Stop Believing The “Economy” Is The Same As The Stock Market

Of late, almost all the “analysis” or comments you read or hear is based upon a superficial understanding of the market propagated through “common-speak.” And, that is exactly why they all seem to be so confused:

“The stock market is confusing a lot of people right now. It seems simple: news is bad, there’s a pandemic for the first time in generations, people are dying, and the economy has taken a beating for the ages. Stocks should go down, right? But they’re not. They’ve recovered so much of their March slide that they’ve produced the shortest bear market in history. The Dow Jones Industrial Average was in a bear market for just three days.”

”Less than a month ago, the stock market was in free fall, as a torrent of bad news about the coronavirus pandemic and its economic fallout drove investors to dump stocks. Just as swiftly, the market has rebounded, even as millions of people lose their jobs every week and the country is destined for a recession.”

”Cramer says he and hedge fund billionaire David Tepper are confused by the market’s recent rally.”

One of the many fallacies confusing the masses seem to be the expectation that one can invest in the stock market based upon their expectations for the economy. Many believe that if they follow unemployment, or GDP, or myriad other factors they will be able to glean what the stock market will do.

So, then why are those that invest in the market based upon the economy so confused?

All their confusion is based upon the fallacy of their underlying assumption that understanding the economy will allow you to understand the market. To be honest, the exact opposite is true. But, very few understand the truth of this perspective.

In the past, I have tried to explain why many view the causality chain backwards, but I will reiterate it here, since so many seem to be confused of late.

First, I want to start with the premise that the market is driven by mass sentiment more so than fundamentals. Rather, fundamentals follow the market, and do not lead it. This is why we often hear that the stock market is a leading indicator for the stock market.

So, taking this one step further, we understand that when a market reaches a maximum point of relative bullishness, it will top and turn in the opposite direction. The same applies when the market reaches a maximum point of bearishness, where it will bottom and turn in the opposite direction.

Even the “Maestro himself, Alan Greenspan, has stated the same:

“The cause of economic despair, however, is human nature’s propensity to sway from fear to euphoria and back, a condition that no economic paradigm has proved capable of suppressing without severe hardship. Regulation, the alleged effective solution to today’s crisis, has never been able to eliminate history’s crises.” Alan Greenspan – Financial Times – 2008

“It’s only when the markets are perceived to have exhausted themselves on the downside that they turn.” – Alan Greenspan – ABC interview – December 2007

With this in mind, let’s review how the stock market and economy relate to each other, and it will likely be quite eye opening, at least for those of you that have an open mind and seek intellectual honesty in your analysis. And, if you are closed minded to what I am saying (assuming you have even read this far), consider why your perspective has been so confused of late, and maybe then you will be willing to entertain another perspective.

I feel the following narrative explains the causality chain in a more accurate fashion:

During a negative sentiment trend, the market declines, and the news seems to get worse and worse. Once the negative sentiment has run its course after reaching an extreme level, and it’s time for sentiment to change direction, the general public then becomes subconsciously more positive. You see, once you hit a wall, it becomes clear it is time to look in another direction. Some may question how sentiment simply turns on its own at an extreme, and I will explain to you that many studies have been published to explain how it occurs naturally within the limbic system within our brains.

When people begin to turn positive about their future, they are willing to take risks. What is the most immediate way that the public can act on this return to positive sentiment? The easiest is to buy stocks. For this reason, we see the stock market lead in the opposite direction before the economy and fundamentals have turned. In fact, historically, we know that the stock market is a leading indicator for the economy, as the market has always turned well before the economy does. This is why R.N. Elliott, whose work led to Elliott Wave theory, believed that the stock market is the best barometer of public sentiment.

Let’s look at the same change in positive sentiment and what it takes to have an effect on the fundamentals. When the general public’s sentiment turns positive, this is the point at which they are willing to take more risks based on their positive feelings about the future. Whereas investors immediately place money to work in the stock market, thereby having an immediate effect upon stock prices, business owners and entrepreneurs seek loans to build or expand a business, which takes time to secure.

They then place the newly acquired funds to work in their business by hiring more people or buying additional equipment, and this takes more time. With this new capacity, they are then able to provide more goods and services to the public, and, ultimately, profits and earnings begin to grow – after more time has passed.

When the news of such improved earnings finally hits the market, most market participants have already seen the stock of the company move up strongly because investors effectuated their positive sentiment by buying stock well before evidence of positive fundamentals are evident within the market. This is why so many believe that stock prices present a discounted valuation of future earnings.

Clearly, there is a significant lag between a positive turn in public sentiment and the resulting positive change in the underlying fundamentals of a stock or the economy, especially relative to the more immediate stock-buying activity that comes from the same causative underlying sentiment change.

