by Bob Stokes
Updated: March 15, 2019
It's hard for most investors to resist a stock market tip -- say, whispered in their ear at a neighborhood cookout or during "happy hour" at the bar.
Indeed, most investors have the sneeking suspicion that others know more about the market than they do.
As a classic Elliott Wave Theorist noted,
Most investors do not have extensive knowledge or experience in the area of investing, so they look to others to provide direction. They look at the tape and watch which way prices are going, they read the newspapers, they listen to financial television, and they go to cocktail parties and talk to their neighbors -- anything other than formulating their own personal research, education and convictions. They are getting their conviction, or lack thereof, from others.
The reason the Wave Principle works is that it reflects this impulse to herd. You see, the same patterns of "crowd behavior" have repeated themselves throughout stock market history. This repetition makes the stock market probablistically predictable.
Our Elliott wave experts have decades of experience observing these patterns, and they also consult an array of other technical indicators.
But, that's not to say that market analysis is a "breeze."
Let's return to that classic Theorist:
There are many important nuances in market analysis, and recognizing them is not easy. Certain measures of optimism and pessimism reach new extremes on the "test" of a high or low, what Elliotticians call "wave two." These are the strongest signals you can get. Momentum divergences always occur at tops, but not all momentum divergences mean the market is at a top. Standard patterns such as trendline "breakouts" and "head and shoulders" formations that fail are stronger indicators than ones with normal resolutions. Gaps are invaluable for forecasting moves. The market is an interesting place. You have to watch it a long time to learn some of these things.
And, indeed, our analysts have been watching the market a long time -- four decades to be precise.
And, during those long number of years, our market approach has been in stark contrast to the typical investor approach of "following the crowd." We study crowd behavior, but remain independent from it.
One of the market analysis factors mentioned by the Theorist is momentum -- and we happen to be watchng that important indicator very closely now.
Learn why as you take a look at our Financial Forecast Service, risk-free for 30 days.
Many financial advisors would answer "yes." They might even suggest that you add more assets to the mix -- such as international equities, REITS and perhaps other assets.
But, in EWI's view, no matter how carefully an investor constructs a "balanced" portfolio, it offers little to no protection during a major financial downturn.
In truth, "balancing" a portfolio is a poor substitute for knowledge of financial markets.
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