The market presents investors with a game based in psychology. However, most market participants are much too interested in what the Fed is doing, or what the CPI is going to be, or what unemployment will do to the market to evenrealize they are not playing the right game. In other words, while the market is playing a game of chess, most market participants are playing a game of go-fish.I think a market psychology study published back in 1997 probably explained this best:“Stock markets are fascinating structures with analogies to what is arguably the most complex dynamical system found in natural sciences, i.e., the human mind.
It has certainly been an interesting year or so since we struck the low in October of 2022. If you remember, most were looking for the market to head considerably lower at the time. But, then again, what else is new? Most expect themarket to continue linearly in whatever trend is in place at any point in time.Yet, we were strongly suggesting that most investors begin to look upward, as we maintained that the market would rally to the 4300+ region from the 3500 region lows we expected before we bottomed. In fact, I was even outlining to members that the potential was in place to rally as high as 4505SPX off the 3500SPX region, even before we bottomed.
If you have been reading any of my articles over the last 12 years, you know that I have a major issue with the common view of how markets work, as represented through the public articles that we all read. Insteadof providing us with true assessments of the market, they seem to glean their perspectives by the direction the wind is blowing at the time. And, the reasoning they proffer is never consistent or intellectually honest.Allow me to once again explain.Back in the 2011-2013 time frame, most were exceptionally bullish the metals complex. In fact, most were expecting an imminent rally through the $2,000 region.
All I have heard over the last year is that we are about to head into a recession – an economic construct suggesting a negative market environment. And, this has kept many quite bearish of the stock market, with most looking at the rally from 3500 to 4600SPX as the market being “wrong.” Well, I have some news for you, which was well said by the legendary Jesse Livermore:“A prudent speculator never argues with the tape. Markets are never wrong, opinions often are.”Yet, we have all read many analysts over the last year that were bearish for most, if not all, of the 1100-point (31%) rally. And, most of that bearishness was based upon economic theories pointing towards recession.
After writing for almost 13 years on Seeking Alpha, we now have 75,000 followers, the 3rd largest service in SA’s Investing Groups, and 8000 total subscribers to our services including our original platform on ElliottWaveTrader, of which almost 1000 of them are money managers. So, I am often asked how one can become a successful author on Seeking Alpha? And, my answer is to provide honest, accurate analysis which is different than everyone else. But, that is a lot easier said than done.
Maybe I am foolish. Maybe I don't know what I am talking about. But, I am still seeing the potential for the bulls to pull a rabbit out of a hat. Yet, their opportunity is narrowing.Although the markettried many times, it was unable to break out through the 4401SPX important resistance we outlined over the last few weeks. In fact, the overnight futures action came right up to that line, and turned down. And, then we broke down below the 4280SPX upper support region I highlighted last weekend.
This is now my second article on metals in the last week. And, the main reason I have chosen to write recently is because there are just too many fallacies presented in the many otherarticles written about gold of late, which are relied upon as the basis of the analysis presented therein.In my last article, I addressed the manipulation and inflation fallacies regarding gold, in addition to the confirmation bias which seems to be prevalent in the comments section all too frequently. In this week's article, I am going to address the safe haven fallacy, the inverse-inflation argument, as well as the fallacy regarding the US Dollar.Let's start with the safe haven fallacy.
Inflation, the Fed, interest rates, Russia/Ukraine war, Israeli/Hamas/Hezbollah war, Iran, China, North Korea, housing, earnings, oil, politics, bank instability, unemployment, US Dollar, etc. Did I forget anything? Well, I am quite sure there are other issues that many are focused upon which I did not enumerate. But, the point is that almost every single article written about the stockmarket focuses upon at least one of these issues as being of utmost importance to the next move in the stock market.
As we look back upon another interesting week in the market, there are a few standout matters I would like to point out.To begin with, I saw the following quote from an interview with well-known economist Austan Goolsbee:“The timing of the selloff has been something of a “puzzle” given there was no major change in the Fed’s latest projections.”Mr. Goolsbee’s quote evidenced his ignorance of certain market dynamics. First, this selloff was not at all a “puzzle,” as the setup for it was developing weeks ago, as I have outlined in public articles. But, you will not be able to identify these types of movements based on traditional economics.
Over the Sukkot religious holiday this past weekend, my wife and I were hosting several families for lunch when the conversation turned to the stock market. The topic was about how much truth there is in the market today.The discussion began with my friend, who is a therapist, telling me about a client with whom he is working (clearly without telling me anything specific) that is an employee at a major bank, who sells investment products for the bank. This client is struggling with guilt feelings about selling the products of the bank to individual investors, knowing that he is selling what is best for the bank’s profitability rather than what is best for the investor.
This was a very interesting week, if you were paying attention. On Tuesday, the market declined and then saw a sizeable rally begin later in the day. Then on Wednesday, the market continued its decline. And, these were the headlines we saw:Tuesday Morning's Headline = 'Market down on investor fears of a Fed Rate Hike'Wednesday's Headline = 'Market down as the Fed announces No Rate Hike'I would love for someone to explain these headlines to me in a consistent manner that does not cause us to accept any mental gymnastics. And, to be honest, I am not holding my breath.To anyone that is being honest, there were no surprises by the Fed this past week.
That was quite a week we just had in the market. In fact, if you are a news follower, you are probably confused as hell.Let’s start with the Wednesday announcement of the higher-than-expected inflation numbers. Of course, most everyoneassumed the market would drop on such news. Well, as Gomer Pyle used to say “surprise, surprise, surprise.”Not only did the market rally, but between the higher inflation information published on Wednesday and Thursday, the market rallied 70 points in the SP 500 (off the pre-market low in the futures). And, for those not counting, that is a 1.6% rally on stronger than expected inflation numbers.
