If you watch the market long enough, you'll come to realize something startling: Prices behave independently of economic and financial releases, political decisions, and opinions of the most-followed market pundits.
The news is not driving the markets' larger trends. Neither are pundits' opinions or expectations.
Just think back to the market's slide in late July and early August. Here's what EWI president Robert Prechter stated in the September Elliott Wave Theorist about that period as it relates to news:
"Commentators are saying that the stock market fell on bad news. But most of the news in late July and early August was good. Congress resolved its debt impasse. The bond market ignored Standard & Poor’s downgrade of U.S. Treasuries. Companies in the S&P 500 stock index reported record earnings. The only reason that people blamed the market’s fall on bad news is because they start by assuming that news causes the market to move. The market fell; ergo, there must have been bad news.
"Suppose the Dow had gone up 500 points in the beginning of August. No doubt commentators would be referring to precisely those three news events to justify the rise."
And what were the economic headlines on October 3?
- "August construction spending up 1.4%" - Marketwatch
- "U.S. Manufacturing Unexpectedly Accelerates..." - Bloomberg
- "U.S. auto sales up in September..." - Associated Press
But what did the market do? As you know, the Dow fell 258 points.
Sure, there are days when the economic news is "bad" and the market closes down. And vice versa. That's why most analysts and investors link bad news with down market days, and good news with up market days.
But that doesn't mean one causes the other.
As the Wall Street classic Elliott Wave Principle puts it (p. 21):
"...the market has a law of its own. It is not propelled by the external causality to which one becomes accustomed in the everyday experiences of life. The path of prices is not a product of news...The market's progression unfolds in waves. Waves are patterns of directional movement."
And what is the market's price pattern telling us about its likely path ahead?
Returning to the September Theorist, Robert Prechter tells us which Elliott wave the market is acting like it's in, and characterizes that sizeable wave by using the word "mayhem."