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Stocks: Is the Really Scary Part Just Ahead?

Here’s one of the actions which investors take when they get “rattled”

by Bob Stokes
Updated: May 24, 2022

Big daily selloffs have occurred since the stock market's downtrend began in January.

For instance, on May 18, the Dow Industrials closed lower by 1,161 points -- a 3.6% drop. The S&P 500 shed 4% on the same day.

Yet, most investors aren't exactly shaking in their boots. Panic is absent.

After the market close on May 18, our U.S. Short Term Update showed this chart and said:

NoPanic

Traditional measures of investor complacency and panic, such as the CBOE Volatility Index (VIX), remain somewhat subdued relative to prior extremes over the past six months. One of the ways we measure the level of investor panic is to compare the one-month VIX futures contract to the three-month VIX futures contract, which is shown by the histogram at the bottom of the chart. When investors are rattled, they bid the short-term contract (one month) above the longer-term contract (three month), feeling as if they need "protection" from a falling market now versus later (see grey ellipses).

During the most vicious phase of a major bear market, the spread between the one- and three-month futures contract should dramatically soar.

In the meantime, there was this headline just two days after that big May 18 selloff (CNBC, May 20):

These are the cheapest stocks in the S&P 500 that could be buying opportunities

Yep, many market participants are still viewing the drop in prices as a time to go bargain hunting rather than running for the hills.

Memories of the longest bull market in history die hard. Remember, it started back in March 2009.

However, panic will set in when the downtrend reaches a "third of a third" Elliott wave. If you're new to Elliott wave analysis, the third of a third is the strongest part of a trend -- both up and down.

As Frost & Prechter's Elliott Wave Principle: Key to Market Behavior, says:

Third waves are wonders to behold. They are strong and broad, and the trend at this point is unmistakable... The third wave of a third wave... will be the most volatile point of strength in any wave sequence.

Our latest Elliott wave analysis will help you to anticipate the juncture of that third of a third wave.

You can access our Elliott wave analysis of the U.S. stock market by following the link below.

Be Prepared When the Bottom Falls Out -- Again

This was seen in 2007. Everything seemed to be going along just fine -- and then, seemingly overnight, the bottom fell out.

Almost no one expected it.

I say "almost" because Elliott Wave International did sound the alarm. It's on record.

On Jan. 5, 2007, our Elliott Wave Financial Forecast published a special section titled:

2007: The Year of Financial Flameout

As most everyone knows, 2007 saw the start of the worst financial crisis since the Great Depression of the early 1930s.

All of this is said to say this: It would be wise to know what EWI's analysts are saying now.

Follow the link below to read our flagship Financial Forecast Service so you can prepare.

Financial Forecast Service

$97

All month long, Financial Forecast Service helps you stay ahead of the waves in the U.S. markets on the timeframes that matter the most. FFS covers the stock indexes, bonds, gold, silver, the U.S. dollar, as well as market psychology and cultural trends. It is our most popular service.

Comprises the monthly Elliott Wave Financial Forecast, 3x-per-week Short Term Update and at least 12x-per-year Elliott Wave Theorist.

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