This is why I claim that fundamentals are a lagging indicator relative to market sentiment. . . This lag is a much more plausible reason as to why the stock market is a leading indicator, as opposed to some form of investor omniscience. This also provides a plausible reason as to why earnings lag stock prices, as earnings are the last segment in the chain of positive mood effects on a business growth cycle. It is also why those analysts who attempt to predict stock prices based on earnings fail so miserably at market turns.

By the time earnings are affected by a change in social mood, the social mood trend has already been negative for some time. And this is why economists fail as well – the social mood has shifted well before they see evidence of it in their “indicators.”

In fact, one commenter to one of my past articles noted the following:

“Having worked for many listed companies and regarded as an insider with access to company confidential information, I have sometimes struggled to understand the correlation between business results and the share price.”

So, for those of you that have been confused of late as to why the economy and the market are seemingly “disconnected,” I hope you begin to consider the significance that market sentiment plays within our market.

And, to drive home this point, allow me to provide you with one more quote. Bernard Baruch, an exceptionally successful American financier and stock market speculator who lived from 1870-1965, identified the following long ago:

“All economic movements, by their very nature, are motivated by crowd psychology. Without due recognition of crowd-thinking … our theories of economics leave much to be desired. … It has always seemed to me that the periodic madness which afflicts mankind must reflect some deeply rooted trait in human nature – a trait akin to the force that motivates the migration of birds or the rush of lemmings to the sea … It is a force wholly impalpable … yet, knowledge of it is necessary to right judgments on passing events.”

For those that have tracked our work for years, you would likely know that we have been extremely accurate in our analysis. While we certainly have not been perfect, we have provided our subscribers with forecasts which have protected them from major market downturns (like February and March of 2020), along with identifying where major market upturns will likely take hold (like at the end of March 2020).

While these are just two examples of how we have successfully used market sentiment to identify major turns in markets, we have been equally successful in identifying the major top in gold in 2011 and the major bottom in 2015, the major bottom in the US dollar in 2011 along with the major top in 2018, the major bottom in bonds in November 2018, and many other larger degree turning points across all major markets.

So, if you would like to learn a bit more about our methodology, I penned the following 6-part series to explain what we do in more detail. Here’s the first article.

In the meantime, I am expecting much more bad news to hit the wires in the coming months. And, if you continue to buy into those headlines and follow the “economy,” then you will likely miss out on the next major buying opportunity I expect to see as we head towards the fall of 2020. In fact, I am still of the belief that this buying opportunity will likely be your last before we begin our next multi-year stock market rally before we strike the top to the bull market which began in 2009.

By Avi Giburt, ElliottWaveTrader.net

Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuring his analysis on the S&P 500, precious metals, oil & USD, plus a team of analysts covering a range of other markets.

As Far As Your Portfolio Is Concerned, It’s All Fake News

And, as we were approaching the market lows (and even all throughout the 45%+ rally we just experienced), many continued to call for further crashes with many targets being noted at 1800, 1600, and even 1000 in the S&P500.

Yes, my friends, most “analysis” was simply providing us trend extrapolation driven by fear so extreme that I do not recall seeing its equal in my investing career. And, anyone who has allowed their emotion to drive their investing decisions has not been doing terribly well of late.

Moreover, those that have been following the news cycles have been doing equally as poorly. Consider that the market has now rallied over 45% off its March lows and most people are still thinking “this is impossible.” The “impossibility” argument is based upon record unemployment and the fact that the market has continued to rally in the face of riots occurring throughout the country. How can the market rally with such headwinds? It truly is impossible, right? Or, is it all just “fake news?”

As one of our members  put it: “There’s so much bad news out there, and has been for a long time. The world economy is a mess, GDP collapsing, businesses closing, stock market soaring, people getting sick and… wait, what?”

Clearly, this member is driving home the point that none of these “bad news” factors have dictated market direction. The market simply did not care.

I know that thinking in this manner is so counter-intuitive to most reading this article. Yet, if after the last 3 months you do not finally come to the realization that the news cycle really does not matter, then I doubt you will ever understand the market. You will continue to think the market is disconnected from reality just like all the other investors who got caught flat footed during the February and March melt down, likely selling near the lows, and then missing the rally off those lows.

But, when the market was bottoming out in the 2191 region, and within 4 points of our bottoming target at 2187SPX, we began looking up (to the disbelief of many), with an initial target in the 2650-2725SPX region. And, when the market began to set up to break out over 2725, we outlined our expectation for a rally to 2900SPX next, to be followed by a pullback towards the 2700 region, with further gains likely to be seen thereafter, and an ideal target in the 3234-3339SPX region. And, if you looked at how the market has reacted, you would see that our expectations were quite prescient.

