U.S. Stocks: "A Thin Reed to Lean On"
See this price behavior difference between two stock market indexes
by Bob Stokes
Updated: October 29, 2019
When investor psychology is optimistic, stocks will rise despite bad news.
For example, during the past several weeks, there's been ongoing trade tensions, an impeachment inquiry, escalating global protests and Mideast oil field strikes.
Even so, the stock market has mainly trended higher in October.
But our analysts now see potential trouble ahead. Here's how our Oct. 25 U.S. Short Term Update began:
In a boy's adventure novel in the late 1800s, an English author wrote that "a lad of eighteen was a slender reed to lean on" in times of danger. A reed, a tall and thin type of grass, is too narrow to provide a foundation of support; hence the term "it's a thin reed" to refer to something that might seem sturdy but would break if leaned on. This may be an apt metaphor for the current stock market environment.
Thus, the name of this chart from that same issue of the Short Term Update, which went on to say:
In Wednesday's Short Term Update we discussed the diverging behavior between the DJIA and the S&P 500, with the S&P rising and the Dow lagging. ... Today, while the S&P 500 carried to meet its prior all-time high, the DJIA remains below its July 16 all-time high and below both the September 12 countertrend rally high and the October 15 countertrend high. The non-confirmation is growing between the market's two blue-chip stock indexes.
As EWI's analysts have noted before, fractured markets are unhealthy markets.
But, as always, the key determinant in the the stock market's future price path is the Elliott wave model.
Find out what our Elliott wave experts expect next for the S&P 500 index and the DJIA.
You can do so risk-free for 30 days. Look below to learn more.
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