The cheerleaders are always on the field.When the market is rallying, the bulls are usually the loudest in the articles section, as well as in the comments section. Yet, when the market is declining, the bears are usually the loudest in the articlessection, as well as in the comments section.Most articles and comments are based upon a pre-determined bias, with the volume level of the opinion section being based upon the direction of the market. For this reason, I view it as being completely useless in reading most articles that are published.As for me, I would much rather rely upon a mathematically based assessment of the market.
I love reading what the media tries to explain a market move, as it just makes me chuckle. On Friday morning, when the market rallied into the open, this was the headline on CNBC:"Stock futures rise on hopeincreasing unemployment rate will keep the Fed at bay"And, only an hour later, the market went red. I guess that hope was dashed quite quickly.Moreover, I am seeing more and more perspectives that the market should not have risen this high, and why it can't go any higher. Specifically, many claim that a rising dollar and rising interest rates are now going to kill the stock market.
Yea, I know I got you all excited. But, in truth, I am seeing strong potential for doubling your money in the metals mining stocks over the coming several years.For those of you that may not know who I am, I have been writing publicly on metals now for almost 13 years, and have been providing analysis services to individuals and money managers for almost 12 years.In fact, my first market call was made back in August of 2011. For those that may not remember, it was a time when gold was going parabolic. There were days it was seeing $50 gains.
I really don't know how all of you do it.Most of you pour over all types of data on a daily basis in order to attempt to gain some advantage in the market. And, when I read other articles andthe comments in those other articles, I see so many factors that all of you believe must be taken into consideration.Among those factors that you are all considering include the Fed, interest rates, the US dollar, yield inversion, China, the labor market, Japan, consumer spending, inflation, the impending government shutdown, and a soft/hard landing (I didn't know we were on an airplane). And, these were just those cited in two articles and comments I read the other day.
There are two things in the news that seem quite prevalent of late.First, it seems that most market participants believe that the recent rise in interest rates are causing our market to decline.And, second, it seems many have become moreconcerned about UFOs and aliens and it may be causing fear in our markets.So, let’s look at the first belief to see if that is the cause of our market decline.What I find quite interesting is that when the rates were this high back at the end of 2022, the market was in the 3500SPX region.
As many of you that follow my public articles likely know, I am an avid reader. And, from time to time, I will choose to read other public articles on various markets.What truly burns my buns are articlesthat present market fallacies as the basis for their "analysis." And, sadly, this is all too commonly seen in the metals complex.So, just the other day, I read an article that called for a major rally in gold primarily due to an expectation of China invading Taiwan.
I love reading all the articles that give me reasons as to why the market should or should not do something. I am really amazed that there are so many people out there that still believe that the marketmoves based upon reason.In fact, study after study has proven that markets are not driven by the substance of news or catalysts, as most believe. And, I have outlined a number of them in many past articles. Here are just a few.
Last weekend, I questioned whether a crash can still set up for much later this year? And, the answer is, "of course." This week, I question the opposite - that is, can we still get to the all-time high? And, the answer is also "of course."Now, I have probably confused most of you reading the opening paragraph. But, I will explain my point below, and I do not need to utilize Talmudic logic to provide the explanation.But, before I provide my explanation, I want to again address a few fallacies that I read this past week.
Ordinarily, I write one public article every week or so. However, after reading a number of other articles this week, and more importantly, reading the comments section, it has pushed me to consider writing an additional missive this week. And, within this article, I am goingto address two topics which seem to have people looking the wrong way all too often.“The Stock Market Is Disconnected From Reality”One article after another and one comment after another presents us with the common perception that the stock market is not representing “reality.
Some have called me a contrarian investor. Some have called me an Elliott Wave investor. And, some have called me outright crazy.Well, to be honest, I can understand each and every one of those statements. In fact, when you break it down, theyare all saying the same thing.We utilize Elliott Wave analysis to not only tell us where we are in the market trend, but it also identifies the points of extreme sentiment, which is where market tops and bottoms are struck. So, I am looking for tops and bottoms to the market just when the majority have become certain that the existing trend will continue unabated.
Valuations are stretched, earnings are poised to fall, inflation is still too high, interest rates are higher to be seen, and everyone and their grandmother are expecting a recession. (Now, to be honest, constantly changing the definition of ‘recession’ for political gain is one way to avoida recession, but I digress).We have all heard the mantra of the bears since we bottomed in October. If you have followed their narrative, the next shoe was going to drop week after week for the last 9 months. Meanwhile, the market is up 27% off those lows.
I saw an article published this past week, which attempted to outline 9 “black swans” which the author surmised would kill the rally we have been seeing of late. As the author noted, “black swan events are inherently unpredictable but it's important tobe prepared for the worst.” And, most of the scenarios presented were global events.So, I would like to take a moment to provide my thoughts.First, black swans do not kill a market. And, before you jump down my throat, allow me to explain.While an event may be completely unforeseeable, it does not mean that an unforeseeable event will actually cause a market decline.
I am going to start this update with a presentation as to how we got here for the benefit of those reading my articles for the first time, and I will then take it forward with parameters as towhere I think we are going.For those that have followed me, you would know what we called the bottom to the SPX back in October 2022, despite most market participants expecting us to have head much lower at the time due to the worse than expected CPI report at the time.Elliottwavetrader.
In October, I was calling for a major low, and a rally to the 4300+ region. At the time, most of the market was expecting much lower, mostly based upon the worse-than-expected CPI report published that month. Yet, that news actually ignited the 20% rally off the lowand caught most market participants by surprise.If you did not learn your lesson about the economic data's effect upon the market from this instance, then it likely means you will never learn your lesson. And, those that did not learn the lesson of October 2022 taught me to be crazy at the time when I was looking for a rally to 4300 from 3500SPX, even before we bottomed.
