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Why the World of Investing Often Seems Wacky

Financial news is often a contrarian signal

by Bob Stokes
Updated: October 30, 2018

In the world of investing, things aren't always as they seem.

As Alice said in Lewis Carroll's "Alice's Adventures in Wonderland":

"If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn't. And contrary wise, what is, it wouldn't be. And what it wouldn't be, it would. You see?"

Alice would make a good investor.

You see, in the Wonderland of Investing, the news is always the worst at the start of a bull market. Conversely, the news is always good at the start of a big downturn.

In October 2007, if you remember, the U.S. had a "Goldilocks economy": not too hot, not too cold, and very supportive of further growth in the stock market, according to most experts. The DJIA topped that month and fell more than 50% into the March 2009 low. And at that low, with many economic conditions reminiscent of the Great Depression, the stock market found a bottom and never looked back.

Here’s a fresh example -- this is from The New York Times on Oct. 26, 2018:

U.S. Economy Charged Ahead in the Third Quarter

...keeping it on track for the best annual performance since 2005

Yet, the DJIA closed down nearly 300 points on that day, and as you probably know, that was just the latest in a string of highly volatile trading sessions.

Another example of what would seem to be a positive sign for the stock market is from the corporate world. Here's a chart and commentary from our just-published November Elliott Wave Financial Forecast:


The tally of record high bullish extremes continues... as this chart of global mergers and acquisitions shows.... The M&A record marks a double dose of "corporate optimism" as the August Elliott Wave Financial Forecast showed a new all-time high in corporations' purchases of their own shares.

If news doesn't drive the stock market, what does?

It's driven by investor psychology, which is reflected in repetitive and predictable Elliott wave patterns.

Here's what the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, points out:

The path of prices is not a product of news.... Its movement reflects a repetition of forms that is independent of presumed causal events.

Yes, most investors presume that news drives the stock market. And that presumption gets many of them into financial trouble.

This is an ideal time to learn what our analysts are saying about the stock market's price pattern, and what they expect next.

Knowing the Dow's "Wave Count" is Crucial: Here's Why:

That knowledge helps you anticipate big price moves in the direction of the main trend. And -- just as important -- you won't be fooled by countertrend moves.

Remember, the stock market's price pattern unfolds simultaneously at ALL degrees of trend. Meaning -- hourly trends are part of daily trends, and in turn, these comprise the weekly trends which are part of the monthly trends and so on.

An investor needs to be familiar with ALL of them in order to make sense of what is going on with the stock market.

See what our analysts see, risk-free for 30 days. Keep reading to learn how …

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