Related Topics
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.


Germany’s Bonds: How to Spot Rising Yields Without Reading the News

U.S. Treasury yields aren't the only ones that have been rising. Just like here in the U.S., you can find a lot of "fundamental" explanations for the moves in German bonds. But watch how an Elliott wave pattern warned of these developments as they were just starting.

Groupon (GRPN): See the “Value of a Blank Price Chart”

If you've ever applied technical indicators to a price chart, you know the challenge -- namely, where do you even begin? Watch our Trader's Classroom editor walk you through a "blank chart" of GRPN to show you how to spot simple levels of support and resistance, for starters -- and get an idea as to what's next.

Beware of This Classic “Tip Off” Behavior in the Stock Market

This time-tested indicator provided a warning before the historic 2007 stock market top, and here in 2021, investors should focus on this indicator again. Find out why.