If I had to distill the stock market down to two primary words, I would likely choose “emotion” and “risk.”Whenever you approach the market, one of the main factors which should drive any decision you make isthe question of how much risk you want to take at any given time. Is the market in a posture where it is reasonable to take more risk? Or is the market in a posture where you want to reduce your risk until it clarifies its intention? Moreover, there are other factors which are taken into account in this determination, such as your age, comfort level, goals, and time until retirement.
As one who tracks market sentiment, it still amazes me to watch it develop in real time. And, we see it quite well in the analyst community as well.Let me give you an example. For many months, manyanalysts have been terribly bearish, expecting the next shoe to drop in the market almost any day. They have been looking for a crash just around the corner as the market has rallied 20% from 3500 to 4200+. Week after week, the dire warnings have been published by many highly-followed writers. In fact, since we caught the low in October of 2022, I have felt quite lonely in my view that we will likely rally to the 4300SPX region off that October low.
If you look at all the articles published and all the discussions had about the market, you would see one underlying similarity: Each and every one debates what will occur after the next piece of “news” is published.Whether we are speaking of CPI, PPI, employment, or other such similar reports, or whether we are speaking of the next Fed pronouncement or speech, or whether we are speaking of the next impending political development, the sense of certainty being presented by most regarding the market’s reaction to an impending event is what most of us read about or hear from pundits, analysts, or our brother-in-law.
Approximately 12 years ago, I wrote my first public market prognostication and it was focused on gold. At the time, gold was enjoying a parabolic rally, and the discussion amongst the general public was how far past the $2,000 mark gold was going tostrike during that rally.So, on Aug. 11, 2011, I concluded my first gold article on Seeking Alpha as follows:"Again, since we are most probably in the final stages of this parabolic fifth wave "blow-off-top," I would seriously consider anything approaching the $1,915 level to be a potential target for a top at this time."Needless to say, my first market prognostication was not met with tremendous support.
After writing about this issue now for 12 years, I know I have made an impact based upon all the notes, emails, direct messages, and comments which thank us for changing people’s lives, with this recent comment from a client being typical of what we see:“Sometimes I wonder if EWT is for real or is some kind of a dream . . . thank you again for changing my life.”Yet, when I read comment sections in various articles, I realize there's still a lot more work to do to open people’s eyes as to how sentiment affects market and stock movements.
If I told you that I received the GDP report the day before it was announced, and it showed that GDP came in almost half of the general expectations, 99% of those I would tell would automatically assume that the market would drophard after it was announced. Yet, the market rallied 2% the day this was announced.Rather than attempting to come up with a convoluted explanation, maybe we need to rethink how we look at the market.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.
On Friday alone, I received 5 emails by the end of the day warning me to prepare for the imminent market crash. It seems as though the upcoming crash is a foregone conclusion.Personally, it makes me uneasy viewing themarket from the common lens of an impending crash being a foregone conclusion, simply because that is just not how the market works the great majority of the time. Yet, that is simply anecdotal, and I do not put money at risk based upon anecdotes.Now, this brings me to another point. After a bull market move completes, the market then turns down in a 3-wave structure, pursuant to Elliott Wave analysis. Those 3-wave structures are labeled a-b-c.
One of the most common perspectives that I have seen in the market through my investing career is the old adage that is often repeated by Larry Kudlow:“Earnings are the mother’s milk of stock prices.”What Larry is saying, andwhat has been universally adopted by the masses, is that earnings are what drive stock prices. And, this week, we're going to enquire as to the absolute truth of this commonly held belief.However, I must warn you. If you're absolutely convinced of this premise (as are many) and will never be swayed by empirical evidence that could demolish your currently held perspective, then you may want to stop reading right here.
I have now been writing on Seeking Alpha for a dozen years and I have to say that I am quite proud of being the first to focus on "sentiment" as a main market driver on this platform. In fact, we now seea number of articles every single week that highlights sentiment perspectives. Yet, many are still well behind the curve as to how one can appropriately gauge sentiment to glean indications for market direction.
If you have been reading my public articles on TLT over the last half a year, then you would know of my expectation to see the bond market rally into 2023, and rates falling into 2023.WhenI first put this expectation out last year, many (even some of my own clients) thought I was simply crazy. With rates skyrocketing towards 5%, most were quite certain that we would easily eclipse that point, and move well towards 6% and even higher. And, of course, the reason most maintained that expectation was due to the Fed’s public position of continuing to raise rates.
I can't believe it has been almost 12 years since I began writing on Seeking Alpha. And, during that time, not only have over 71,000 people chosen to follow me on Seeking Alpha, but we have grown to approximately 8000 clients within ourvarious services, with almost 1000 of them being money managers. And, after getting to know many of them, I am truly blown away with the diversity of our group, with quite a number of our money managers maintaining over 1 billion in assets under management.When I began writing on Seeking Alpha, my first market prognostication came in the gold market.
Sentiment is a funny thing. When the market is up, people assume it will simply continue in its current path unabated. And, when the market is down, people assume it will simply continue in its current path unabated. We also know that people rarelyare able to identify the turning points in the market since they always seem to maintain a linear perspective on market direction, as I just outlined.Of course, the proposition I noted above excludes all the perma-bears or perma-bulls who assume the market will always move in the direction of their steadfast bias.
Week after week many of you are bombarded by articles suggesting that a market crash is about to occur. I am here to tell you when you can recognize it is about to happen. But, for now, I think it may be averted forat least several more months.What is most interesting of late is that the market has had to digest not only the banking issues that have developed and seemingly shocking many, but it has also had to deal with further rate hikes by the Fed.Well, first, I want to outline that the baking issues should not be shocking to those that have been following our work closely.
