Overlapping Mess - Market Analysis for Nov 9th, 2022

I want to start this update with noting that double bottoms will often make life difficult for an Elliott Wave structure.  Was the secondary bottom a b-wave?  Did it complete the initial decline?  Sometimes, the market does not provide for easy answers to those questions, and that leads to a bit more of a complex structure.  And, that is what we are seeing in our current region.

But, regardless, I noted earlier today that our initial support was in the 3775SPX region, which provided us with an a=c decline off the high struck yesterday.  Dropping below it now begins to weaken the potential green count, specifically that this is a wave [4] pullback.  (Note that I have slightly modified the manner in which I am showing the green count by taking advantage of the questionable double bottom structure, and viewing it as a deep wave [2]).

As far as support for the yellow b-wave, I would view the 3735-55SPX region as support.  And, remember, if the market holds that support, rallies to the wave [v] box overhead, and then pulls back in a corrective wave [2] from the blue resistance box, then we can again potentially resurrect the bullish count pointing to a new all-time high.   As far as confirming that, please listen to my live video this morning and see my update this past weekend for further details.

For now, I cannot say that the alt c-wave down to the deeper green [b] wave is my favored perspective, but should we break down below 3735SPX, then it becomes a much higher probability.

While the market is leaving us with many questions in this current region, I simply do not have answers and am waiting, just as you, for the market to provide those answers in the coming days.   But, at least we have a general context to follow for now.

Now, for those of you that are eagerly awaiting the economic news for tomorrow, I want to remind you that it certainly can be a catalyst to help fill in one of these patterns.  But, the substance of that news may not be indicative of the direction the market will take.  May I remind you about the CPI number disappointment which was announced on October 13, which began a 10%+ rally in the SPX while most expected us to "crash" based upon that negative news?

And, this does not come as a surprise to those that have conducted historical analysis of markets through the years.  For example, in a 1988 study conducted by Cutler, Poterba, and Summers entitled “What Moves Stock Prices,” they reviewed stock market price action after major economic or other type of news (including major political events) in order to develop a model through which one would be able to predict market moves RETROSPECTIVELY.  Yes, you heard me right.  They were not even at the stage yet of developing a prospective prediction model.

However, the study concluded that “[m]acroeconomic news . . . explains only about one fifth of the movements in stock market prices.”  In fact, they even noted that “many of the largest market movements in recent years have occurred on days when there were no major news events.” They also concluded that “[t]here is surprisingly small effect [from] big news [of] political developments . . . and international events.” They also suggest that:

“The relatively small market responses to such news, along with evidence that large market moves often occur on days without any identifiable major news releases casts doubt on the view that stock price movements are fully explicable by news. . . “

In August 1998, the Atlanta Journal-Constitution published an article by Tom Walker, who conducted his own study of 42 years’ worth of “surprise” news events and the stock market’s corresponding reactions. His conclusion, which will be surprising to most, was that it was exceptionally difficult to identify a connection between market trading and dramatic surprise news.   Based upon Walker's study and conclusions, even if you had the news beforehand, you would still not be able to determine the direction of the market only based upon such news.

And, lastly, I want to quote one of our members posts from just a few weeks ago:

“I worked as a trader in EF HUTTON's Government Bond Dept. in years encompassing the last great inflation. We sometimes got 'privileged' information. [Usually through past Federal Reserve staff that decided to 'go work for the street'.] I can attest that that having such information beforehand, and positioning with it was just at least as often a disaster as a boon. You MUST learn to ignore it. I left the firm in 1985. EF Hutton was part of Lehman Bros. when they went down. the drain.  AVI is 100% right IMHO.”

So, let’s follow price over the coming days.  It should outline for us exactly how the next few weeks will take shape once the market clarifies the current region within which we find ourselves.

Avi Gilburt is founder of ElliottWaveTrader.net.