What Does NOT Move Markets? Examining 8 Claims of Market Efficiency
by ilene - March 3rd, 2010 11:58 am
What Does NOT Move Markets? Examining 8 Claims of Market Efficiency
By Susan Walker, courtesy of Elliott Wave International
If everyone says that shocks from outside the financial system — so-called exogenous shocks — can affect it for better or worse, they must be right.
It just sounds so darned logical, right? Economists believe this trope to be true, mainly because they believe that investors are rational thinkers who re-evaluate their positions after every new bit of relevant information turns up.
Beginning to sound slightly impossible? Well, yes.
It turns out that logic is exactly what’s missing from this it-feels-so-right idea of rational reaction to exogenous shocks. Find out what really moves markets — download the free 118-page Independent Investor eBook. You might be surprised to discover that it’s not the Fed or "surprise" news events. Learn more, and download your free ebook here.
Excerpted from Robert Prechter’s February 2010 Elliott Wave Theorist, published Feb. 19, 2010
The Efficient Market Hypothesis (EMH) argues that as new information enters the marketplace, investors revalue stocks accordingly. … In such a world, the market would fluctuate narrowly around equilibrium as minor bits of news about individual companies mostly canceled each other out. Then important events, which would affect the valuation of the market as a whole, would serve as “shocks” causing investors to adjust prices to a new level, reflecting that new information. One would see these reactions in real time, and investigators of market history would face no difficulties in identifying precisely what new information caused the change in prices. …
This is a simple idea and simple to test. But almost no one ever bothers to test it. According to the mindset of conventional economists, no one needs to test it; it just feels right; it must be right. It’s the only model anyone can think of. But socionomists [those who use the Wave Principle to make social predictions] have tested this idea multiple ways. And the result is not pretty for the theories that rely upon it.
The tests that we will examine are not rigorous or statistical. Our time and resources are limited. But in refuting a theory, extreme rigor is unnecessary. If someone says, “All leaves are green,” all one need do is show him a red one to refute the claim. I hope when we are done with our brief survey, you will
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Digg11 Commonplace Market Views: True or Myth?
by ilene - February 17th, 2010 6:52 pm
11 Commonplace Market Views: True or Myth?
By Susan C. Walker, courtesy of Elliott Wave International
"Cash on the sidelines is bullish for stocks." Have you ever heard some stock market pundit utter these words? Have you ever wondered if the statement were true? Read this item from the latest issue of The Elliott Wave Financial Forecast, and you’ll wonder no longer:
Myth — Cash on the sidelines is bullish for stocks. This refrain rang like a gong all the way through the declines of 2000-2002 and 2007-2009. In February 2000, when mutual fund cash hit 4.2% (compared to 3.8% in November), The Elliott Wave Financial Forecast issued its “cash is king” advice. Once again, the word on the street is that there is way too much “cash on the sidelines” for stocks to fall precipitously. This chart shows net cash available to investors plotted beneath the DJIA. In December 2007, available net cash expanded to a new high, besting all extremes since at least 1992, a 15-year time span. Despite the presence of this mountain of cash, the DJIA lost more than half its entire value over the next 15 months. Indeed, as the chart shows, cash remained high right as the stock market entered the most intense part of the crash in 2008. Available cash does correlate with the market’s moves, but the market is in charge, not the cash.
--The Elliott Wave Financial Forecast, Jan. 29, 2010
Now take a look at these 10 statements and decide if they are true:
- Earnings drive stock prices.
- Small stocks are the place to be.
- Worry about inflation rather than deflation.
- It’s enough to simply beat the market.
- To do well investing, you have to diversify.
- The FDIC can protect depositors.
- It’s bullish when the market ignores bad news.
- Bubbles can unwind slowly.
- People can make money speculating.
- News and events drive the markets.
Bob Prechter and our other analysts have debunked each of these statements as a market myth. You can discover how we exposed these ideas as myths, and in turn make more informed decisions about your investing.
We’ve gathered the writings that expose these 10 statements as market myths in our 33-page eBook, called Market Myths Exposed. They come from two of our premier publications, The Elliott Wave Theorist and The Elliott Wave Financial Forecast, as well as two of our books, Prechter’s Perspective and The…
Is The Stock Market Top In?
by Chart School - January 19th, 2010 4:29 am
Is The Stock Market Top In? or Could This Be The Last Chance To Buy Stocks At Support?
Is The Stock Market Top In?
Courtesy of Charles Hugh Smith, Of Two Minds
Is this the top of the global equity rally which has run up for 10 months? A case can be made for "yes."