As it stands today, we are now a stone’s throw away from the ideal target we set back in early April. And, I followed no news events or economic reports when I provided my analysis to the members of ElliottWaveTrader. In fact, I told my subscribers to turn off their TV’s, and they have been thanking me for it ever since, as it has allowed them to remain on the correct side of the market without any bias.

As one of my members recently noted:

Every day, the media “explains” the stock market according their top headlines. But market sentiment moves more closely in patterns described by Elliott Wave theory. . . once you’ve seen it, you won’t follow financial news the same way ever again.

Now, as we are approaching our target, there is a camp of optimists which have been steadily growing in number, as they see us coming out of this poor economic situation. And as usually happens, the optimists start increasing in number just as the market begins to top out. But, consider that they have already missed a 45%+ rally. And, this was no different than what we experienced in 2016, but in a much more extreme fashion.

In late 2019, I warned that we could still have the potential for a 30% decline in the first quarter of 2020. In fact, I even began shorting the EEM back in January and February since it had the lowest risk and most clearly defined downside set-up. And, with the market providing us with a 35% decline, it has now reset market sentiment to be able support the rally I have been expecting to 4000+.

I have made no secret of my expectation for the stock market to reach and potentially exceed the 4000 region. In fact, as we were bottoming in the 2200SPX region back in March, I strongly reiterated my perspective, despite the huge number of doubters responding negatively to my expectations. Some people even asked me what I was smoking.

But, as I write this article today, I can see several paths the market may now take to get us to that 4000+ region. And, I view the price action we see in the month of June as providing us significant clarity regarding the path the market will take to 4000+ in the coming years.

For now, 3080SPX and 3000SPX are the main supports upon which I will be focusing to let us know how much of a pullback we will see (if any) before we begin the run to 4000+ in earnest. I have outlined the detail of these paths to the members of ElliottWaveTrader, but the price action in June is what will determine the specific price pattern we see over the coming 2-3 years.

For a look at all of today’s economic events, check out our economic calendar.

By Avi Gilburt, ElliottWaveTrader.net

Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuring his analysis on the S&P 500, precious metals, oil & USD, plus a team of analysts covering a range of other markets.

Fibonacci Queen and Elliott Wave King Market Proclamation

For those that do not know, Carolyn Boroden (The Fibonacci Queen) has joined the analyst team at Elliottwavetrader. So, she and I are endeavoring to present our combined perspectives to outline our general expectations over the coming weeks, as we begin this series of articles.

There are times when the market provides us with clear indications. And, as proceeded through March, Carolyn and my work were focused upon the region just below 2200SPX for a potential bottoming in the S&P500. Specifically, Carolyn had key price parameters in the 2165-2193SPX region, and the bottom of my support region was pointing towards 2187SPX, with my next lower support below that in the 2160SPX region. My expectation at the time was that the market was going to hold the 2187SPX support and rally towards the 2650-2725SPX region from there.

Moreover, Carolyn identified a confluence of multiple Fibonacci time cycles that came due between 3/24-26 and calendar day projections that came due on 3/22-23.

As we now know, the bottom for the market was struck at 2191.86 on 3/23.

At the time, neither of us were certain that the bottom struck on that day would be the lasting bottom, but we both recognized there was strong potential for that to be the case. My expectation was that the market would rally from the 2200 region up towards the 2650-2725SPX region. And, once we were able to exceed that 2725SPX resistance, that opened the door to the market having struck a major bottom.

While the smaller degree structure is a bit questionable at this time, both Carolyn and I see potential for the SPX to exceed the 4000 mark. In the near term, as long as the market holds over the 2760/2788SPX support region, there is strong potential for us to continue higher towards the 3234SPX region next.

However, Carolyn’s next time cycles are due between 5/26-5/29, which suggests that we could see some form of near-term topping within the 3065-85SPX region, to be followed by a test of the cited support region noted above.

Overall, both our work suggests that the market has struck an important bottom back in March. And, as long as pullbacks continue to hold support, our combined analysis seems to be pointing towards the 4000SPX region, and potentially even higher than that in the coming years.

For a look at all of today’s economic events, check out our economic calendar.

See charts illustrating Avi’s wave counts and Carolyn’s Fibonacci targets on the S&P 500.

Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuring his analysis on the S&P 500, precious metals, oil & USD, plus a team of analysts covering a range of other markets.

 

Worst Jobs Report In History – And The Market Continues To Rally

Unemployment Grows

As the unemployment numbers get worse and worse, the market continues to rally higher and higher. In fact, the futures rallied 70 points off the overnight low struck on Wednesday night even after the negative employment data was announced Thursday morning, and then rallied another 60 points off the overnight low struck on Thursday night despite the worst employment report in history being presented on Friday morning.

