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The Big Fake Out in U.S. Markets
Learn to see through the market's tricky maneuvers
By Bob Stokes
Mon, 23 Jul 2012 17:30:00 ET
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The stock market's Elliott wave structure is clear. Yet, recent price action may have set up unsuspecting bullish investors for a fall.
 
After trading closed July 18, The Financial Forecast Short Term Update noted:
 
The Dow's 335-point rally over the past four days has the earmarks of a "fake out" move.
 
One of those earmarks was the 10-day New York Stock Exchange advance/decline ratio.
 
Take a look at this chart from that issue of the Short Term Update (wave labels removed):
 
 
  
The NYSE advance/decline ratio has been tepid, particularly the past two sessions. Today's 116-point DJIA intraday rally was accompanied by breadth of about 2:1. By session's end, the Dow was up 103 points, not far from the day's intraday high, yet a/d's contracted to 1.67:1. This chart of the 10-day NYSE a/d ratio shows the deteriorating participation in the market's push, which, in the current context of the wave structure, is a strong ... sign.
Short Term Update, July 18
 
Two days after that chart published the Dow Industrials fell 120 points. The decline continued into Monday, July 23.
 
The Short Term Update also forecast the start of the 1,150-point, May 1 - June 4 Dow decline.
 
The rally should turn down early next week ...
 
Global bourses remain relatively weak versus the U.S. market and there has been a NYSE tick and breadth divergence since Wednesday's close, which is consistent with a rally that is nearing an end.
Short Term Update, April 27
 
Indeed, the Dow Industrials hit an intraday high of 13,338.70 on May 1 before turning lower.
 
During the market rally that began on June 4, bullish sentiment has also climbed. For example:
 
The veteran investing guru and chairman at Omega Advisors believes growth will continue at a modest pace, but stocks will climb because they're underpriced and supported by several factors.
CNBC, July 18
 
On July 23, even after the Dow opened with a triple-digit decline, an investment advisor with a major bank said, "This is a good area to start accumulating stocks."
 
What does the Short Term Update see ahead?
 
As noted at the beginning of this article, the Short Term Update sees a clear picture of the market's Elliott wave structure.
 
But please know this:The Short Term Update's forecast differs from the two opinions expressed above.
 
Learn why. Plus, discover the Short Term Update's just-published price targets for U.S. markets. 

Tags: Elliott wave, market forecasts, oscillators, Short Term Update, technical analysis, technical indicators, trade targets, Traders, U.S. STOCK MARKET
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