Conventional economic wisdom lurks in the shadow of a system that uses news events to explain the direction of financial markets. Or, at best, it presumes ahead of time how prices will react to upcoming data -- and is inevitably thwarted by a fickle market that blatantly "ignores" negative stats to move higher, or "shrugs off" positive ones to turn down.
And that's the "rational" approach to trading?
I'll take "crazy" any day, if crazy means understanding that markets are driven by internal trends which unwind in recognizable wave patterns on price charts. Ipso Facto: to identify these patterns early in their developement makes it possible to anticipate some of the biggest turns in trend beforehand.
The first approach gets you a fancy title and frequent guest speaking slots in popular media outlets.
The second one gets you right; as in, on the right side of the price trend.
Case in point: Six months ago, the mainstream financial world was lock-step in the March of Dooms as the Dow Jones Industrial Average plumbed the depths of a 12-year low. In their words ----
- "Dow 5,000? A Bearish Possibility." (Wall Street Journal)
- "The bear market is tightening its grip. No one is taking a back-seat approach. Everyone is just selling. We're collapsing in on ourselves." (New York Times)
- "I don't want to sound like the grim reaper, but it's possible that one of the [major] averages could come down by... another 50% drop from here. This is a slow-drip, slow-death decline." (LA Times)
- "It's going to continue its easiest path, and that path it sees is down. That's where we're stuck right now and who's going to get out in front of it?" (AP)
(Is The Bear Really Dead, or just playing? The brand-new October Financial Forecast Service (on-line September 25) reveals whether the six-month rally is here to stay. Get the complete story today, absolutely risk-free.)
To answer the underlined question above -- only a "crazy" person would "get out in front" of the plunging market. And, we know just the sort. To wit: One week before the U.S. stock market landed at its 12-year low on March 9, our February 27, 2009 Short Term Update (STU) utilized a specific turning pattern to outline a time window for the onset of a major upside reversal. In STU's own words:
"By all indication, this pattern is back on track... the turn will come on or near March 10, 2009. Anywhere in this time period may mark a turn, which will obviously be a market low."
Once the bullish winds of change had turned, the March 16 STU wrote:
"When the market speaks, it behooves us to listen. The implications of this are that the... major stock indexes are in the initial stages of a multi-month advance."
And, soon after that, the April 2009 Elliott Wave Theorist presented a full, polished forecast for the coming changes in store for both stocks and sentiment. Here, EWT wrote:
"Wave 2 should carry the Dow as high as 10,000. The rally should regenerate substantial feelings of optimism. Investors will be convinced that the bear market is behind us. Be Prepared For This Environment; it will be hard for most investors to resist."
Flash ahead to today. From its March 9 low, the Dow soared 50%-plus to a new yearly high. AND, as a recent Wall Street Journal reveals -- the financial in-crowd has undergone a Charles DOW-in like evolution "From Bear to Bull." Here, the graphic illustration below shows the conversion:
From individual investors to economists, institutions and advisors -- the "substantial feelings of optimism" are back. And, as the Financial Forecast Service reveals, it's a perfect set up for what's to come.