It’s Time To Challenge What You Think You “Know” About The Stock Market

Monday, October 30, 2017

market analysis

I know I am not the traditional author you come across on most financial sites.  Most others will provide you with traditional notions of the stock market based upon rationalities.   So, many authors will suggest that we “cannot separate public policy and geopolitics from the markets,” they will focus on “market valuations,” they will claim that “fundamentals do not support this rally,” and will provide you with many, many other reasons as to why they have continually believed that this rally would never happen.  

Yet, they have been left on the sidelines, scratching their heads for the last year and a half, as the US equity markets have rallied over 45% since February 2016.

I mean, think about all the reasons they have put before you over the last year and a half regarding the imminent risks facing the stock market, which they have lead you to believe will stop the market in its tracks.  I have listed them before, and I think it is worthwhile listing them again:

Brexit – NOPE

Frexit – NOPE

Grexit -  NOPE

Italian referendum - NOPE

Rise in interest rates -  NOPE

Cessation of QE -  NOPE

Terrorist attacks -  NOPE

Crimea – NOPE

Trump – NOPE

Market not trading on fundamentals – NOPE

Low volatility – NOPE

Record high margin debt – NOPE

Hindenburg omens -  NOPE

Syrian missile attack - NOPE

North Korea – NOPE

Record hurricane damage in Houston, Florida, and Puerto Rico - NOPE

Spanish referendum – NOPE

Las Vegas attack -  NOPE

And, each month, the list continues to grow.

Yet, the same authors you have read for years just continue to repeat their mantras that we “cannot separate public policy and geopolitics from the markets,” they continue to focus on “market valuations,” and they continue to claim that “fundamentals do not support this rally.”  

Einstein was purported to suggest that insanity is doing the same thing over and over while expecting a different result.  But, you see, in the stock market, there is a bit of a difference.  Just as trees do not grow to the sky, the stock market will not rally indefinitely.  So, we will eventually see a bear market.  Then, the broken clock syndrome will prove these authors to be “right,” rather than simply insane, and we will hear it from them incessantly about how they tried to warn us.  Yes, warn us indeed.  

Now, that does not mean we should expect analysts to be right all the time.  Clearly, I was expecting the set ups we have seen in the metals market to spark a big rally in 2017, but when we broke upper support back in September, it caused me to turn quite cautious until 2018.  But, the difference is that I use an objective methodology that listens to what the market is saying rather than trying to force a predetermined linear perspective on the market.  

And, that is the issue with most of the bearish presentations you have read for the last year and half about the stock market, while they claim they are simply “opening your eyes to the inherent risks in the stock market.”  Let me ask you a question:  Is there anyone reading this article that believes the stock market does not have risk at all times? I will not belabor this point, but, needless to say, these bearish presentations couched as “risk awareness” is not based upon objective perspectives on the stock market. 

My friends, look at the events I have listed above yet again.  None of them (nor ALL of them cumulatively) have been able to put a dent in this market advance over the last year and a half. So, rather than view the market from a perspective of insanity, maybe one should come to the conclusion that public policy, geopolitics, market valuations, or fundamentals are really not what drive the stock market. Clearly, we have seen that none of this has mattered one iota.  So, maybe we need to consider that there is a stronger force at work which overrides any of the traditional perspectives you were lead to believe drives the market?  

Bernard Baruch, an exceptionally successful American financier and stock market speculator who lived from 1870– 1965, identified the following long ago: 

All economic movements, by their very nature, are motivated by crowd psychology. Without due recognition of crowd-thinking ... our theories of economics leave much to be desired. ... It has always seemed to me that the periodic madness which afflicts mankind must reflect some deeply rooted trait in human nature — a trait akin to the force that motivates the migration of birds or the rush of lemmings to the sea ... It is a force wholly impalpable ... yet, knowledge of it is necessary to right judgments on passing events. 

Price pattern sentiment indications and upcoming expectations

The upcoming week is rather simple, and centered around the 2572SPX region   As long we hold over the 2572SPX early in the coming week, we are on our way to the 2611SPX region. 

However, if we break down below 2572SPX early in the coming week, it opens the market up to another decline which will revisit the 2520-2550SPX support region before we finally rally to the 2611SPX region.

See charts illustrating the wave counts on the S&P 500.

Avi Gilburt

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net); a live Trading Room featuring his intraday market analysis (including S&P500, metals, oil, USD & VXX); interactive member-analyst forum; and detailed library of Elliott Wave education. Visit his website:https://www.elliottwavetrader.net. You can contact Avi at info@elliottwavetrader.net.