For those that have followed me through the years, you would likely remember at least one of the many major market directional calls we have made in many different markets through the years. And, while this list is clearly not all-inclusive, it does representsome of the market calls recently cited by our clients as the ones that most stick out in their memories:- July of 2011: Called for rally in DXY from 73 with target of 103.53 while the Fed was pumping QE into the market and everyone was expecting a dollar crash. Market rallied initially to a target of 103.82 before a multi-year pullback, as we expected.
What a week we had last week. As we came into the week, I said I was standing aside, as I was not sure how this would resolve. But, I was going to give the bulls the opportunity to prove themselves early in the week. So, I laid out a very specific path they would need to take to suggest we were going to take a direct route to 4300, rather than the scenic route, which took us down to 3800SPX first.We started with a 30-point rally in the first half of trading on Monday.
This market has certainly provided much stress to both the bulls and the bears alike. And, unfortunately, that is the nature of corrective structures. They provide frustration to both sides of the trade. Yet, one of the most important pieces of information for atrader or investor to glean from the market is the ability to recognize these environments before they begin in earnest, so you can adjust accordingly.Once we began the pullback off the recent high struck in the 4195SPX region, I warned the members of ElliottWaveTrader that we have moved into one of these types of environments. Such environments provide whipsaw to both sides of the trade, which probably best explains the action seen over the past month.
I have been really busy of late, so I have not had a lot of time for article writing. But we're at a crucial point in TLT, so I thought I would post an update. I'm posting this on Thursday, March 2, and hopefully it will be out on the morning of March 3. As I write this, we are over the support I outlined last time, but the micro structure suggests it may not be complete to the downside.Back in October, I outlined to the members of ElliottWaveTrader my expectations for TLT to bottom in the 90.50-91.65 region. Well, as we now know, the market bottomed at 91.85, within 20 cents of my target.
I am going to start this week's missive with the quote from Robert Prechter's seminal book The Socionomic Theory of Finance, which is a book I strongly recommend to each and every investor:Observers' job, as they see it, is simplyto identify which external events caused whatever price changes occur. When news seems to coincide sensibly with market movement, they presume a causal relationship. When news doesn't fit, they attempt to devise a cause-and-effect structure to make it fit.
When I hear analysts and investors claim that “the market got it wrong” after a market move, it just makes me chuckle. This is probably the extreme in ego and hubris on display. Price is the market. And, if your perspective does not comportwith price action, then it is YOU that is wrong and not the market. How one can view themselves as right and the market is wrong is simply beyond my comprehension.And, we really do not have to look far to see this has become a common theme during this rally off the October 2022 lows.
Over the last 5 months since the October 13 low, the market has reacted in surprising fashion to many of the CPI and PPI reports. For example, while the October 13 CPI published report was expected to cause a 5% declinein the market, the market actually struck a major bottom and began a 20% rally off that low.And, this was not the only time over the last 5 months that market participants were surprised by the reaction after a report. Moreover, these surprises came to the upside and the downside.
The members of ElliottWaveTrader have been quite aware of my expectations for a rally to be seen into 2023 in the bond market. Yet, when I was suggesting long positions in the 90-92 region, many thought I was crazy because "you can't fight the Fed." Yet, we have a history of successfully fighting the Fed in both the DXY and TLT.Back in the spring of 2011, I outlined my expectations for a bottom in the DXY in the 73 region and was calling for a multi-year rally to the 103.32 region. That was an expectation for a 40% rally in the DXY, which is an extremely large move in the DXY.
When the market was bottoming on October 13 of 2022 at 3500SPX, the members of ElliottWaveTrader knew to begin looking up to the 4100SPX region for an initial rally off those lows. The day before the market bottomed (October 12), I sent out an update to our members noting the following:“Thus far, the market has made several attempts at hitting the blue box support region on the 60-minute SPX chart. And, each time, divergences continue to grow. And, if you look at the 5-minute SPX chart, there is still opportunity to actually strike that support below as long as we remain below the smaller degree resistance noted. . .
Before we move into a review of the last few months of market action to learn what most investors did wrong, I think it is important to begin this missive by reposting something written by Robert Prechter in TheSocionomic Theory of Finance (a book I strongly recommend to each and every investor):"Observers' job, as they see it, is simply to identify which external events caused whatever price changes occur. When news seems to coincide sensibly with market movement, they presume a causal relationship. When news doesn't fit, they attempt to devise a cause-and-effect structure to make it fit.
I have now been writing public articles for over 11 years on Seeking Alpha. And, through the years, I have covered many topics publicly, including the SP 500, oil, the US Dollar, bonds, emerging markets, and many others. And, those that have tracked us over that time have recognized the accuracy of not only our short term calls but of our long term ones as well. Of course, we will never be correct all the time, but I think our long-term record speaks for itself.Of late, our Elliottwavetrader staff compiled just some of the major market calls we have made through the years, as there clearly were many, many more.
A few weeks ago, I wrote an article outlining how the market fooled investors two times based upon recent economic reports:Sentiment Speaks: The Market Fooled You Twice... Shame On YouNow, I want you to take a moment and think about the main highs and lows we have struck over the last two months. The low struck on October 13 was a spike down and strong reversal which began a two-month rally after the publishing of a CPI report that was lower than expected, which took everyone by surprise when we ended that day hugely positive. Herein the market fooled you once.
I find it quite entertaining how investors fool themselves on an almost daily basis. For example, many have tried to argue with me that the decline from the high struck on December 13 was due to what the Fedannounced on December 14. When I simply phrase it in that manner alone, can you see the issue with this perspective?Well, first, we have to remember that the market topped and reversed on a better-than-expected CPI report. Yet, despite the massive initial reaction to the upside on the news, the market ended almost flat that day. It was quite an impressive reversal for which there was no “explanation.