Is the top in on global stock markets? The case can certainly be made on a technical basis. In one of our private email exchanges, correspondent B.C. mentioned a possible turning point in the stock market around the third or fourth week of January. Curious about the timing, I asked if he could provide some context for that possibility. Here are his comments:
As for the "potential" cycle turn date, it is based on the Elliott Wave (EW) Fibonacci 61.8% scaling of the decline from Oct. ’07. But, as you well know, EW works "when it works" (selection bias or effect and post facto rationalizations); and, if it does operate at some deep structural level, there is the ongoing challenge to discern in real time the relevant scale within which a phenomenon is (or is not) occurring.
The Jan. timing also fits within the time-price self-similarity of the Nikkei in late ’99 to early ’00 and the SPX in 1939, which could extend with an ongoing topping pattern to the SPX 1220s-40s into Feb.-Mar. in terms of an idealized time-price symmetry; and (2) the tendency for stock prices to peak early in the second year of a presidential term during secular bear markets and decline for the year on average.
Were the pattern to fit generally with the EW scaling, we are completing a "b of C" within a larger secular descending triangle pattern, and we will see a C-wave decline of 3 waves into ’13-’14.
The bullish sentiment is rather consistent with a B or 2 wave, particularly today in that it is the general consensus of the Wall Street/DC establishment and at least a significant plurality of the "investor class" that the Fed saved the day; "reforms" are being implemented to prevent a repeat of the serial crises; the "worst is over"; and the economy is "recovering" and at no risk of a relapse. I see the structural effects of Peak Oil on the price of oil, debt service, and consumer spending creating a persistent
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August Long Term Elliott Wave Update on SP500
by Chart School - August 3rd, 2009 8:39 pm
August Long Term Elliott Wave Update on SP500
Courtesy of Corey at Afraid to Trade
It’s time for the August Elliott Wave Count update on the S&P 500. I will show the two most plausible Elliott Wave Counts which remain unchanged from May’s Elliott Wave Update (which successfully targeted 1,000 as a minimum upside target in the S&P 500). Please review that post for deeper context as you read the August update.
First, let’s take a look at the monthly structure:
The 2000 high was a major peak (most likely a large scale Wave III) and virtually all Elliotticians agree we are in a long-term (10 year) expanded flat (ABC) which is shown on the graph above.
Whether or not we have completed the “C” wave is up for interpretation as will be shown below, but this is the generally accepted “Larger Elliott Picture” in a simplified version for you.
Now, let’s revisit the “Most Bullish Scenario” as described in May’s post which WOULD assume that Cycle Wave C (circled) is complete and that we are in a new bull market:
As a disclaimer, I am not yet in agreement with this count, and this would be known as a ‘minority’ wave count that few in the Elliott Community have as their primary count. However, I like to consider charts from all angles and remove bias when possible, so I am presenting this as a possibility.
Without getting too technical, this count would assume that the required 5 “Primary” Waves of the Cycle C have all completed, and that we are now on the cusp of a Brand New Bull Market.
I noted that I am skeptical of this count because the 5th wave does not subdivide properly into 5 waves, and is shorter than the 1st wave which is unusual. That being said, Wave 5 did make a lower low than the 3rd wave, so this is most definitely a plausible count.
It would assume that Waves 1 and 2 of a fractal new Primary Wave 1 Up have formed and that we would be in a powerful third wave up here.
We will know this count is wrong if we make a new low beneath 666 in the near future, and will know that this count is correct if we have a powerful rally up from current levels…
The Three Phases of a Trader’s Education: Psychology, Money Management, Method
by ilene - July 23rd, 2009 6:09 pm
The following is an excerpt from Jeffrey Kennedy’s Trader’s Classroom Collection. Elliott Wave International is offering a special 45-page Best Of Trader’s Classroom eBook, free.
The Three Phases of a Trader’s Education: Psychology, Money Management, Method
By Jeffrey Kennedy, courtesy of Elliott Wave International
Aspiring traders typically go through three phases in this order:
Methodology. The first phase is that all-too-familiar quest for the Holy Grail – a trading system that never fails. After spending thousands of dollars on books, seminars and trading systems, the aspiring trader eventually realizes that no such system exists.
Money Management. So, after getting frustrated with wasting time and money, the up-and-coming trader begins to understand the need for money management, risking only a small percentage of a portfolio on a given trade versus too large a bet.
Psychology. The third phase is realizing how important psychology is – not only personal psychology but also the psychology of crowds.
