On August 3, the DJIA opened higher. The financial news media quickly explained why:
"Stocks gained at the open Wednesday...after a reading on private sector employment came in stronger than expected."
That makes sense, doesn't it? U.S. employment situation brightened, so stocks went up. Except that, minutes later, the Dow reversed and fell.
Nothing changed regarding the "better-than-expected" employment figures. No other negative news had come out. And yet barely an hour after the open, the Dow was lower by 140 points.
The financial news just as quickly caught up to the reversal:
"...markets were down early Wednesday...with some mixed signals coming from the United States' labour market."
"US stocks slipped lower...as investors continued to digest the recent days' fiscal debates, weighing some signs of hiring in the US against ongoing uncertainty... "
So, the "better-than-expected" U.S. employment picture suddenly wasn't so bright? Plus "the ongoing fears" kicked in? Again, this sounds reasonable, except...
...Except that you can now see how this type of "market forecasting" works. Here's the recipe:
Step 1: Take any day's news pile, the good and the bad.
Step 2: Look at what the stock market is doing.
Step 3: If stocks are up, name a few "good news" items and attribute the rally to them.
Step 4: If stocks suddenly turn down, focus on the "bad news" instead. And if there is none, look for a fly in the ointment inside the "good news" stories.
This model works well -- that is, if you want the markets explained in retrospect. But if you want to know what stocks may do tomorrow, the conventional model has little forecasting value.
There is an alternative. Last Friday (July 29) our Monday-Wednesday-Friday Short Term Update made this forecast for this week -- and it had nothing to do with the news, only with the stock market's objective Elliott wave patterns:
[Bottom Line]: "The potential is high for a major volatility surge next week. ...the market is rapidly approaching a point where one main [Elliott wave] pattern will emerge."
"You have achieved a level of expertise that is unparalleled in the industry and your analysis definitely needs to be an integral part of any serious traders' decision-making process."
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