well, when all weather computer models tell the same story, meteorologists can issue a high-confidence forecast. Likewise, our approach to stock market forecasting is in-depth and comprehensive. We leave no stone unturned.

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Tags: Elliott wave, market forecasts, S&P 500, technical indicators, U.S. STOCK MARKET, VIX, volatility, volume, Wall Street

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