Yet another week of head scratching was seen in the market this past week. The CPI came in lower than the prior report, and the market rallied strongly through the lower resistance region I outlined last weekend. And, it made most people uber-bullish, believing wewere heading directly to the 4300SPX region.Yet, if you recall what I had said in my update last week, I was quite specific that any rally through resistance had to have been a 5-wave structure to tell us we were ready to attack 4300SPX. As I outlined to our members of ElliottWaveTrader.net in real time, the rally only took shape as a 3-wave structure.
Some people never learn. And, when it comes to the market, I would venture to say that most people never learn.On Friday morning, the most recent PPI report was published, and it came in a lot hotter thanmost expected. So, what did everyone think the market was going to do on Friday? Yup, everyone believed that the market was going to tank and end up deep in the red. Well, if we look closely, that is not exactly what happened.While the initial reaction was to the downside, the market took back all those losses through the day, and even spent a substantial amount of the time during the day in the green.
When I was younger, I was taught that if you cannot say something nice, don't say anything at all. Well, when many of you have asked why I have not written about metals in quite some time, now you know thereason. But, I think that's about to change.Before we begin, I want to give you a little background about my history in the metals market.For those who may not remember the action we experienced in the metals market back in the summer of 2011, the market was going parabolic at the time, with some days seeing $50 increases. And the only arguments at the time were regarding how far beyond $2,000 gold was going to take us.Yet, on Aug.
In my last article, I outlined my views of how we have fought the Fed many times in the past and won. My basic premise is that the market changes direction well before the Fed, and the Fed simply follows themarket. And, if you look at it from a historic perspective, you will recognize the truth in that statement. In fact, we have been able to use this perspective to "fight the Fed" in the DXY and TLT a number of times over the last decade that I have been writing publicly.
Early on in the week, the US markets declined and the supposed reason for such decline was due to the Covid lockdowns and mass protests of such in China. Yet, the Chinese markets surged strongly at the same time. And, this had many people scratching their heads.Furthermore, right before we began the mid-week surge towards our next higher target/resistance, Powell gave a wonderful speech during which is he basically did not say anything different than what the market already knew. Yet, of course, pundits were quick to point to the speech as the reason we rallied to the next resistance/target.Then, on Friday, the market tanked in the premarket hours.
The certainty with which others write about the market has always astounded me. Do they have a crystal ball? Do they own a time machine? Do they own an almanac from the future?While there are some that misunderstand my perspective in the market and claim that I'm saying that the market will either go up or down, I only look at the market from a perspective of probabilities. Therefore, everything has to be approached with “if/then” perspectives.In simple terms, we provide our perspective by ranking probabilistic market movements based upon the structure of the market price action, which tracks market sentiment.
This was quite a week we had. With one of the largest individual day rallies seen in market history, almost everyone assumes that it was "caused" by the CPI news. In fact, I was emailed by a few long-time trolls on Seeking Alpha, trying to explain to me how it was so "obvious" that the market rally was "caused" by the CPI report.Forgive me if I fail to see the "obviousness" of such a claim. So, allow me to quote something I wrote to the members ofElliottWaveTrader.
Every week that I publish an article on the stock market, I attempt to show you some very glaring issues as to how the market presented to you by analysts and news reporters alike. Most of them will lookat the market action, review the news, and then attribute a move in the market based upon a recent news event or economic report. And, if you read it carefully, some of it does not even make sense. Let me show you an example that I read this past week:"Hong Kong stocks up 3% in Asia session as private survey shows China's factory activity contracted" – CNBC (The headline was changed by CNBC since originally published)Read that very carefully.
It really is entertaining watching people. Whether I am sitting outside in a public area and "people-watching" with my wife, whether I watch how people react to the market in the articles on Seeking Alpha (and that includes the writers and commenters), or whetherI watch how people react even within the virtual walls of my own services, people are very interesting and their emotional responses are even more so.We had a very interesting week this past week. And, it again outlined for me that people simply cannot overcome their emotions, especially when it comes to the stock market. So many of you are following the CPI, unemployment, GDP, etc. Yet, none of that has helped you on this rally.
I know that many of you trade “correlations.” So, for those that do not already know my perspective on it, allow me to repost something I wrote some time ago:“What a correlation represents is when two markets are trading in opposite directions or in the same direction for a period of time.Now, since we understand that each market trades in its own pattern, what correlations really mean is that these markets are trading for a period of time within those relative directions. So, it may mean that one market is trading higher in a 3rd wave whereas the other is trading higher in a 5th wave.
This past week did not go exactly as most expected... did it?On October 11, just two days before the CPI number was announced, Bloomberg ran an article entitled, “JPMorgan Says Too-Hot CPI Would Put Stocks atRisk of 5% Tumble.” And, they were not the only one.Then, on Thursday morning, the CPI report outlined that inflation was hotter than expectations. And, while the market did drop pre-market, the day ended quite differently. In fact, by the time we closed, the market rallied almost 6% off the lows, and ended up green by over 2.6%.And, boy, did it leave people scratching their heads.
As we were ending 2021, I was outlining to those following my work that I expected a large pullback as we moved into 2022. In fact, I even noted that “we will likely see the largest pullback since we bottomed inMarch of 2020.”However, I did not expect that the market was going to break below the 4000 region at the time. And, despite my expectations at the end of 2021, I was still able to outline quite a number of points at which I suggested to our members to raise cash as the market had potential to drop lower than I had initially expected. The first major point was at the end of March of 2022 as we were striking the 4630SPX region.
I am told time and again that one should not fight the Fed. But, unfortunately, this is just a nicety which is believed by most in the market, but is not supported by the facts of history.Let's lookat just two examples. Back in the spring of 2011, I outlined to those that followed me that I was looking for a bottom in the DXY in the 73 region, and expected a multi-year rally to the 103.32 region. That was an expectation for a 40% rally in the DXY, which is an extremely large move in the DXY.
