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Infinity Lights vs. The Stock Market

In finance, demand and price move in the same direction

by Bob Stokes
Updated: November 23, 2015

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[Editor's note: The text version of the video is below.]

The bright colors of the "Infinity Lights" in the middle of the mall jumped out at me. 

These lampshades include quadrilateral, interlocking pieces that can be self-assembled in a variety of ways, the most popular shape is the sphere. The Infinity Lights are on display now as an obvious holiday gift idea.

Depending on size, the prices I saw were between $20 and $30.

But let's say it's the week before Christmas, and the retail shop has too much Infinity Lights inventory. So, the shop reduces each unit by $5. Sales will likely pick up. But if the retailer raises prices, inventory will probably move even more slowly. That's the way it works with retail goods in the economy.

But in the stock market it's just the opposite.

This brings us to the Socionomic Theory of Finance -- and how price and demand are different for consumers vs. investors.

Here's an illustration and commentary from the May Elliott Wave Theorist:

The first thing to notice is that the relationship between price and demand is fundamentally different. Generally speaking, when demand rises for a utilitarian item over a long period of time, more producers enter the marketplace, so supply increases, and prices go lower. ...

Finance doesn't work that way. Demand and price always move in the same direction. As demand rises prices rise, and as demand falls, prices fall. Lower prices do not generate an increase in demand, and higher prices do not generate a decrease in demand. The relationship is the opposite of that in economics. Thus the two lines shown here slope in the opposite direction.

The question might arise: Why do stock prices eventually turn down, if investors' desire to own stocks increases as stock prices rise?

The just-published November Theorist provides the answer:

The Elliott wave model describes the fractal structure of financial herding. More broadly, it also describes the fractal pattern of social-mood change, which in turn regulates trends in all kinds of aggregated emotions and social actions. Among them are the emotions of optimism and pessimism within the speculating herd, which in turn regulate price change in the overall stock market.

Our analysis shows that financial changes are just ahead.

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