Do stock market trends follow news? Can you rely on news (or on anticipating news) when you invest? Many people believe that the answer to both questions is “yes.” But here at Elliott Wave International, we wish to offer you some news about the news: The answer to both questions is “no.” Permit me to explain.
Let’s look at a recent example -- the last day of 2009. The big economic news was the drop in unemployment claims for the prior week, the lowest in 17 months. Moreover, the 432,000 unemployment claims was lower than economists expected.
If you knew beforehand that the number was going to be surprisingly lower, would you have put money into the market at that time? If so, your account would have been down. The market closed lower despite the day's "good news."
How about bigger news? Consider what happened on November 22, 1963 in Dallas, Texas. Look at the Dow Jones chart below. The dates are purposefully removed. Can you pinpoint the market’s reaction to the assassination of President Kennedy?
You can see exactly where that huge news event occurred on this chart by ordering the DVD “
Toward a New Science of Social Prediction,” Robert Prechter at the London School of Economics. Prechter also shows the stock market at the time of other major news events. His presentation will debunk a major myth, and you may never think about news in the same way again. The DVD is a must see, and presents much more we’re sure you’ll find enlightening.
Here’s some other questions about financial news, the answers to which are widely accepted as a “given”:
- Do Fed announcements drive the stock market's turns and trends?
- What impact does the latest GDP report have on stock prices?
- If a better-than-expected trade deficit number is reported, will that news improve your stock portfolio?
- Another shocking accounting scandal surfaces about a Fortune 500 company. Will this report change the course of the market?
(EWI’s flagship publication --
The Elliott Wave Theorist -- puts these and similar developments into context every month. It’s a perspective you’ll find nowhere else.
You can subscribe by clicking here.)
Most financial analysts retrofit their commentary with the market’s "reaction" to the news. If prices go up afterward, they provide what seem to be plausible reasons to "connect the dots." If prices go down on the same news they connect the dots in the other direction. In other words, you cannot count on most financial analysis when your money is at stake.
You can learn about what
really drives the market by subscribing to
The Elliott Wave Theorist (click here). At the March 2009 low, when raw financial fear reigned, Robert Prechter boldly anticipated a strong bear market rally. Upon what did he base this prediction, which we now know came true? It wasn’t the news.