Although the Expectations Indicator has signaled a Bear Market, it has also shown that expectations are low and therefore giving the market the momentum it needs to form the right shoulder to a “head and shoulders” chart pattern forming on the Dow Jones Industrial Average.
It is important to understand that the stock market can go up in a bear market and down in a bull. What determines overall market direction is higher highs in a Bull Market or lower lows in a Bear Market. The Expectations Indicator triggered low expectations, but also in doing so signaled a long term Bear Market.
The Expectations Indicator measures the market’s expectations on future conditions. If expectations are low then the market is more inclined to go up since it is not expecting much and the margin of error is large. If expectations are high then the market expects too much and the margin of error is small making the primary market direction down.
What makes the Expectations Indicator so special is its objective and definitive readings that takes emotion out of the process. To learn how to track market expectations read “The Art of Expectations”.
The following is a monthly chart of the Dow Jones Industrial Average with the “Neckline” noted. To learn more about the “Head and Shoulders” chart pattern click here.