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Stocks: What to Make of Wall Street’s Sky-High Optimism

“I believe that the market moves in whatever direction hurts the most participants”

by Bob Stokes
Updated: August 19, 2021

The U.S. stock market has been in an uptrend since March 2009 -- so, more than 12 years.

To add icing to the cake, there's this notable factoid (CNBC, August 16):

S&P 500 doubles from its pandemic bottom, marking the fastest bull market rally since WWII

So, after such a historic run, one might think that many Wall Street analysts would say that it's time to take at least some chips off the table.

Well, not so. Look at this astounding August 14 Bloomberg news item:

Wall Street Is the Most Bullish on Stocks in Almost Two Decades

So, what should one make of this uniformity of thinking and historic bullishness among Wall Street analysts?

Let's turn to Robert Prechter's landmark book, The Socionomic Theory of Finance:

Consensus regarding the future course of financial-market prices has an awesome power to become ossified in the wrong direction at markets' major turning points.

The dictionary defines "ossified" as "having become rigid or fixed in attitude or position."

That's the very attitude that prompted Dave Lutz, head of ETFs at JonesTrading Annapolis to say:

"I'm a believer that the market moves in whatever direction hurts the most participants. If all the analysts on the Street are bullish, I'd be very cautious."

That quote is from the same Bloomberg news item mentioned a moment ago, and Elliott Wave International agrees with that view.

After all, history shows that most investors, including professionals, are "surprised" at major turning points in the stock market.

The same patterns of investor psychology have played out time and again. Elliott waves are a direct reflection of these patterns.

Here's what's important to know: Because these patterns are repetitive, they offer predictive value.

Learn what the Elliott wave model is suggesting is just ahead for the stock market by reviewing our flagship investor package.

Follow the link below for instant access.

Corporate Earnings Are IRRELEVANT to Stock Market Trends, Yet …

...here's an August 14 Bloomberg quote:

While analysts are historically a bullish bunch, they're turning even more optimistic in the face of relentless stock-market gains and corporate earnings that topped even the highest expectations. [emphasis added]

You see, despite conventional wisdom, EWI's exhaustive research reveals no correlation between the stock market and earnings.

Yes, stocks have risen when earnings were good, yet stocks have also climbed when earnings disappointed. There have also been time periods when the reverse has happened: Stocks have declined when earnings disappointed, yet stocks have also declined when earnings were good.

The key is to know the trend. In other words, the price pattern of the stock market is all that matters.

Get insights into the market's price pattern by following the link below.

See the Chart That Predicted the College Enrollment Meltdown Years Before Covid

You may have heard that university enrollment plummeted during the Covid pandemic. What you may not have heard is that enrollment had been declining on a per capita basis for nearly a decade before the pandemic began. See a classic chart from 2011 that used the Wave Principle to foresee the enrollment bust in real time.

Why the Timing of the Next Economic Slump May Surprise – Big Time

Most professional observers of the economy were caught off guard at the onset of the two biggest economic setbacks of the past 100 years. Will professionals (and the public) be surprised again? Look at this diagram of the single most important "economic indicator."

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Bitcoin: "A bottom is not an event. It's a process."

Market top or market bottom, most traders don't recognize it until after the fact. But watch one of our Crypto Trader's Classroom instructors show you how to use Elliott wave analysis and Fibonacci ratios to anticipate the likely bottom in Bitcoin (and other cryptocurrencies).