S&P 500: Waiting for Bernanke (NOT) | Elliott Wave International

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S&P 500: Waiting for Bernanke (NOT)
"Triangles appear to reflect a balance of forces..."

By Vadim Pokhlebkin
Tue, 17 Jul 2012 19:00:00 ET

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This week's trading in U.S. stocks began with a slow, sideways move. Analysts explained why: The Fed Chairman Ben Bernanke is testifying before Congress on Tuesday and Wednesday. The markets will remain "frozen" until investors figure out what to expect next from the Fed: more monetary easing? Or maybe Mr. Bernanke has some other economic stimulus up his sleeve?

On Monday, July 16, here's what that sideways move in the S&P 500 -- circled in red -- looked like on a price chart (copied from our U.S. Intraday Stocks Specialty Service; some Elliott wave labels erased for this article):

In Elliott wave analysis, there is a name for a sideway-moving market like that: a triangle.

"Triangles appear to reflect a balance of forces, causing a sideways movement that is usually associated with decreasing volume and volatility. Triangles contain five overlapping waves that...are labeled a-b-c-d-e. In the stock market, when a triangle occurs in the fourth wave position, wave five is sometimes swift and travels approximately the distance of the widest part of the triangle. Elliott used the word 'thrust' in referring to this swift, short motive wave following a triangle."-- Elliott Wave Principle - Key to Market Behavior.

What's more, the post-triangle "thrust" is supposed to be in the direction of the preceding trend. So on Monday, while the mainstream was waiting on Bernanke, our U.S. Intraday Stocks Specialty Service was cautiously preparing subscribers for a price "thrust" higher in the S&P.

The "thrust" indeed came -- right at the open on Tuesday, July 17. The Elliott wave model doesn't work every time (nothing does), but you would probably agree that it's better than "waiting on Bernanke."

Find out where the S&P 500 (and NASDAQ, and DJIA) are likely to go tomorrow >>

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Tags: Ben Bernanke, Dow Jones Industrial Average (DJIA), Elliott Wave trading, futures trading, Nasdaq Composite, S&P 500, trading lessons

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The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading and investing decisions.