A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020
Stock-Markets / Stock Markets 2020 Aug 10, 2020 - 11:17 AM GMTBy: EWI
R.N. Elliott’s work explains why stocks rallied despite Covid and other bad news
Many of you know that Ralph Nelson Elliott discovered the method of forecasting the markets that today we call Elliott wave analysis -- or, more formally, the Elliott Wave Principle.
R.N. Elliott lived from 1871 to 1948, and July 28 was his birthday.
A way to pay tribute is to mention one of the key observations he made during his years of studying the stock market (R.N. Elliott's Masterworks):
As the Wave Principle forecasts the different phases or segments of a cycle, the experienced student will find that current news or happenings, or even decrees or acts of government, seem to have but little effect, if any, upon the course of the cycle. It is true that sometimes unexpected news or sudden events, particularly those of a highly emotional nature, may extend or curtail the length of travel between corrections, but the number of waves ... remains constant [emphasis added].
What this means, simply, is what EWI subscribers have known for decades: News and events don't affect or create broad market trends. Of course, this seems to defy logic because most people believe that news and events are the very things that drive the stock market.
Yet, there was also a time when most people believed that only birds could fly. But what governs airplane flight, the buoyancy of metal ships, the light produced by an incandescent light bulb, radio transmission over the air -- and, yes, the Wave Principle of price formation in the financial markets -- is natural law.
Natural law is inherent in price patterns of stocks and other markets. Those are the patterns of the market participants' collective psychology, the true driver of price trends. That's why outside events do not materially influence the pattern's behavior.
In fact, often the stock market behaves in a completely opposite manner from what the majority of market observers would expect from the news.
Here's a chart and commentary from our July Elliott Wave Theorist, a monthly publication which has provided analysis of financial markets and social trends since 1979:
[This figure] is updated from the June issue and shows that on Sunday, July 12, Florida reported the largest tally, from any state, of new Covid cases since the pandemic began. Did the stock market care? No, it gapped up the following morning. This morning (Friday, July 17), Bloomberg reported that profit at the consumer banking unit of Bank of America has "plunged 98%," and overall profit at the bank is down by more than half. The U.S. banking system is in serious trouble. Does the stock market care? No, it gapped up on the day.
In the nearly 90 years since R.N. Elliott observed that news does not alter the market's wave pattern, his insight has been proven time and again.
So, it's wise to keep your market eye on what really matters: the Wave Principle of human psychology.
With that in mind, Elliott Wave International has made the online version of the book, Elliott Wave Principle: Key to Market Behavior, available for free.
Here's an excerpt from this Wall Street classic:
In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or "waves," that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression.
Learn about these patterns by reading Elliott Wave Principle: Key to Market Behavior -- 100% free.
All that's required is a free Club EWI signup. Club EWI is the largest Elliott wave educational community in the world and membership is also free.
Just follow this link to get started: Elliott Wave Principle: Key to Market Behavior -- free.
This article was syndicated by Elliott Wave International and was originally published under the headline A 90-Year-Old Investment Insight That's Relevant in 2020. 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.
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