Stocks typically fall faster than they rise

Rising stock prices vs. investor fear: When one is present, the other is usually absent.

Yet the two were actually in each other's company around the time of the most recent high in the Dow Industrials (May 1):

This week the Dow carried to a new recovery high without generating a corresponding new low in the VIX. This suggests a sudden hesitancy compared with the all-out, risk-on stance registered by the VIX's behavior in March. The NASDAQ's non-confirmation against the Dow's new high also suggests a sudden reticence to ramp up portfolio risk. Last year, EWFF used a similar hiccup in the VIX to help identify the May 2011 high. With the Dow at or near the end of its rally, the odds favor a similar outcome now.

Elliott Wave Financial Forecast, May 3, 2012

Here's the accompanying chart from that issue (wave labels removed):

When the markets were still going up at the beginning of 2012, were you warned that they would soon go down?

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This article was syndicated by Elliott Wave International and was originally published under the headline The Smell of Fear: Detecting the Dow's Scent. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.