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Investing , Stocks , US Markets

Why Most Investors Miss Major Stock Market Turns

Will the Dow Industrials hit 100,000 in the next decade?

by Bob Stokes
Updated: December 10, 2020

Financial history shows that many investors are out of the stock market at major bottoms and "long" the stock market at major tops.

In other words, they miss important turns.

Why is this so?

It boils down to a single phrase: linear trend extrapolation. In other words, when stocks have been persistently rising, most investors believe they will continue to rise. Mind you, this is after many of these investors joined the bull market late in the game because they believed the prior bear market would also persist. When a new bear market starts, many investors believe the downturn is only temporary and they hold, which results in mounting losses.

As you know, the stock market's trend has been up. And, evidence of linear trend extrapolation is easy to find.

Look at this Dec. 4 headline from The Globe and Mail:

Why the Dow at 100,000 may not be all that far away

The writer provided reasons as to why the Dow Industrials could hit such a lofty price level "well before 2030." Of course, such a major price move in the Dow Industrials is possible, yet the point is: That's linear trend extrapolation taken to an extreme.

In the past, such bold forecasts were made just as a trend was approaching an end. That doesn't mean aggressive forecasts are a timing tool, it just means that caution may be in order.

Extremes in sentiment measures are also eyebrow raising.

Here's a chart and commentary from our just-published December Elliott Wave Financial Forecast:


On November 27, Large Trader Call Buying, which tracks traders who purchase 50 contracts or more, spiked to 43% of total volume. As the chart shows, this reading matched the record set on March 10, 2000, which occurred 10 days before the S&P 500 peaked and the exact day of the NASDAQ's top. Both stock indexes declined in a 2½-year bear market thereafter...

The December Elliott Wave Financial Forecast also provides Elliott wave analysis of the U.S. stock market.

Elliott wave analysis will help you to stay ahead of the market's next big turn.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost

& Prechter, says:

It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

You can have our latest Elliott wave analysis of U.S. stocks on your computer screen in just moments. Your first step is to follow the link below.

Why to Prepare for the “Unexpected” Stock Market Turn

Investors can be on the right side of a stock market trend for months or even years, but...

...When an unexpected major turn arrives -- a big percentage of those gains can go POOF!

Indeed, financial history shows that most major market turns catch most investors off guard.

You can be the exception to the rule.

Prepare for what Elliott wave analysis suggests is just ahead by following the link below.

Chinese Investors Are Rushing into Gold. Should You?

The wild card for the global markets remains China. You've heard about its real estate problems; now the yuan is on the rocks. Here's our monthly Global Market Perspective contributor, Mark Galasiewski, with a handy chart and a few under-the-radar highlights from the October issue to give you a unique perspective on the situation.

European Stocks: “Deeper and Deeper”

October is almost here, and so far, "things are quiet" in the markets, says our monthly Global Market Perspective contributor Brian Whitmer. But watch as he lists a few items on his radar as he gives you highlights from the new, October issue.

Another Way to Measure (and Predict) Volatility

Volatility has reigned on Wall Street this month. One way to measure and predict it is by looking at the difference, or "spread," between the "fear index" VIX and junk bonds. Here's our Head of Global Strategy, Murray Gunn, showing you an interesting chart in a preview of our new, October Global Market Perspective.