Related Topics
Stocks , Investing
     

Some Rallies Are Real. Some Are “Fake.” Here’s How to Tell Them Apart.

Two trading days before the DJIA skyrocketed 1086 points, one indicator showed THIS.

by Bob Stokes
Updated: January 02, 2019

No market goes straight up or down without countertrend moves, which often fool investors into believing that the prevailing trend is over and a new one has started.

Our Dec. 21 U.S. Short Term Update warned subscribers not to be tricked amidst the recent turmoil. After reviewing the stock market's progressively lower prices, EWI Chief Market Analyst Steve Hochberg said:

Countertrend rallies will likely be sharp and may start at any point now.

Boy, was he right!

Just two trading days later, the DJIA posted its largest single-day point advance ever. As you'll recall, the index closed 1,086 points higher on Dec. 26.

The optimism on that day was reflected in this Marketwatch headline, which expressed the view of a financial firm's investment chief (Dec. 26):

Stocks are 'close enough to a bottom' for investors to step in

That investment chief might turn out to be correct. After all, the DJIA did finish 260 points higher the next trading day. And stocks have firmed up some more since then. The question is, will this last, or is this one of those "fake" rallies?

If it is, financial history shows that "stepping in" during countertrend rallies can be a losing proposition.

Robert Prechter gives this example through this chart and commentary from his June 2018 Elliott Wave Theorist:

PublicLovesThem

Forty years ago, a brilliant and accomplished doctor asked me what I thought he should do with his portfolio of stocks. I looked at the purchase dates to find that he had bought all his shares in December 1968. December 2, 1968 was the day of the high in a B-wave advance in the DJIA. The average held near that level through December 13, when the Value Line Composite index, which was heavily weighted toward secondary stocks, made an all-time daily closing high that stood for decades. Presuming my friend did not make his investment during the holiday season, he must have done so within a week of the top day in either the Dow or the VLC. The arrow in the chart shows that timing. The ensuing bear market crushed prices for 1968's high-flying stocks.

Elliott wave analysis can help you see the markets at several degrees of trend. When you see which way the tide is pulling, it's easier to spot eddies that might spin, for a short while, in the other direction. An invaluable tool to avoid the market's "head fakes."

Find out how to get our latest insights without any obligation on your part. Look below to learn more.


Prepare NOW for Major Market Moves in 2019

Will the big jump in stock market volatility in 2018 continue into 2019?

The Elliott wave model provides a high-confidence answer!

Once you learn what the Elliott wave model indicates, you can relax as you make decisions about your portfolio.

Get our stock market insights, risk-free for 30 days. Look below to learn how to get started …

 

Here's How Your Financial Forecast Service Team Works to Prepare YOU For New Opportunities

Read This, And Then Let Us Show You FFS in Action, 100% Risk-Free

Your Financial Forecast Service team includes three of the best-known market analysts in the world – Robert Prechter, Steven Hochberg and Pete Kendall. If you are familiar with Elliott wave analysis, you know exactly who they are.

No other analysts in the world, anywhere, undertake the depth of research that goes into the Financial Forecast Service. Throughout the month, Bob, Steve and Pete sift through mountains of data, often studying 100 years of data or more. Why? Because a chart of the big, long term waves is the only way to know precisely where in the pattern we are today – and therefore, precisely where we are most likely to go next.

Here's what you get with the Financial Forecast Service, 100% Risk-Free for 30 days

Every Month

At the end of each month, your team of analysts gets together and lets the sparks fly. The result? The Elliott Wave Financial Forecast. It's just one of three essential parts of your Financial Forecast Service. When you get a new issue, you can be sure it contains the most critical information you must know about the markets this month.

Three Days Per Week

In addition, at the end of the U.S. trading session every Monday, Wednesday and Friday, your team updates its monthly analysis with the Short Term Update. In STU, they prepare you for the most likely price moves in the next 3-5 trading days.

Latest Research

Finally, once every month, Robert Prechter sends you his very latest research about Elliott waves in the markets and society. For 30+ years, The Elliott Wave Theorist has delivered more groundbreaking market research than any other publication on the planet. One month Bob might prepare you for a multi-year move in a market; the next he will deliver a jaw-dropping study that challenges everything you thought you knew about investing. Whatever he writes, it will help you hone your grasp of the psychology behind the markets – and give you an enormous advantage over other investors.


Prepare for Risks and Opportunities That Will Surprise Most Investors

See our eye-opening forecasts for stocks, bonds, gold, USD and more.

Risk-Free, Start Your Subscription Now

$59

for 1 month of unparalleled market insights