The Insanity Of Investors

By: Avi Gilburt | Mon, Nov 27, 2017
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As I read articles in early 2016, the debate centered around how deep the “crash” is going to take us, and much of it was event-focused. As I now read articles as 2017 comes to an end, they are still discussing how deep the “crash” is going to take us, and it still remains event-focused. But, while many are debating that issue, I now see much debate on how high this market will take us.

When investors begin to turn towards the “how high” debate is the point in time where one must become truly worried about how high this market can take us. You see, market sentiment is a funny market driver. When the great majority of market participants speak in terms of inevitable crash, you should be looking for an imminent bottom. However, when the great majority are speaking in terms of “new paradigm,” or how the market will “certainly continue in its current trend,” then its time to begin to look towards a market top.

A change in market direction will rarely be seen by most market participants. You see, they buy into the common speak of analysts and market participants. And, just when the majority is quite certain of the markets next larger move, the market usually “surprises” them with the opposite directional move.

Now, if anyone is looking for certainty in the stock market, then I suggest you take a heavy dose of reality and call me in the morning. You see, just like life, there is simply no certainty in the stock market. Rather, for those who really understand how the market works, we must view the market from a probabilistic perspective. And, that is the reason you see my analysis provided within an if/then framework. Yet, take note that my analysis is NEVER event-based.

We use our Elliott Wave analysis to assist us in identifying what we believe to be the most probable next move and target in the market. We have also developed our Fibonacci Pinball system to provide us with a more objective perspective overlaid upon the standard Elliott Wave structure. And, we use this system to identify high probability regions at which the market can turn.

As an example, back in early 2016, when the market was dropping down to the 1750-1800 region (for which we saw the potential before the heart of the drop began), we identified this bottoming target as a potential turning point for the market to then turn back up and rally to our next larger degree target in the 2537-2611 region. 

As another example, back in July of 2017, we presented our analysis which suggested that around the August 9th timeframe, the market can provide us with a turning point between the 2487-2500 region, with a downside ideal target between 2330-2380SPX. As we know, the market topped on the afternoon of August 8th at 2490SPX (exactly where we expected a turning point), and provided us with the largest pullback we had experienced since November of 2016. But, we came up a bit short of our ideal target region (we bottomed at 2417SPX) before we began the rally towards the upper end of our target region set two years ago.

So, again, we often identify high probability turning points, but there is no way we will be able to identify ALL the turning points, as we are dealing within a non-linear environment. However, we apply an objective analysis methodology to provide us with the highest degree of probability perspectives possible. Moreover, our objective analysis methodology told us clearly that, once we broke back over the 2460SPX region, the upside to the market opened up in a big way. So, even though we did not achieve the ideal downside target we set, our methodology told us quite clearly that we should not retain a strong bearish bias once the market moved back up through the 2460SPX region.

This is one of the main differences between our methodology, and many of the others that have retained a bearish bias, even for as long as the last two years or more. When one can accurately decipher the clues provided by the market within the patterns presented by price movements, one can identify objective criteria for which your bearish or bullish bias should be maintained or discarded, rather than remaining on the wrong side of the market for an extended period of time.

Yet, as I continue to read article after article, the incessant debate continues regarding what “event” will cause the next market down turn. How many articles have you read in the last year and a half which have been event-focused? I would believe the great majority of them. Brexit, Frexit, North Korea, Spain, Italy, terrorism, Trump, and many, many more. And, while we have seen the prognosticated events occurring, we have certainly not seen the expected turn in the financial markets.

Meanwhile, I see bearishly focused authors note quite clearly that their old models no longer work, yet they continue to provide the same analysis using the same old models to come to the same old conclusions. Yes, we live in head-scratching times indeed.

Yet, the debate continues on, but with renewed focus upon the next prognosticated event. Have you ever asked yourself why you bother? If you see the expected event occurring, yet the market simply does not care, does that not tell the reasonable person that maybe you are focusing on something that really does not matter? The market is telling you that is the case. So, why are you not listening?

I will tell you why. We have been so indoctrinated to believe that the market is directed by the principles of Newtonian physics that we have limited our insight into the stock market to such perspectives. Just because you see an event seemingly trigger a market move some of the time, yet many other events are completely ignored, you should recognize that maybe the events that seemingly trigger the moves are not really the “cause” of the move. Yes, I know what I am saying is completely counter-intuitive to everything you have been taught about the market. But, As R.N. Elliott said, “[i]n the dark ages, the world was supposed to be flat. We persist in perpetuating similar delusions.”

And, since event-based analysis has kept most, for the most part of the last two years, looking the wrong way in the stock market, maybe it is time to realize that it is really not the event itself which causes the market turn, but, rather, the public’s interpretation of that event as related to the stock market. The reaction is seen in the price moves, as people vote their reactions based upon their buying and selling. So, should not your analysis be based upon what price is telling you? Should not your analysis be price-focused above all else? To say “no” to these questions suggests that you have not been paying attention the last two years. If the market does not really care about events, why should you?

And, to continue to apply event-based analysis on this market is simply what Einstein defined as “insanity.” So, yes, the great majority of investors today seem to be insane, especially when you read the endless debate about what the market will do at the next event.

Currently, the market seems to be suggesting that we are involved in a “topping process.” While many of the uber-bears will be licking their chops when I say that, the “top” we seem to be developing will likely only provide us with a standard pullback towards the 2330-2400SPX region before we begin the next rally phase in this bull market with a target in the 2800 region. So, while the market may top alongside some perceived “catalyst,” do not assume that the catalyst was the absolute “cause” of that pullback. Learn from your experiences of the last two years.

By Avi Gilburt, ElliottWaveTrader.net


 

Author: Avi Gilburt

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.
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