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Is the Stock Market Atop "A Permanently High Plateau" -- Again?

by Editorial Staff
Updated: February 26, 2019

In 1929, economist Irving Fisher said:

Stocks have reached what looks like a permanently high plateau.

Three days later, the stock market took a dramatic dive, and the Great Depression eventually followed.

Fisher's statement became legendary, yet that wasn't the last time that a stock market observer made a bold prediction.

As Robert Prechter's Conquer the Crash noted when the book first published in 2002:

One thing that does happen repeatedly near a top in the stock market is that investors raise their upside forecasts dramatically. In 1999-2000... books came out calling for Dow 36,000, Dow 40,000 and Dow 100,000.

As we know, those predictions came just in time for the start of a bear market in 2000. But the bull market that followed rekindled the sentiment that stocks had nowhere to go but up.

In 2014, one news source noted a forecast that was made near the crest of the 2007 bull market peak:

Goldman Sachs chief strategist... set an uberbullish 1,675 price target for the S&P 500 for [2008].

However, the stock market index ended 2008 at 903.25, which was a 37% drop and 46% below the strategist's target.

After the stock market bottomed in 2009, an even longer bull market followed, with the DJIA reaching an all-time high of 26,951.80 on Oct. 3, 2018.

Even though that was nearly five months ago, optimism has returned, despite a very volatile Q4 2018. Our January 17 Elliott Wave Theorist notes:

There was a brief bout of pessimism heading into the low of December 26, but it has completely reversed over the course of the market's... [January] rally.

Indeed, the return of financial optimism is expressed in this Jan. 2 Kiplinger's headline / subheadline:

When It Makes Sense to Buy the Dip

If nothing serious has gone wrong with the company, consider a stock decline a buying opportunity.

Four days later, a Jan. 6 New York Times article titled "Who Wants a Market Downturn? These Investors Actually Do," quoted a venture capitalist:

“We definitely want to take advantage of a market downturn.”

Other venture capitalists told The New York Times that they were hoping for a stock market dip so they could buy. The implication is clear: A downturn would be temporary and relatively shallow, certainly not severe, with a strong rebound to follow.

Two days later, on Jan. 8, a retiring financial reporter for a national newspaper wrote:

"The best thing you can do if market gyrations are causing you emotional pain is to turn off the TV, tune out the market pundits and take a break from keeping track of the Dow’s every move. The market, I have learned, is like a lasting friendship with ups and downs along the way.”

In a nutshell, "buy and hold."

A week later, on Jan. 15, this Bloomberg headline provided another expression of "investing for the long-term":

A $1.8 Trillion Investor Says U.S. Stock Rally Has Years to Run

So, one must ask: "Is the stock market reaching 'what looks like a permanently high plateau' again?"

Sentiment is not everything. The stock market's Elliott wave pattern, a more detailed snapshot of investor psychology, is also telling a compelling story -- right now.

Find out how you can tap into the insights of our Elliott wave experts, risk-free for 30 days.

Don't Pin Your Hopes on the News

"Buy the rumor, sell the news," goes an old Wall Street wisdom. And here's another reason not to join the bullish herd:

In December, as stocks were crashing, the same crowd also blamed the sell-off on the ongoing U.S.-China trade talks.

How can the same factor -- the results of which are still unknown -- cause stock to have both the worst December since 1931 and the best January since 1987?

We're with you: It can't. Something else fueled the December sell-off, and the recent rally. What?

Investor psychology. It's been in a bullish mode since the start of the year. How long will it last?

Nothing helps you track -- and forecast -- changes in investor psychology better than Elliott waves.

Today, right now, we can help you interpret what the waves are saying right now, risk-free.

Here's how.

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