The Manic-Depressive Stock Market: What to Make of It

Some people question why I refer to Elliott Wave Internationals topics, features and articles so much.  For 1, I am an affiliate of theirs so I’m happy to promote their wares but secondly and more importantly I just love their research and style.

I am an absolute stickler for clarity, logical arguments and relevant content for any research I buy or read – I can’t be bothered reading something if it has no impact or relevance to me at all – I’ve more important things to do with my time than wade through loads of reports, blogs or websites with no or little relevance.  That is why I only subscribe to 2 (yes TWO) financial newsletters – both of them from Elliott Wave International – WHY? – because the content, charts, graphs and reasoning has logic & relevance to the bigger economic picture going on throughout the world.

These two newsletters are NOT, I repeat NOT tip services or recommendation letters – they are research papers who’s content is not seen in the main stream media or press.  The content and facts are what’s critically important to me – NOT someones opinion on trades/investments.

On this site I am simply unwilling to promote anyone or anything that I do not believe in 100% – in this business there are 1000’s of useless opinions and comments that are simply unhelpful to and for traders – I know I’ve spent years picking through a lot of them!

Elliott Wave International (for me) produce well written, logical and practical articles.  Their reports are just common sense thinking applied to markets and events that I personally find of use to me in understanding the big picture of global events.

Read the article below – until you think of it as EWI have written it this is something that is likely to nag you, you’ll be watching the markets and thinking where’s the logic?  Logic says if this happens then that should happen – why hasn’t it?

Welcome to the markets – logic is out of the window I’m afraid!

Now although I promote Elliott Wave Internationals reports and research I do not trade using Elliott Waves, I have tried and found for me it’s of little use, you might find it works for you.

The report below is a snippet, piecing together lots of careful, well explained and relevant content allows you to build greater pictures of how the markets work.  It’s FREE to sign up to Elliott Wave International and access their FREE content.

Enjoy the post

The Hovis Trader

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The Manic-Depressive Stock Market: What to Make of It The psychology of the market may be teetering on the edge May 2, 2012

By Elliott Wave International

The stock market: one week it acts like Dr. Jekyll, the next week it’s Mr. Hyde.

That shift can even occur in the course of a single session.

These dramatic fluctuations appear to be impulsive; and we know that impulse does not flow from cold reason. Even so, the Efficient Market Hypothesis would have us believe that investors are constantly applying reason and logic to reach some objective market pricing, via the latest news or measure of stock market valuation.

The February 2010 Elliott Wave Theorist provides insight:

The Efficient Market Hypothesis (EMH) and its variants in academic financial modeling…rely at least implicitly but usually quite explicitly upon the bedrock ideas of exogenous cause and rational reaction. Stunningly, as far as I can determine, no evidence supports these premises…

EMH argues that as new information enters the marketplace, investors revalue stocks accordingly. If this were true, then the stock market averages would look something like the illustration shown [below].

We know that the market does not unfold in the way illustrated above. But we do know that the market has unfolded like this:

So in 2000, did a sudden burst of logic lead investors to realize that the NASDAQ was over-valued?

No. Technology stocks had absurd price/earnings ratios long before the NASDAQ top.

The NASDAQ’s abrupt switch from Hyde to Jekyll stemmed from investors’ collective unconscious. Consider the gazelle that runs in panic because others are: it does not pause to rationally survey the landscape. It explodes in a burst of speed that reaches 90 km/hr within seconds.

Decades ago, multimillionaire stock market operator Bernard Baruch said

…the stock market is people. It is people trying to read the future. And it is this intensely human quality that makes the stock market so dramatic an arena, in which men and women pit their conflicting judgments, their hopes and fears, strengths and weaknesses, greeds and ideals.

This psychology of the marketplace unfolds in waves. That is what we study.


Want to learn what REALLY drives the markets?The FREE 50-page Independent Investor eBook will challenge conventional notions about investing and explain market behaviors that most people consider “inexplicable.”You’ll learn how extreme market psychology affects the markets, with some eye-opening charts that provide shocking evidence of the real forces at play in the markets.We promise to show you a whole new way of thinking about investing. Download the FREE 50-Page Independent Investor eBook Now >>

This article was syndicated by Elliott Wave International and was originally published under the headline The Manic-Depressive Stock Market: What to Make of It. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

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