The latest price action of European bourses raises the all-important question of what drives financial market trends.
Let's begin with what does not drive the buy and sell decisions of investors in freely traded markets. Consider this headline about European markets from CNBC (Feb. 17):
"European Shares Hover Near 29-Month Closing High"
Another mainstream financial website headline offers the apparent reason:
"European stocks gain, buoyed by U.S. data"
The article went on to report:
"European stocks eked out gains...as upbeat manufacturing data from the U.S. boosted sentiment late in the trading session, helping the markets erase earlier losses."
But consider this headline from the very same website, published just a week earlier (Feb. 10):
"Debt fears sink Europe..."
That earlier article went on to report:
"Renewed worries over the euro zone’s sovereign debt problems weighed down European stock markets..."
So the question becomes: Is U.S. manufacturing data so influential that within only a few days time, it totally trumps the worries over Europe's debt problems? "No" is the obvious answer. The notion that news drives markets violates logic and common sense.
What actually does drive the price trends of European bourses (and other financial markets)? Here's what Robert Prechter offers in the February Elliott Wave Theorist:
"Elliott waves regulate mass psychology."
Brian Whitmer, editor of the European Financial Forecast, fully understands the role of Elliott waves, mass psychology, and price trends. Here's what he wrote in the February European Financial Forecast:
"[Europe's] stock investors sit in a state of suspended exhilaration. The last few drops of anxiety have left the market, and the bulls remain as convinced as ever that stocks represent a one-way upward path...Politicians in the eurozone are busy hammering out new and improved plans to deal with future financial crises."
Indeed, the January 31-February 6 issue of Bloomberg Businessweek features a currency story with this headline: "Where Have All the Euro Bears Gone?"
Here's a quote:
"Speculators placing bets against the euro are retreating in the face of tough talk from German Chancellor Angela Merkel. Traders are starting to believe her when she says Germany will do whatever it takes to safeguard Europe's common currency."
But do politicians drive market trends? No more so than does the latest U.S. manufacturing data or European sovereign debt.
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