Tag Archives: stock market

Still a Bull Stock Market Bias – Typical Low Expectations Reactions

ReactionThe stock market has come under pressure as of late even though the Expectations Indicator signaled low expectations on 6/12/2012.  Although it may appear the bears have taken control of the stock market, the fact is the market is trading just as a low expectations market would.

When we look at the current activity, we need to evaluate what is causing the pressure and what brings relief. For example, last week the market traded down considerably with the anticipation of a large credit ratings agency lowering 15 banks credit ratings. Since the release was due after market trading hours the market closed nearly on its lows for the day. On following trading day the market popped on the news with a common sentiment the “it could have been worse”.

This sense of relief is a typical response to an environment where there are low expectations. No matter what the ratings changes where the low expectations market environment expected worse.

Today and in the coming days the stock market is anticipating more news that should have the similar effect of trading down on the anticipated event followed by a relief rally on the news. This behavior is very typical in the early stages of low expectations.

We should expect the market to transition from this “it could be worse” environment to a more optimistic one as expectations build.

To learn how to create and track the “Expectations Indicator”, read The Art of Expectations available at Amazon.com right now..

The Right Shoulder in Bear Stock Market

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.