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."
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