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Investor Psychology: Here are 2 Rare Traits Now on Display

Stock market newcomers revel in their ignorance

by Bob Stokes
Updated: April 23, 2021

In the past year, the stock market has been flooded by inexperienced investors.

Here's a May 12, 2020 CNBC headline:

Young investors pile into stocks, seeing 'generational-buying moment' instead of risk

The message of that headline matches up with the sentiment among many investors that the stock market is at the start of a boom -- not near an end.

Yes, financial history shows that the same psychology has been on display before, i.e., the heralding of "The New Economy" in 2000 -- just as stocks were topping. And, if you want to go all the way back to the 1929 top, the proclamation of "A New Era."

There are other psychological characteristics on display here in 2021 that are rare.

One of them is a dismissal of the market admonitions from experienced market veterans -- those who've lived through both bull and bear markets.

As our March Elliott Wave Financial Forecast reiterated:

A backlash has emerged against the experienced professional, to the point that someone with "a knowledge of history and value is eventually judged as an impediment to success."

Our April Elliott Wave Financial Forecast described another rare -- if not "unprecedented stage" -- of investor psychology. Here's a chart and commentary:

RiseofKnowNothings

Newcomers now revel in their ignorance. The chart from The Wall Street Journal shows the "Rise of the Know-Nothings." It's derived from the postings on WallStreetBets' Reddit forum of GameStop fans. In the wake of GameStop's peak on January 28, the percentage of those professing stock market ignorance spiked to about 3% of those posting on WallStreetBets. The use of terms such as "stupid," "idiot" and "no idea what I'm doing" identified the know-nothings... The percentage of know-nothing references [spiked] to a high of almost 11% on March 14. So, the foundational basis for the New Era is idiocy.

The reason for pointing out these traits is that they seem to reflect a market psychology that signals an end -- not the beginning -- of a financial "boom."

The best way to get a precise handle on the stock market is to review the Elliott wave pattern of the main indexes.

You can do so by following the link below.

Why You Should Read Mainstream Stock Market Forecasts – Carefully

As Robert Prechter’s book, Prechter’s Perspective, says:

Read forecasts carefully. If they are unsophisticated, linear extrapolations of a recent trend, it’s probably the best policy to toss them aside and go search for something potentially useful.

Many forecasts that you find in the financial media are simply extrapolations of the current trend.

Anyone can do that.

A useful forecast is one that describes the juncture at which a trend will change.

That’s the province of Elliott wave analysis.

Learn what our Elliott wave experts are sharing with subscribers by following the link below.

EXCLUSIVE

"A Classic Bearish Reversal Sequence"

In this clip from our Commodity Pro Service, editor Jim Martens highlights a "classic" Elliott-wave setup that can lead to a high-confidence trend change. In Jim's words, "A classic bearish reversal sequence I always mention. I want to see this before I'm confident that the trend has changed." The good news, you can apply this lesson to any market!

PTPC: In Harmony with Social Mood -- The Genius, King, Godfather and Poet Laureate

Ray Charles. Elvis. James Brown. Chuck Berry. These four pop music icons need no introduction. Music historians have told their individual stories many times. But when we zoom out and look at their careers collectively, we see the indelible influence of social mood on their bouts of triumph and tumult.

Trends, Turns and Dollar Index Opportunities Since 2021

Sentiment indicators can help you anticipate huge turns in financial market trends. See exactly what Short Term Update subscribers saw at the start and the end of a two-year move in the Dollar Index.