Related Topics
Stocks , Investing , US Markets

Capital Gains Tax Hike News: Was It REALLY to Blame for Sell-off?

Markets go where they go. The news is just rationalization.

by Bob Stokes
Updated: April 27, 2021

As Elliott Wave International has noted many times, the mainstream financial press always tries to find a reason for a given trading day's stock market action.

In other words, if stocks happen to be up for the day, many financial journalists will say it was because of this or that "positive" news. If stocks happen to be down for the day, you got it, these journalists will ignore the positive news and search for something "negative" that happened in the country or world and say that was the reason stocks went down.

Sometimes, the mainstream financial press will use the same "reason" to explain both up and down market action. For instance, on April 22, when the Dow Industrials closed lower by more than 300 points, a major headline said:

Dow closes more than 300 points lower following reports of Biden eyeing capital gains tax hike

Here's what was so ironic: The very next day, as the Dow was trading up for the day by triple digits, the same news outfit ran this headline (April 23):

Dow rebounds 250 points led by banks and tech as market shrugs off higher tax fears

What you need to know is that news does not drive the trend of stock market prices.

If that was the case, the stock market's price pattern would look something like this illustration, which is from Robert Prechter's 2017 book, The Socionomic Theory of Finance. As the book says:


Figure 1 is an idealized representation showing what would be the presumed effects on overall stock prices of [this sample of news items notated within the figure]. Under this causal model, such events would--rationally and objectively--effect a change in overall stock prices.

The problem is, this depiction does not match empirics. That is not how overall stock prices behave.

The factor that really drives the trend of stock market prices is investor psychology, which unfolds as Elliott waves on a price chart.

These waves unfold in repetitive patterns at all sizes of trend. That means that the price patterns you see on an hourly or daily chart are also found on weekly and monthly charts.

Because these patterns are repetitive, they are predictable!

Learn what the Elliott wave model suggests is next for U.S. stock market prices -- regardless of the news -- by following the link below.

A HUGE Financial Story...

...has only started to unfold.

It's all about interest rates (bond yields).

The yield on the U.S. long bond rose for 39 years ...then, fell for 39 years.

What should you expect next for the U.S. long-bond yield and for the shorter end of the curve, i.e., Treasury bills (or, interest bearing cash equivalents)?

Read our Financial Forecast Service to get important insights.

Get started by following the link below.

Why a Global Fund-Manager Favorite May Start to Flounder

Global fund managers have ramped up their equity allocation in a major region of the world that had formerly been a laggard. Those who are considering jumping on the bandwagon may want to review this chart first.


Inflation: Let TIPS Give You a Tip on What’s Next

TIPS, Treasury Inflation-Protected Securities, have an ETF named TIP. It just hit a new 52-week high after rising strongly since the start of the pandemic alongside the rising inflation fears. What can we learn about inflation's trajectory from here by looking at TIP's Elliott wave pattern? Our Interest Rates Pro Service editor explains.

USDJPY: Two Charts, Same Wave Pattern – and Same Forecast

You may have heard us say Elliott wave chart patterns are fractal -- meaning, smaller patterns make up larger ones. To understand how powerful this can be in forecasting, watch our Currency Pro Service editor walk you through the 2-week and daily charts of the Japanese yen, a big forex market.