In case you were hiding out Tiger Woods' style far away from the mainstream media over last month, let me be the first to say: January saw an abrupt end to the US stock market's record-setting winning streak. Last count, the Dow Jones Industrial Average plummeted 4% in its worst monthly loss in a full year.
And, according to one February 1, 2010 MarketWatch piece, "The time to consider an exit strategy" has officially arrived. Here, the article captures the public's astonishment turned acceptance of the Dow's boom-to-gloom shift:
"The Dow has shocked the bulls out of their complacency. After all, analysts were looking for the bull market to last until at least the second half of the year. Investors were not prepared for such a sharp decline and now at least some of the chatter has gone from 'how high will the market go?' to 'how low will it fall?'"
Let me get this straight. The powers that be say it's time to "consider an exit strategy" --AFTER the Dow has already plunged 700-plus points to land at its lowest level in two months. That's about as helpful as building a life raft AFTER your ship has begun to sink.
Then, those same sources go on to say investors were "not prepared" for the degree and depth of the stock market's decline. This is only partly true. On "Main" Street, the early January flood of bull-is-back-type headlines gushed in and washed all the bears away.
Yet -- on our "Elliott wave" Street, preparation for a "sharp" decline in the Dow was fast in place. One week before the market turned down from its January 19 top, the January 13 Short Term Update went on high bearish alert with this commanding insight:
"The Dow's diagonal remains in tact and its form is clear. We will afford the pattern a bit of leeway over the next one-two days... but the structure is very late in developement. That means a trend reversal is fast approaching. A potential stopping range is 10,725-10,740. A close beneath [critical support] will confirm that the diagonal is over and the market has started a down phase that should draw prices significantly lower. Once a diagonal is complete, prices swiftly retrace to near its origin, which in this case is 10,263.90, the very first downside target."
Soon after, the Dow peaked within four ticks of our cited upside target; next, it went on to fulfill the second part of its Elliott wave script with a staggering triple-digit slide to "near the origin" of the diagonal triangle pattern, and then some.