Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Six Straight Weeks Down, DJIA Below 12,000, What Now?

Stock-Markets / Stock Markets 2011 Jun 15, 2011 - 02:33 AM GMT

By: EWI

Stock-Markets

The Dow has suffered the "longest losing streak since the fall of 2002. The market's last seven-week stretch of losses began in May 2001, as the dot-com bubble deflated," reports The Associated Press.

As for why stocks are falling, most observers agree: Blame "weaker hiring, industrial output, and a moribund housing market." The economic reports from the past two weeks made that clear.


But wait a minute. The DJIA didn't top in the past two weeks -- it topped on April 29. At the time:

  • U.S. unemployment benefit applications had been trending down/flattening. In fact, "The unemployment rate fell last month in more than 80% of the nation's largest metro areas," said an April 27 AP report.
  • U.S. industrial output was up. In fact, "both the Philly and N.Y. Fed reports show[ed] improving manufacturing and business conditions." (Reuters, April 15)
  • As for the U.S. housing market, it officially entered the "double-dip recession" zone only on May 31, a month after the Dow's April 29 peak. 

This is not to say that unemployment, manufacturing and real estate were peachy in April. But the worst of the reports from those areas of the economy only came after the stock market had already entered the decline. The most recent weak economic reports hardly explain why stocks topped when they did.

If you're looking for a better explanation, consider an Elliott wave perspective: The economy doesn't lead the stock market -- it's the stock market that leads the economy.

Skeptical? Then think back to 2007. "Goldilocks economy," strong corporate earnings, unemployment at 4.4% -- nothing but blue skies ahead. The Dow rallies to an all-time high above 14,000 in October 2007 -- and over the next 18 months goes on its biggest losing streak in 70+ years, falling 54% and ushering in "the Great Recession."

Now fast forward to March 2009. The Dow has crashed below 6,500; unemployment has more than doubled; the desperate Fed has dropped interest rates to 0%; foreclosures; bailouts; consumer confidence at an all-time low; general state of near-panic. The Dow bottoms on March 6, 2009, and stages a powerful two-year rally above 12,000.

By conventional logic, you'd have to agree that, paradoxically, "the good economy" of 2007 prompted the deflationary crash, while "the bad economy" of 2009 sent stocks flying.

But here's an explanation that actually makes sense: Broad market trends are not created by the economic conditions -- social mood is what creates them. Social mood doesn't depend on what Ben Bernanke had for breakfast -- it changes for endogenous reasons, and those changes follow the Elliott wave model. Stocks lead the economy because they are quicker to register changes in social mood. 

Before you make investment decisions based on the latest economic report, be sure to read the 2011 edition of The Independent Investor eBook by Elliott Wave International. You will see example after example of the fallacy to the belief that economic conditions direct the moves in the stock market.  Download your free 50-page Independent Investor eBook now.

This article was syndicated by Elliott Wave International and was originally published under the headline Six Straight Weeks of Decline Take DJIA Below 12,000: What Now?. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in