When fear grips the collective mood of investors, market prices can move downward rapidly.
Asked to opine about the market's recent volatility, market observers have repeatedly shaken their heads and said: "This is not rational."
And they're right. Financial markets are not rational. Elliott wave fans have known that for a long time (emphasis added):
"It is emotion that creates movement in the market. Of course, few people really want to admit that most of their decisions are emotionally based and emotionally driven -- rather than rationally based and rationally driven."
Prechter's Perspective
Yet, if investor psychology drives the market -- and not the cold, hard economic and financial facts -- the question becomes: Is there really a way to anticipate the direction prices will take?
Yes, that's the very basis of the Elliott Wave Principle (emphasis added):
"...stock market prices trend and reverse in recognizable patterns...Elliott isolated five such patterns, or 'waves,' that recur in market price data. He named, defined and illustrated these patterns and variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle."
Elliott Wave Principle, Frost and Prechter, (p. 19)
So where are we in today's stock market pattern? We've seen a lot of hard selloffs, yes -- but we've also seen some huge rallies. Do they suggest that maybe the "panic phase" is over -- and that it's safe to get back in?
Well, if history shows anything, it's that you should expect counter-trend moves. Consider what occurred in 1929-1932. Look at the wave "b" peak in the chart below. In the time leading up to that peak, investors thought a new bull market was under way after the 1929 crash:
So what about the next leg of the trend today? That's what Robert Prechter is talking about in the current Elliott Wave Theorist when he says:
"People tend to forget that markets fall faster than they rise. In two weeks going into August 9, the stock market erased all the gains of 2010 and 2011. It also erased more than all the gains made during QE2."
Prechter then describes the market's price form, and how it should unfold in the immediate months and years ahead.
After providing subscribers his thorough analysis, Prechter says,
"Most people get more bullish as the market goes up and more bearish as it goes down. We try to do the opposite. Our goal now is to become bullish on all these markets at an opportune time, so you can buy near the bottom."
Find out the details as you read the current Elliott Wave Theorist -- and watch a special, video edition of the August 2011 Elliott Wave Theorist -- presented by Robert Prechter.
Yes, YOU HEARD RIGHT:
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