But it would be better to go through these phases in the opposite direction. I actually read of this idea in a magazine a few months ago but, for the life of me, can’t find the article. Even so, with a measly 15 years of experience under my belt and an expensive Ph.D. from S.H.K. University (i.e., School of Hard Knocks), I wholeheartedly agree. Aspiring traders should begin their journey at phase three and work backward.
I believe the first step in becoming a consistently successful trader is to understand how psychology plays out in your own make-up and in the way the crowd reacts to changes in the markets. The reason for this is that a trader must realize that once he or she makes a trade, logic no longer applies. This is because the emotions of fear and greed take precedence – fear of losing money and greed for more money.
Once the aspiring trader understands this psychology, it’s easier to understand why it’s important to have a defined investment methodology and, more importantly, the discipline to follow it. New traders must realize that once they join a crowd, they lose their individuality. Worse yet, crowd psychology impairs their judgment, because crowds are wrong more often than not, typically selling at market bottoms and buying at market tops.
Moving onto phase two, after the aspiring trader understands a bit of psychology, he or she can focus on money management. Money…
Anatomy of a Rally
by Chart School - July 15th, 2009 10:39 pm
Trend and Elliott Wave analysis, long-term and short-term perspectives – courtesy of Allan.
Anatomy of a Rally
Today’s rally thrust a spike in the heart of the head and shoulders analysis that was so embraced about this time last week by the New World Order. In the spirit of, "if you can’t beat them, join them," let’s take a look at the most bullish frame of reference I can construct, albeit only for a trade while awaiting the re-emergence of an ongoing bear market. [Click on charts for larger views.]
In Advanced GET parlance, the above SPX chart has triggered a "Type 1 Buy Signal." To make a long story short, (no pun intended) all a Type 1 Buy Signal means is that a corrective wave has ended and a new impulse wave has begun. For our purposes, the corrective wave above is contained by the auto-regression channels and in today’s rally the SPX broke above those channels on the chart. The significance for me is that now I have a target for where this rally should end, using orthodox Elliott logic as applied by Advanced GET.
The chart above is a close-up of the corrective wave along with three likely targets for the resolution of this rally. These levels are first, the blue horizontal line coming in just above 1000 on the SPX, then the two Wave 5 chart annotations at the 1050 and 1150 levels. Note how the False Bar Stochastic confirms this wave count and rally.
This spunky rally from the first week of March has been a bear (no pun again) to manage through strictly pattern recognition analysis. The mantra here has been that we trade the trend, not the forecast and as you can see on this Daily chart of the SPX, the Daily Trend Model flipped LONG yesterday at 901.15 and caught all of today’s rally. As of today, the reversal level to go Short is at …
Glenn Neely is forecasting the largest vertical drop of the decade for the S&P 500
by ilene - June 17th, 2009 3:43 pm
Courtesy of Allan
Glenn Neely – 50% decline before end of year
NEoWave Institute’s Glenn Neely is forecasting the largest vertical drop of the decade for the S&P 500. Neely predicts the stock market will decline 50% in the next 6 months.
Aliso Viejo, CA (PRWEB) June 16, 2009 — Glenn Neely, founder of NEoWave Institute and prominent Elliott Wave analyst, today announces a startling prediction: The S&P 500 is forming a major top in June, which will be followed by a large decline, eventually pushing the stock market to record lows for the decade.
"Technically speaking, according to NEoWave a correction began at last October’s low; the March-June rally is the final leg of that correction," Neely explains. "The March-June rally is now ending, allowing the bear market to resume. During the next six months, the S&P will decline 50% or more, breaking well below 500!" Currently, the S&P is hovering around 917.
Glenn Neely is providing this information not as a specific trade recommendation but as a general public service announcement. A prominent Elliott Wave analyst, Neely was recently recognized in Timer Digest’s May issue as the #1 stock market timer for the past 12 months.
Full Release here
Social Mood, Stocks and Epidemics
by ilene - May 14th, 2009 11:19 am
As we’ve discussed previously (e.g., Global Unrest Continues to Grow, Hyperinflation First, Then Global War), socionomics is premised on the theory that "social mood drives financial, macroeconomic and political behavior, in contrast to the conventional notion that such events drive social mood." Here is an interesting article on socionomics which focuses on social mood and its relationship to disease. – Ilene
Social Mood, Stocks and Epidemics
As you can see in the chart of the MSCI World Stock Index below, there are similarities between the 2003 SARS epidemic and today’s flu outbreak.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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