A Fresh Perspective on Why Stock Market Continues to Defy News

By Elliott Wave International

When people hear the phrase “investing crowd,” they tend to think of Main Street investors. Usually dipping their toe in the water after the trend has been underway for quite some time, they are typically seen as the “more cautious” types than Wall Street pros.

Many market observers assume that the news is the main factor in governing the stock market’s trend.

Yet, Elliott Wave International has shown time and again that there’s simply no evidence to support this widespread assumption.

Consider the big economic news on Friday, Dec. 4 (Marketwatch):

‘Job growth has seriously slowed’

The November jobs report on Friday showed the coronavirus-battered U.S. economy regained 245,000 jobs last month. … Economists polled by MarketWatch had expected a gain of 432,000 jobs. …

As you might imagine, economists expressed widespread disappointment and said the “labor market is losing momentum.”

According to the conventional wisdom that investors react to news, stocks should have ended the day lower.

Instead, the Dow Industrials hit a record-high on Dec. 4. The price closed 248 points higher.

Financial history is filled with instances when stocks rose on bad news and fell on good news. Also consider this illustration and commentary from Robert Prechter’s 2017 book, The Socionomic Theory of Finance:

The chart is an idealized representation showing what would be the presumed effects on overall stock prices of a sudden slew of bad earnings reports, an unexpected terrorist attack implying many more to come, a large “economic stimulus” program, a major contraction in GDP, a government program to bail out at-risk banks, a declaration of peace after a time of war and a significant decline in interest rates. Under this causal model, such events would — rationally and objectively — effect a change in overall stock prices. The problem is, this depiction does not match empirics. That is not how overall stock prices behave. They run wildly up and down every second, minute, hour, day, week, month, year and decade.

Actually, the stock market’s chart pattern unfolds according to the Elliott wave model, which reflects the repetitive, hence predictable, changes in investor psychology.

The belief that news and events drive the market’s long-term trend is a myth.

Get insights into what really drives the price path of market prices by reading the Wall Street classic, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter.

Here’s a quote from the book:

The Wave Principle is governed by man’s social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value.

Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are causal conditions. The reason is that the market has a law of its own. It is not propelled by the external causality to which one becomes accustomed in the everyday experiences of life. The path of prices is not a product of news. Nor is the market the cyclically rhythmic machine that some declare it to be. Its movement reflects a repetition of forms that is independent both of presumed causal events and of periodicity.

The market’s progression unfolds in waves. Waves are patterns of directional movement.

Good news: Elliott Wave International now offers free access to the online version of Elliott Wave Principle: Key to Market Behavior.

The only requirement for free access to the book is a Club EWI membership. Club EWI is the world’s largest Elliott wave educational community with approximately 350,000 members and it’s free to join.

Simply follow this link: Elliott Wave Principle: Key to Market Behavior — free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline A Fresh Perspective on Why Stock Market Continues to Defy News. 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.