The Stock Market Ain’t Gonna Crash

Thursday, February 2, 2017

stock market

“Don’t bother me with facts, son. I’ve already made up my mind.” --Foghorn Leghorn

You Need To Feel In Control

As human beings, we have an innate drive to want to be in control of our surroundings.  We want to believe that we are the masters of our destiny.  We want to believe that we can reason through any situation, because that means we can exert a certain amount of control upon our surroundings.  And, consequently, we want to believe in certainties.

Unfortunately, life does not really work that way.  Control is an illusion, and life comes with no certainties or guarantees.  Unless you approach financial markets from the point of view that facts, reason or linear perspectives will never provide you with the “control” you, as a human being, so desperately desire, you will not likely gain a true understanding of how financial markets really work.

To this end, I have become so frustrated with posters and analysts alike.  They approach the market from a rigid, linear perspective, and when the resulting move in the market does not comport to their linear perspective, they claim that it “must be manipulation” or that the “PPT intervened.”  G-d forbid they should ever question their underlying assumptions or analysis methodology, because, clearly, that could never have been wrong.  Instead, as Jackie Mason says, “it is all because of those sons-of-bitches.”

Linear Analysis Will Often Fail, Resulting In Losses And Excuses

Oftentimes, I see these mistakes being made when utilizing some form of linear analysis.  As an example, I have seen very poor “analysis” which, after many disastrous failures, repeatedly falls back upon the excuse that “manipulation” or the “PPT” intervened in the natural course of the market.  At the end of the day, pointing to the “PPT” is simply an excuse by those who want to hide the fact that their linear analysis really does not work in the real world.  I mean, how can linear analysis be successfully be applied to a non-linear market?    

First, one must realize that there is no such thing as a “PPT” which will prevent a market from having a “natural” pullback, especially when we are at all-time highs.  The PPT and “manipulation” are used as excuses when the market does not react in the manner in which analysts expect that it will.  They then need a scapegoat, because they will never admit their analysis was faulty.

Feel free to read an older article of mine, in which, towards the end, I explain what the PPT really is, and I provided historical examples showing that it does not have the power to prevent corrections:

http://www.gold-eagle.com/article/shortcuts-analysis-can-cost-investors-dearly

Second, one must come to an understanding that markets are non-linear, self-organized systems.  In a 1997 study published in the Europhysics Letters conducted by Caldarelli, Marsili and Zhang, they came to the following conclusion:

In spite of the simplicity of our model and of the strategies of the single participants, and the outright exclusion of economic external factors, we find a market which behaves surprisingly realistically. These results suggest that a stock market can be considered as a self-organized critical system: The system reaches dynamically an equilibrium state characterized by fluctuations of any size, without the need of any parameter fine tuning or external driving.

Marsili was quoted as saying that “the understanding that we got is that the statistics of price histories in financial markets can be understood as the result of internal interaction and not the fundamental interaction with the external world.”

So, if markets have been proven to be “self-organized” systems, it behooves an investor to understand how such a system truly works so they have a better chance at forecasting the next probable move.  It also means learning to accept that exogenous events do not affect the market to the extent the public believes they do.

Moreover, in understanding that markets are non-linear, how can we expect any analysis methodology to be successful if it is based upon assuming a market move will fit within a finite certainty of expectation or timing?  Rather, it would make more sense to assume that relative expectations or timing may provide guidance within a non-linear market as compared to any absolute system. In other words, there is nothing that MUST happen within the market.

The problem for most unsuspecting market participants is that they do not understand any of the weaknesses or failings of various methodologies due to their lack of experience.  And, when they are told something by a supposed “authority,” they simply assume it to be right. 

However, when an analysis system fails consistently, too many are willing to accept “manipulation” or that the “PPT” intervened, rather than accept that the underlying system is faulty.   Isn’t it time one learns to expect intellectual honesty from those they choose to follow, rather than excuses for the failure of a system?  No system is infallible, while there are many that are consistently fallible.

Everyone Knows The Market Will Crash

Another issue that I have been dealing with for years is that everyone absolutely “knows” that the market is going to crash.  Everyone seems to “know” that the market is too high.  Everyone seems to “know” that this is an “artificial rally” in the equity markets.  And, they have “known” this for years, even as the market simply continues to march higher and higher.  Maybe the market is not in the “know?”  But, it is quite amazing that so many know so much, yet are always on the wrong side of the market so often.  I guess the market must be wrong.

The true question any serious investor has to ask is how many of these “know-it-alls” expected the market to rally in 2016 to new all-time highs from the bottom in February?  How many of these “know-it-alls” expected gold to rally WITH the stock market during the first half of 2016?  How many of these “know-it-alls” expected the market rally after the election, especially when Trump won? How many of these “know-it-alls” actually made money in the market?  I will tell you that we, at Elliottwavetrader.net, did, on all counts. And, I will also tell you that the money we have made being on the correct side of the market is not “artificial” or “fake.”

Since financial markets are non-linear, self-organized systems, one has to approach them with a perspective based upon probabilities, rather than certainties.  Your desire for control pushes you towards demanding certainties.  But, remember, control is an illusion, as there is no such thing as certainties in life, or our financial markets.  When you begin to accept this as a reality, then you will demand intellectual honesty in the analysis you read, and will be repulsed by those who attempt to claim “manipulation” or the “PPT” cheated you out of your certainty and your money. 

Where Is The Stock Market Headed?

For those that “know” the stock market is about to crash, but still want to make money, my suggestion is to park what you “know” at the door, and begin to open your mind. 

I know you have read many articles that claim that a crash is a certainty, and also quite imminent. We have all read them.  They have been posted on this site, and all the other major financial websites. And, they point to so many different indicators and fundamentals supporting their imminent topping conclusions. But, have they not been saying the same thing for years, as the market continues higher? 

In my humble opinion, I do not believe the stock market is going to top out before the end of this year, and I believe we will likely see levels over 2500 in the S&P500 before we see any serious correction.  In fact, we called for this current rally back in early 2016, as you can see here:

https://www.elliottwavetrader.net/scharts/S-P-Year-in-Review-Avis-Calls-201612191445.html

We also caught the low in early November, and called for a rally from 2085SPX to 2300, no matter who won the election.  Yes, you heard me right.  Our market expectation was not based upon the winner of the election, and the strength of our analysis methodology is supported by the fact that Trump won, and the market rallied to our target anyway, despite the common expectations to the contrary.

We never believed that any crash was imminent, nor do we at this time.  And, since I understand that there is no certainty in life, I will clearly state that as long as all pullbacks remain over 2205SPX right now (as one may be set up to occur as I write this), the PROBABILITES suggest the market is heading over 2500, and potentially by the end of 2017.  It would take a sustained break below 2160SPX to begin to consider a bearish turn.  But, I believe the probabilities of that happening before 2500SPX is attained to be quite low.

See charts illustrating the wave counts on the S&P 500 at https://www.elliottwavetrader.net/scharts/Charts-on-the-S-P-INX-201702021481.html

 

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.