The February 21 agreement to bail out Greece came and went -- and investors are left wondering. Many think they need to weigh all the possible effects (good and bad) which this new development may have on the stock market. These headlines capture the uncertainty:
- "US Stock Futures Rise On Back Of Greece Bailout Deal"
- "European stocks rise on Greek bailout hopes"
vs.
- "London midday: Stocks continue to fall after Greek bailout"
- "European Stocks Decline After Greek Bailout Agreement"
Wondering what we at EWI think about the Greek bailout effect on the market?
From an Elliott wave perspective, the answer is… well, this is the wrong question to ask.
This chart of the S&P 500 helps explain why. It shows you what happened after the previous two Greek bailouts:
That's right: Stocks fell after Greek bailouts #1 and #2. Our own Monday-Wednesday-Friday Short Term Update said this on February 10 when it showed the chart above:
"First comes the deal, then come the riots -- and rumination about why it will never work."
Why do you think investors lost heart after the previous two bailouts? After all, the European Union authorities have shown a strong commitment to not let Greece default. So, why worry?
The answer begins with the understanding of the Elliott Wave Principle's main idea: Markets are not moved by logic. The crowd's collective bias -- bullish or bearish -- is what creates broad market trends. Remember the 2007-2009 stock market crash, when the world's financial authorities threw everything they had at the crisis but stocks kept crashing anyway? When social mood turns negative, no amount of "good news" matters.
How do you know which bias the crowd has today?
You have to see the larger Elliott wave picture in stocks to answer that. You can do that now in the latest issues of our two flagship publications -- the February 2012 Elliott Wave Financial Forecast and Robert Prechter's just-published February Elliott Wave Theorist.
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