I know the title of the article sounds outlandish, but we are now in a region wherein the market is going to decide its next 500+ point move. So, let me take you through my process as to how I arriveat this perspective.Until the times of R.N. Elliott, the world applied the Newtonian laws of physics as the analysis tool for the stock markets. Basically, these laws provide that movement in the universe is caused by outside forces.
One of my members wrote this headline in our trading room when the market dropped after the recent Fed meeting. And, the reason he did so was to illustrate just how ridiculous most of the pundits’ perspectives are on the market.But, at the end of the day, the market dances to the beat of its own drummer. And, I have written dozens of articles over the last 11 years with specific examples. Yet, many still choose to the wear their blinders when viewing market action. And, as they say, you can lead a horse to water...
The more I read public articles and the comments thereto, the more hair I tear out of my hair. (Yea, I know, I don't have much left).As I read about how this person is looking towards the FOMC to know what is going to happen with the market, and how that person is looking at economic reports to know what is going to happen with the market, and then a third person is tracking inflation to know what will happen to the market... it just makes your head spin.Yet, has anyone realized that nothing has really changed since the market was tanking into the June low? Amazingly, we still seem to have rallied 700 points off that low.
For those that have read me over the last year, you know that I was quite bullish for all of 2021. Yet, as we were approaching the end of 2021, I began to warn that we have to prepare for what will likely be “the largest pullback since we bottomed in March of 2020.” And, boy did we ever get that pullback.Now, to be honest, my minimum target for that pullback was the 4400SPX region, and I really did not expect, at the time, that we would break the 4000SPX region. Yet, it is quite clear that the market had other intentions.
The common refrain is that you "can't fight the Fed." Well, excuse me, but I do not agree with this premise. And, neither do the facts of market history. I think the better conclusion is that the Fed cannot fight the market, as the market is much more powerful than the Fed.I can cite many examples throughout the years wherein we have fought the Fed and have won. I can cite examples using the US Dollar, the bond market, and the stock market.
Despite how emotional the bottom was in March of 2020, I remember getting a chuckle at when the economists declared us likely to be heading into recession just as we were striking that bottom. In fact, it took thosebrilliant economists until the market was 1500 points off its low to tell us that we were no longer in a recession.And, it seems as though the market mavens have struck again. Just as they were proclaiming that the SP 500 has dropped into "bear market territory," if you listened closely, you would have heard the market gods laughing again as we have now rallied 10% off the recent "bear market" declaration low.
There's almost no good news floating through the airwaves. The Fed is raising rates and starting quantitative tightening. Inflation is out of control. Gas prices are hitting American households hard. Former tech leaders have been taking it onthe chin.There seems to be no good news in the market today. This seems to have everyone now expecting a protracted bear market. And, to be honest, it will be the first bear market in history for which almost all market participants are now prepared. Everyone is hunkering down and preparing for the absolute worst.But, is that how the market works?Well, not usually. When everyone maintains the exact same expectation, that's often when the market turns on everyone.
When I read most articles written in the financial media, they all seem to have a common thread running through them: They all tell you what has happened in the past and they try to comeup with reasons as to why it happened. And, interestingly, many cannot even agree as to the reasons for what has happened in the past. Now, consider how many can consistently and accurately give you prognostications about the future if they cannot even agree about the past?If you have read my articles in the past, you would know that I advise investors to ignore the news for market direction cues.
The first two articles in this series can be read here:Sentiment Speaks: What If They Held A Recession And No One Showed Up? - Part ISentiment Speaks: What If They Held A Recession And No One Showed Up? - Part IIMarket Causality Chain In The Real WorldNow, let me attempt to explain how the causality chain works in the real world based upon market psychology.I don’t think it would come as a surprise to any of you when I repeat something that is relatively of common knowledge. A market tops on euphoria and it bottoms on pessimism.Note that this phrase mentions nothing about earnings or the Fed.
For those that did not read the first part of this 3-part series, feel free to read it here:Sentiment Speaks: What If They Held A Recession And No One Showed Up? - Part IMarket SentimentSo, if it's not earnings or the Fed which are the invisible hands that direct the market, what does direct the market? Well, the answer is the collective “US.”Back in the 1930s, a gentleman named Ralph Nelson Elliott discovered that the movements in the market are really a repeating fractal of overall societal sentiment which is governed by the natural law of the universe as represented through Fibonacci Mathematics.As Elliott noted:“Very extensive research in connection with . . .
View Part II and Part III of the series.I have now been writing for well over a decade on Seeking Alpha. And, during that time, I have tried to enlighten readers as to how I see the market machinations take shape, especially as compared to the common views held by most market participants. So, there's large body of work I have compiled and written on this topic.This week, I'm taking the opportunity to compile it all into a three-article series.
Yea, I know. With all the craziness going on in the world, the stock market is still rallying. It just does not make sense to most.The Russian-Ukrainian war still rages, oil is still very high, inflation is supposedly ravaging the country, we are facing potential food shortages, the Fed is raising rates, and there does not seem to be an end to the bad news. Yet, the stock market continues to rally on.
Have you seen all the negative things that have been thrown at the market of late? Well, if you have not, let me tell you what you missed.We had the Russian/Ukrainian war, oil rallying strongly, the supposed death of the US Dollar, China shutting down because of another Covid variant, nuclear threats, an earthquake and tsunami warning in Japan, the Fed raising rates, reducing its balance sheet, and outlining 6 more rate hikes... oh, and don’t forget the scary “death cross” that all the financial media was reporting.It seems that everything has been thrown at the market, including the kitchen sink, yet we have seen quite a strong rally.
