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Stock Market Risk Just Took a Big Jump – Here’s Why

Fund managers "consistently do the opposite of what they should be doing for maximum return"

by Bob Stokes
Updated: June 14, 2018

The stock market is a study in paradox.

The obvious rarely, if ever, works.

For example, prices tend to reach a high when the news is good, and bottom when the news is at its worst -- just the opposite of what most investors might expect, especially novices. But even veteran and professional investors often find themselves on the wrong side of the market's paradoxical moves.

Yet, financial history shows that the time to scoop up shares is when investors are the most fearful and the time to sell is when they're the most enthusiastic.

A case in point is from our October 2007 Elliott Wave Financial Forecast:

According to one media account, "U.S. investors are returning from summer vacation to the cheapest stock market in almost 12 years, and some of the biggest fund managers say they're ready to load up on shares." ... Despite the renewed enthusiasm among investors, there remain many subtle signs that the market is losing steam. [emphasis added]

Just days later, the DJIA reached its historic October 2007 top and then plummeted 54% through early March 2009.

This brings us to what's going on now.

Here's a June 12 Marketwatch headline:

Fund managers are overweight U.S. stocks for first time in 15 months

With the above in mind, this chart and commentary from Robert Prechter's 2017 book, The Socionomic Theory of Finance, provides food for thought:

MutualFundHerding

It is widely known that professional money managers, in the aggregate, fail to beat the market. ... The chart shows that at good prices for buying stock, mutual fund managers have high levels of cash, and at good prices for selling, they have low levels of cash. This record confirms that they consistently do the opposite of what they should be doing for maximum return.

Indeed, the Investment Company Institute's mutual fund cash-to-assets ratio dropped to an all-time low of 2.9% in January and February of this year.

And, as that Marketwatch headline revealed, many fund managers remain convinced that the stock market's trend continues to be upward, despite the volatility.

These are just some of the warning signs we see in today's market. We reserve a lot more evidence-backed research and studies for our subscribers.

And we think that now is the time to see what our subscribers already know.


Put Yourself AHEAD of the Stock Market's Next Major Turn

To find yourself in this enviable position, stay on top of the market's unfolding Elliott wave pattern.

Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

When after a while the apparent jumble gels into a clear picture, the probability that a turning point is at hand can suddenly and excitingly rise to nearly 100%. 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. [emphasis added]

Yes, OPPORTUNITY!

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You start by receiving a copy of Robert Prechter's new book, The Socionomic Theory of Finance. Thirteen years in the making, STF exposes layers of flawed assumptions and offers you a new approach. The book is jaw-dropping and, at times, an uncomfortable read. STF uses history to painstakingly challenge beliefs. It shows what actually happens in the markets. It does so fearlessly, taking on even the most sacred of assumptions. The book is acclaimed by academics, practitioners and investors alike as a landmark paradigm-setter. It comes in print and online editions and sells for $99. We include it free with your Financial Forecast Service bundle.

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