When it comes to a reason for why the stock market goes up, down or sideways, financial reporters make their livings by filling in the blank.
The stock market is down [or up] today because _______ (fill in the blank with any news event that fits).
The 300-point loss in the Dow Industrials on Sept. 9 is a recent example: news reports all connected the dots to the resignation of Juergen Stark, a European Central Bank official. When the market rallied Sept. 12, the financial media said this was due to China's announcement that it would buy Italian bonds.
On other days the market's action is variously ascribed to what Bernanke said (or didn't say); earnings reports; jobless numbers; the latest from Europe; etc., ad nauseam. (If the big financial news doesn't fit the day's market action, financial journalists will say prices moved "in spite of..." Have you noticed?)
In truth, all the evidence shows that news does not drive the market's trend. Over the past couple of months we know that trend has been down-to-sideways. So, if the constant flux of news is not the problem with stocks, what is? Our reply is negative mood. That same mood explains why the debt/credit bubble burst that had financed the boom in real estate/stocks.
"... [Debt] had been in a persistent uptrend ever since the 1930s. It got into a parabolic rise in 1990s and 2000s. That’s what supported the real estate market; that’s what supported the stock boom: all these new dollars in terms of IOUs. The trend reversed with an unprecedented drop in 2008."
Elliott Wave Theorist, August 2011
The chart below shows the start of that trend-reversal:
Positive social mood did resurface during the 2009-2010 rally; dollar-denominated debt also had a slight recovery. But addressing that debt recovery, the latest Theorist says "that trend is exhausted."
What does that mean for stocks going forward?
Well, after wrapping-up his section on debt, Prechter states, "And now I’m going to update you in our final group of slides, which pertain to the forecast for the next five years."
These charts are a must-see for anyone who wants to protect their financial future. As Prechter says, "we're looking for the bottom...at a very, very deep low."
Discover Prechter's 5-year stock market forecast as you watch a special 54-minute video edition of the latest Elliott Wave Theorist. In fact, we're now offering the latest issues of the Elliott Wave Theorist and Elliott Wave Financial Forecast at a limited-time 26% discount off the regular price.