Will "Cash on the Sidelines" Save This Market?
"The market is in charge, not the cash."
by Bob Stokes
Updated: November 06, 2018
On Oct. 30, I was watching a business news channel when a panelist opined that "cash on the sidelines" will bring back a stock market rally.
At the time, the Dow was trading nearly 300 points higher, so spirits were high and the panel of pundits were gushing over reasons why the October "dip" was over and the bull was back
Only time will tell if those pundits' bullish outlook proves correct. But, if a rally does occur, it won't be because of cash on the sidelines.
The February 2010 Elliott Wave Financial Forecast addressed the myth that cash on the sidelines is bullish with this chart and commentary:
This chart shows net cash available to investors plotted beneath the DJIA. In December 2007, available net cash expanded to a new high, besting all extremes since at least 1992. … Despite the presence of this mountain of cash, the DJIA lost more than half its entire value over the next 15 months. Indeed, as the chart shows, cash remained high right as the stock market entered the most intense part of the crash in 2008. Available cash does correlate with the market's moves, but the market is in charge, not the cash.
Of course, cash is an inanimate thing, it doesn't have a mind of its own, or jump in and out of the market of its own accord.
Yet, the belief that the mere existence of cash in a money market account is bullish has persisted for years.
Here's just one example from a September 20, 2017 Business Insider article:
[A] legendary investor [says] the high level of cash still sitting on the sidelines is one of the most underappreciated elements of stock bullishness.
Stocks did trend higher for another four months, but then went into a period of wild volatility in late January and early February with the broad market losing 10% in just two weeks.
The February 2018 Elliott Wave Financial Forecast provided this perspective:
All cash in existence is always on the sidelines, because it doesn't go anywhere; it's just the medium through which investors agree that stock prices should be higher or lower.
The key factor in higher or lower stock market prices is investor psychology, which unfolds in repetitive and predictable patterns, also known as Elliott waves.
Now is the time to find out what our Elliott wave experts anticipate next for stocks.
Big Stock Market Shifts Can and DO Happen Much FASTER Than Many Investors Anticipate
Millions of investors extrapolate today's stock market trends into tomorrow (and beyond). It's a perfectly natural way to think, BUT --
Newton's law -- which says a body in motion remains in motion in a straight line unless acted upon by an external force -- DOES NOT APPLY to the stock market.
The "law" that governs the stock market's price trend is the Elliott Wave Principle.
Find out what our Elliott wave experts are telling subscribers about what the Wave Principle is revealing, now.
Learn about EWI's 30-day, risk-free offer just below …
Your Financial Forecast Service Team Helps Put YOU in Control of the Market’s Trends and Turns
Your Financial Forecast Service guides -- three of the best-known market analysts in the world:
- 1. Robert Prechter, Author of 16 market-related books, New York Times Best-Selling Author and Editor of Elliott Wave Theorist
- 2. Steven Hochberg, Editor of the Short Term Update and Co-editor of The Elliott Wave Financial Forecast
- 3. Peter Kendall, Author of The Mania Chronicles and Co-editor of The Elliott Wave Financial Forecast
As featured in: