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Stocks , Investing

Stocks: How Sentiment Measures Offer Clues About What’s Likely Next

Insights into the stock market as a fractal

by Bob Stokes
Updated: December 15, 2022

Elliott Wave International's analysts track dozens of indicators, and our U.S. Short Term Update pays particular attention to those which may offer clues about the near-term.

Consider this analysis from our Sept. 26 U.S. Short Term Update:

Short term measures of investor sentiment indicate excess pessimism... Stocks should start a countertrend rally to relieve the downside compression.

No analytical method can guarantee an exact day and time a forecast will be fulfilled -- if it's fulfilled at all. However, some 13 trading days later, the Dow did hit a low. By Nov. 30, the senior index was more than 5,000 points higher. Excess pessimism had morphed into excess optimism. Fear had morphed into complacency.

Indeed, our November Elliott Wave Theorist noted:

By several measures, optimism at the current time is equal to or greater than that which held sway at the broad market's all-time high in November 2021 and at the blue chips' all-time high in January 2022!

The stock market pendulum usually starts to swing the other way when an extreme is reached -- in this case, extreme optimism. So, it hasn't been surprising that prices have mainly trended lower since around the beginning of December -- at least, so far.

So, are investors forever locked in to short-term swings between optimism and pessimism?

We all know the answer is "no" from looking at historic stock market charts. We see that short-term trends are part of intermediate term tends, which, in turn, are part of even larger trends and so on. In other words, the stock market is a fractal.

Here's an illustration and commentary from Robert Prechter's book, Last Call:


In 1938, Ralph Nelson Elliott... described the fluctuation of stock market prices as a fractal. He illustrated a patterned fractal in which movements in aggregate stock prices trace out five waves (of a certain description) in the direction of the one larger trend and three waves (or combinations thereof) in the countertrend direction.

[The illustration] is a stylized depiction of a full cycle of Elliott waves, with their traditional labels.

Key things for an investor to know is whether the "larger trend" is up or down, and the current juncture of the market in that larger trend.

You can get timely insights by following the link below.

The Elliott Wave Model Helps You with the Near-, Intermediate- and Long-term

Our showcase investor service is called The Financial Forecast Service and it includes The Elliott Wave Theorist, The Elliott Wave Financial Forecast and The U.S. Short-Term Update.

Together this trio provides you with financial market insights into what to expect in the days ahead, the weeks ahead, the months ahead -- and yes, the years ahead.

No market forecasting service can offer guarantees (if one does, run the other way). That said, no other analytical and forecasting method can surpass the utility of the Wave Principle -- which reflects the repetitive patterns of investor psychology.

See what our analysts see for U.S. stocks, bonds, gold, silver, the U.S. dollar, the U.S. economy and much more.

Click on the link below to get started now so you can prepare for what may take the majority by surprise.

Financial Forecast Service


All month long, Financial Forecast Service helps you stay ahead of the waves in the U.S. markets on the timeframes that matter the most. FFS covers the stock indexes, bonds, gold, silver, the U.S. dollar, as well as market psychology and cultural trends. It is our most popular service.

Comprises the monthly Elliott Wave Financial Forecast, 3x-per-week Short Term Update and at least 12x-per-year Elliott Wave Theorist.

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In a word, everything. From political conspiracies to Covid-related ones to the theories so bizarre that they seem too silly to be relevant, we live in the golden age of conspiracy theories. And while it’s easy to blame social media for their spread, we think the roots go deeper. Watch our new Mood Riff episode where the host Greg Eident explains some fascinating socionomic findings on the subject.

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