This week, I am going to give you a two-for-one in this update. I am going to provide an update to my last TLT article, as well as a quick update to my market perspective.But, first, I want to provide you some quotes that I have seen over the past week from just within the comment section of my last article:“Recession fears, and stagflation fears are building”“it looks like market has unlimited supply of sellers”“This could be just the beginning of a 2000-2002 period (growth stock "reset"). 2200-3400 is absolutely possible. In fact, 3400 is highly probable.
I want to state at the start of this week's missive that my heart goes out to all those in Ukraine whose lives have been uprooted and displaced by this Russian invasion, along with all those families that have lost loved ones. So, please do not assume that any of my forthcoming comments are making light of the human suffering that is taking place in Europe. My forthcoming comments are simply outlining the inconsistencies in how news is reported relative to the stock market action.Many market participants were quite certain that once Russia invaded Ukraine the market would continue dropping in earnest. And, many are still quite bearish for the same reason.
Those that have read me for many years know my position regarding trading the news. I believe the news can be a catalyst for a move in the market, but the substance of the news is not determinative of market direction for such move. Yet, week after week, I am challenged by commenters when they see the market move in a manner which was seemingly directed by the news.So, I want you to ask yourself, does my perspective about news say that the market will not ever move in the same direction as one would assume by the underlying news? No.
Those that have come to read my articles over the last decade know that I am not the typical analyst. I do not abide by the common perceptions that many falsely retain about the market. Rather, I have found something that is much more reliable as a market tell, and that is market sentiment.To that end, we are all quite certain that we simply cannot fight the Fed. Right? This sentiment is quite ubiquitous throughout the market. But, is it really true?I have written many articles in the past regarding the numerous times we have fought the Fed and won.
We have all heard the phrase “earnings are the mother’s milk of stocks.” I believe the phrase was coined by Larry Kudlow. In fact, I have some commenters to my articles that claim that earnings are the only thing one needs to know about investing in the stock market.
I have been writing for Seeking Alpha for over a decade now, and I have also been running a service for investors for over a decade as well. And, I think I have seen it all.One of the things that still strikes me is the extent to which investors will go to cling to their market perspectives no matter how much you try to explain to them how their old perspectives are not accurate or how much you attempt to open their eyes to new perspectives.
Those that read my analysis regularly know that I do not take general market fundamentals or news into account when I analyze the stock market. The main reason is that I view that which drives fundamentals as being the same as that which drives market price. However, the effects of that driver are seen in the stock market much faster than in the market fundamentals. That is why most people have adopted the adage that the stock market is a “leading indicator” for the economy. Yet, they do not understand why that is the case.
With the market breaking the support I noted last week, it has sent a warning shot across the bow of the bulls. But, before I discuss my market view, I want to first address something that you are all thinking: The Fed caused the decline this past week.Well, before you go off so certain in your theory, consider that when the Fed had the actual meeting a few weeks ago and announced that it was going to tighten, the market rallied 140 points off its low that day. Yes, the market rallied on the tightening announcement.
Here is the secret: YOU CAN’T BE PERFECT!! It is impossible to always be right and always be perfect when trading or investing. And the sooner you accept that, the sooner you can begin to develop an appropriate approach to the market.The market is a non-linear environment so one has to approach it from a perspective of probabilities. That means it is absolutely inevitable there are times you are going to be wrong. But, the most important question is if you have a way to know when you are wrong early enough to be able to adjust and minimize your loss when you are wrong.
Starting with a clean slate in 2022, you can make it the best year you ever have in the market.It's time to start focusing on what is truly important in the market.If what you have been doing until now is not working, isn't it time to broaden your understanding of how the market truly works?With the market likely going to provide us another buying opportunity in early 2022, you may want to set yourself up before we begin the next major rally to 5500SPX.If you have followed me during the last decade that I have been writing on Seeking Alpha, you would know that we have made some calls that have seemed absolutely ridiculous at the time.
During the last two weeks, I had the pleasure of traveling with my wife, Sharise, as we hosted our members on a cruise through the Caribbean. We then flew to New York, where we spent time with my father, whose health has been recently failing, and had the opportunity to see Andrea Bocelli in concert at Madison Square Garden.If you have ever had the pleasure of hearing Mr. Bocelli sing, then you would know how his music can touch your soul. But, if you had the opportunity to learn his life story of perseverance, it would touch your soul that much more deeply.In a loving note to his family, Mr.
This week, I am keeping my post simple, as I am really short on time.For those that follow my analysis through the years, you would remember that I turned strongly bullish as the SP 500 approached the 2200SPX region in March of 2020. But, if you also remember that time period, the level of fear in the market even exceeded that seen at the March 2009 lows. So, when I suggested that the market would see a rally from 2200 to at least 4000, with an ideal target in the 6000 region, many simply could not believe what I was saying, as you can see here.
When caution is thrown to the wind, we begin to recognize that the market may be moving into a dangerous euphoric state from which a long-term bear market can begin. And, while it may be easier to bury your head in the sand, I strongly urge you to take to heart what I am about to say, as it will likely have ripple effects for generations to come.Recently, I read that the board of directors of the nation’s largest pension fund voted to use borrowed money and alternative assets to meet its investment-return target. What makes this even more striking is that this same pension fund lowered their investment-return target just a few months ago.
Let's all take a moment and be honest with ourselves right now. If the market had gapped up and rallied 50 points on Friday, what would the headlines in the financial news read?"Market Rallied on Passage of Build Back Better"Now, since the House passed the bill, and the market was flat on Friday, does it not then make sense to view the market as being unexcited by the Build Back Better bill?Oh, wait. I am sure many of you are thinking it was "priced in.
