Swings in mass emotions tend “to follow a similar path each time around”
By Elliott Wave International
After a multi-month rally since the March low, many stock market investors remain optimistic.
Here are a sample of October headlines:
- [Major bank] lays out 3 reasons why the stock market will continue to rise … (Business Insider, Oct. 11)
- ‘Get long’ — … stocks higher no matter who wins election (CNBC, Oct. 12)
- … Study Reveals Retail Investors Remain Bullish … (businesswire.com, Oct. 14)
- Big Money is Bullish … (Money & Markets, Oct. 21)
This continued financial optimism is not surprising. Indeed, it’s to be expected at this juncture in the stock market’s trend.
As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:
The progression of mass emotions from pessimism to optimism and back again tends to follow a similar path each time around, producing similar circumstances at corresponding points in the wave structure.
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And, right now, it appears the current mass emotion of optimism has progressed to an extreme.
The Oct. 21 U.S. Short Term Update, a thrice-weekly Elliott Wave International publication which focuses on near-term forecasts for major U.S. financial markets, showed this chart and said:
This week’s Investors Intelligence Advisors’ Survey has pushed to 59.2% bulls, just shy of the September 1-2 extreme. The red arrows on the chart show the four prior instances since September 2018 when the II survey was at a similar level or slightly higher.
The Investors Intelligence Advisors’ Survey doesn’t mean that the stock market will make a dramatic turn on specific day in the near future. Market history repeats, but not exactly.
The best approach at this juncture is to keep a close eye on the market’s unfolding wave structure.
Let’s return to Elliott Wave Principle: Key to Market Behavior:
No matter what your convictions, it pays never to take your eyes off what is happening in the wave structure in real time. Ultimately, the market is the message, and a change in behavior can dictate a change in outlook. All one really needs to know at the time is whether to be long, short or out. …
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