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A "Manufactured" Reason for This Stock Market Sell-Off

Only one thing drives broad stock market trends, and it's not the news

by Bob Stokes
Updated: October 03, 2019

Many market observers, including seasoned financial journalists, assume that the day's news determines whether stock prices will climb or fall.

Consider the price action on Oct. 1, when the DJIA fell 344 points.

Three media organizations all agreed as to the cause (Oct. 1):

  • Dow sheds more than 300 points after data exposes U.S. manufacturing troubles (Marketwatch)
  • Dow, S&P record worst day in more than 5 weeks after dour US manufacturing report (CNN)
  • Dow drops more than 300 points after weakest manufacturing reading in 10 years (CNBC)

They were all talking about the Institute for Supply Management report, which said U.S. manufacturing activity had dropped to 47.8 in September versus the expected level of 50.2.

But was the weaker-than-expected manufacturing number the real cause of the DJIA's sizeable Oct. 1 drop?

It's true that the sell-off began in earnest after the release of the data. But you know how sometimes, the market "brushes off bad news." You've also seen days when even a seemingly minor news report appears to send prices into a big rally or tailspin.

The reason for that is market psychology. When it's in a bullish mode, it's "primed" to "brush off bad news." When psychology changes to bearish, the market takes "bad news" pretty hard. We believe that's exactly what happened on Oct. 1.

You see, before the latest manufacturing report was released, our Sept. 27 U.S. Short Term Update said:

The potential is higher for a larger decline [in the DJIA] now.

Besides the Dow's topping Elliott wave pattern, the Short Term Update had also been telling subscribers about a downside signal from the CBOE Volatility Index, plus other indicators rarely discussed in mainstream financial news.

So, the DJIA's price decline was already in the cards days in advance, whether the manufacturing report had been negative or positive. Or, whether any other news had made the headlines. Or, no news at all. (If you remember, for example, there is still no "official" reason for the 1987 crash -- which also occurred in October, by the way.)

Indeed, in Robert Prechter's 2017 book, The Socionomic Theory of Finance, he said that if the claim were true that news drove the stock market...

... company share prices and the overall stock market would trend mostly sideways, with near-vertical jumps and drops to new planes of stability whenever crucial information came out. In such a world, the overall stock market would have a price history looking something like this illustration...

ExogenousCause

Of course, we all know that prices do not play out like this illustration in the real world.

Investor psychology drives the trends. And its fluctuations are reflected by the repetitive and predictive patterns of the Elliott wave model.

Learn what our Elliott wave experts are expecting next for the stock market without any obligation. Look below to find out how to get started.

Focus on the Price Pattern of the Stock Market

It happens all the time: One market "pro" on financial television explains why he is bullish, then a half hour later, an equally experienced "pro" offers reasons why she is bearish.

Forget the opinions and look to the price pattern of the market itself -- THAT is where the "rubber meets the road" -- THAT is where you'll find CURRENT actionable information.

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