posted on 10 July 2016
from Elliott Wave International
Investors who jump on "sure things" in the stock market usually lick their wounds with regret.The decision of British voters to leave the European Union appeared to represent low-hanging fruit to short sellers. After the June 23 vote, the Dow plummeted 610 points on June 24 and tumbled another 261 points the next trading session on June 27.
Even professional investors thought the stock market pain would persist. A June 27 Wall Street Journal article focused on Brexit:
"This is likely to be a fairly prolonged process that unfortunately is going to be a bit of a messy negotiation -- that's not great for asset prices alone," said [a] portfolio manager at Fidelity Investments.
But, contrary to popular belief, we've observed that events -- even historical ones like Britain's decision to leave the EU -- do not govern the market's trend. Instead, the market's price pattern unfolds according to the Wave Principle, which provides a detailed model for how investors behave.
Based on the Wave Principle, our June 29 Short Term Update said:
Monday's [June 27] low marks the end of the pullback from the April-June highs in the Dow and S&P 500. The next Minor-degree advance is starting ... .
The next day, June 30, the Dow ended the session up 235 points, which carried the index to its fifth straight higher monthly close.
Later that evening, a CNBC headline quoted one of its well-known hosts:
This rally wasn't supposed to happen
The article goes on to say:
Suddenly out of nowhere -- after a Brexit was supposed to create a disaster in the stock market -- acquirers came out of the woodwork to spend billions to buy other companies, which crushed the short-sellers.
Indeed, July 1 was another positive day for the Dow with the senior index closing up 19.
Elliott wave-minded investors have learned to expect what takes the majority of investors by surprise.
The July Elliott Wave Financial Forecast says:
The coming month could be a big one for the stock market.
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