Before you begin reading this article, I want to warn you that it is quite lengthy and also recaps some of our analysis over the past 20 months. So, if this will offend you or you don't want to hear that, feel free to stop reading right now.I have been writing for Seeking Alpha now for over a decade. And, during that time, I certainly have had my share of critics. I have been told that I do not understand the markets I track. I have been called names like "insane," "dimwit," "charlatan," and "snake oil salesman." And, I have been told that my "squiggly line" analysis cannot foretell anything, is "absurd," "chart magic," and "highly unmeaningful.
So, I decided to read yet another article calling for a market crash. Needless to say, the body of the article offered nothing of true substance upon which I cared to comment, and I was saddened by the several minutes of time I wish I could have gotten back. That is, until I read the comments section, which provided me fodder to write this article.“News flash, that bull market ended last year. We're in the beginning stages of a new one.”“That crash is still going on, the market just hasn't caught up with it yet”“Article #512 on SA in 2021 about the upcoming crash. Eventually, they will all be right. I do nothing different ever.
I don’t know about you, but I am sick and tired of reading article after article telling me how inflation is going to kill our stock market, how the Fed tapering is going to kill our stock market, or how the rising dollar is going to kill our stock market. None of these perspectives are consistent or even accurate when taken from a historical perspective.As I outlined in my last article, the entire premise of inflation is that there are many more dollars chasing after a limited number of assets.
As I have been traveling with my family over these last several weeks, I still have had the opportunity to peruse the many bearish articles being published and have enjoyed quite a few chuckles. As the market continues to make new all-time highs, it really amazes me how so many are still fighting this rally.Over the last week alone we have seen titles including:"Inflated Expectations Set For Disappointment""How To Navigate A Potential Market Crash""Ringing The Bell At The Top""Don't Get Too Comfortable: The Third Wave Is Coming"It seems that there are many bricks being added to the wall of worry, as the market continues to climb higher.
While some of you think that I dismiss your comments to my articles, I will be honest with you that some comments make me think, whereas some just make me scratch my head.Last week, I outlined one of the issues that many have with EW, and that is related to the provision of a primary count and an alternative count. And, I addressed that concern as follows:Again, this is simply based upon a lack of understanding as to how Elliott Wave analysis works. I have addressed this argument many times before, but I think it is worthwhile to address it one more time.
It is now approaching almost a decade since I began writing public articles outlining my analysis in various markets. And, I have learned a lot about the general investor community based upon many of the comments I have received during that time.One of the things that I find quite pervasive is the drive for "common-think." But, even that is a misleading classification. You see, I do not believe investors think anymore.Rather, I see investors often grab onto something they read or hear in the media, and take personal "ownership" over that idea because it resonates with them for whatever reason.
I have read many articles over the years, and it seems that the manner in which the market has acted has caused many to confidently view market declines over the last 12 years as short-term opportunities to make long-term investments in a generally rising market. What I find most interesting about this commonly held perspective is that it presumes a linear expectation for a continuation in a long-term rising market.Now, most of you that read my analysis know that I have been a staunch bull, especially after we struck my long-term pullback target in the 2200SPX region last year. In fact, my ideal target for this bull market which began in 2009 is in the 6000SPX region.
Throughout the years I have been writing on ElliottWaveTrader, Seeking Alpha and other sites, many readers have recognized that we have been quite accurate in our market prognostications, yet they have had a hard time understanding the lens through which I view the markets.I want to first start by stating that in all the years I have been doing research and analysis into financial markets, I have not found a single form of analysis that provides market context as does Elliott Wave analysis. In fact, it was the reason I was so confident in my expectation that the market would exceed the 4000SPX region even though we were down in the 2200SPX region last year.
I know this is my third article this week, but I have been in Cancun for Passover for the last two weeks, and now that I am back, I have a lot to say. And, as those that read my articles frequently already know, I am about to hit you over the head again with another dose of market reality.As we moved into the middle of March, I warned the members to prepare for some volatility before the market continued on its way over 4000SPX. In fact, I specifically highlighted the 3850SPX support region and that a test of that support, which if held, would propel us sooner rather than later to over 4000SPX.
I really wonder how many of you that read this article entrust your hard-earned money to money managers? My next question is, of those that do, how many of you really understand your money managers' approach to managingmoney? And, my last question is if you believe that your money managers' goals are not aligned with yours?Since the first question I asked at the start of this article is more rhetorical in nature, as I simply cannot answer it, I will move to the second question.Of late, I have been reading articles published by money managers and I have honestly scratched my head.
I am often asked about my perspective regarding fundamentals, and why I see value in some fundamental perspectives and not others.Let me start by posting a tweet by a money manager, which I thought was quite funny, and gave me the idea to write this article.Source: @SimpleJackCap/TwitterNow, let me start by saying that there are very few fundamental analysts that I think are any good. The best of the breed that I have seen is someone we all read and respect, Lyn Alden Schwartzer. So, I am quite proud that she is a leading analyst on our StockWaves team.
I am often asked about my perspective regarding fundamentals, and why I see value in some fundamental perspectives and not others.Let me start by posting a tweet by a money manager, which I thought was quite funny, and gave me the idea to write this article.Source: @SimpleJackCap/TwitterNow, let me start by saying that there are very few fundamental analysts that I think are any good. The best of the breed that I have seen is someone we all read and respect, Lyn Alden Schwartzer. So, I am quite proud that she is a leading analyst on our StockWaves team.
“You cannot fight the Fed.”The general market reliance on the Fed is not only what is driving many investor’s decisions of late, but it will likely reach its peak in the coming years. But, one is going to have be very careful before they buy into this fallacy too deeply.I am told over and over again that one cannot fight the Fed. Unfortunately, history does not support this proposition. Allow me to begin with the events surrounding the Great Depression, and the Fed’s inability to stem that tide:“The Federal Reserve System, from February to December 1931, increased the issue of Federal Reserve notes by 80%.
by Avi Gilburt -
3 years ago
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