I see more and more articles being published that tell everyone exactly what they already “know” as a certainty: We are setting up for a major crash in the market as we usher in the next Great Depression.

Yet, has the market not taught you that it is not driven based upon this type of reasoning? Trying to reason with the market (which is emotionally driven) is like trying to reason with your spouse when they are being emotional. How well does that work for you?

But, think about it, folks. Does the market ever do what the great majority expect it to do at major inflection points when people get the most emotional? Yet, everyone is so certain that the market is going to crash. And, this is even after a 35% crash has already occurred. I think they call that “recency bias,” which has now been layered on top of the confirmation bias many readers seem to be coming to FX Empire for at this point in time. Well, they do say that bearishness sells.

When to Start Buying?

This same emotional phenomena is why it is so hard to buy the lows when they do hit. In fact, I have a confession to make. As the market was bottoming out towards the end of March in the 2200 region, I was presenting to my 6000+ subscribers my expectation for the market to bottom and begin a rally back up to the 2600-2725SPX region. At the time, I posted my own investing/trading plan and how I was staggering my additions to my market holdings.

Yet, when I went to hit the buy button, I have to be honest in saying that this was the most difficult buying I ever encountered. The fear was palpable on March 23rd as we were striking the bottom of the support target on my SPX chart. In fact, as I was noting to my members that I was buying long positions, quite a number of them (mostly the new ones) were telling me I was crazy because it was “so clear we have lower to go” because of the virus issues.

Well, I have to also admit that this was not the first time I have been called crazy, and I doubt it will be the last time.

Back in 2011, when gold was in the midst of a parabolic rally wherein it saw days of $50+ price rallies, I posted public analysis that said you should sell at $1,915. And, boy was I called crazy then – even though gold topped within $6 of my target.

I was again called crazy for going long gold in the December of 2015 the night we hit the bottom. In fact, our ability to be able to buy the lows in metals has been noticed by Doug Eberhardt – the owner of Buygoldandsilversafely.com – when he said this to me in our trading room at Elliottwavetrader.net:

“I can attest to your accuracy on actually buying both gold and silver from us as close to the bottom as one could. With gold you called it to the letter and your limit order which was placed well in advance executed perfectly . . . Your timing on buying the dips is uncanny Avi! People should be aware of this.”

And, then when we bought silver in March when it spiked below 12, he said this to our members:

“Avi has the magic touch. Listen to him . . . I want to explain to you all what Avi did for you. He got most of you to buy the metals before the premiums shot up and before everyone ran out of product. This is the 2nd time he has done this and kudos to him for doing that for you.”

Again, I was viewed as crazy at the end of 2015 when I called for a correction in the market from the 2100 region back towards the 1700-1800 region, which would then set up a “global melt-up” in 2016.

I was also called crazy when I told my members that I was going long bonds in November of 2018, and even wrote about it publicly. Everyone thought I was nuts because the Fed was still raising rates. Yet, we caught the exact lows that month.

This has happened many, many more times than I am even citing in this article. So, I am quite used to be called crazy at this point, and I now wear it as a badge of honor, since it often means that it will likely be the right move.

Now, admittedly, as I outlined to our members at the time, I was uncertain as to whether the bottom we were striking in March was going to be THE low, or if we would have one more marginally lower low yet to be seen. This is why I also outlined my own buying plan which takes into account both those possibilities through a layered buying approach which is based upon my Fibonacci Pinball method of Elliott Wave analysis.

As it stands right now, the market is sending us more messages that a bottom has indeed been struck relative to the evidence that it can potentially see a lower low still. Ultimately, the market is going to have to complete a 5-wave rally structure back up tows the 3200SPX region in the coming months to convince me a long term bottom has indeed been struck, which will then begin a larger degree pullback likely taking us into late summer, or even the fall, which should likely be aggressively bought. You see, if the market completes 5-waves up off the March low, then it would confirm my expectation that we are going to rally to 4000+ in the coming years, with strong potential for a blow-off top to be seen as high as the 6000 region.

In the coming week, much will depend upon how the market reacts early in the week. If we see the futures sustain a break out over 2942ES, then we are likely heading up to the 3000-3060 region over the coming week or two. However, if the market is unable to break out over that level, and turns down impulsively below 2870ES, then it opens the door to re-test the 2700-2750SPX region.

Now, for those that may be confused by my analysis, please understand that the stock market is not an environment in which we can expect certainty. Rather, it is a non-linear environment. Therefore, one must approach the market from a non-linear perspective. To this end, we have a primary perspective within our analysis. Yet, if the market deviates from the structure we would expect within the primary analysis, we immediately move to our alternative perspective in order to adjust our positioning to minimize losses and re-align with the market price structure.

Lastly, I want to remind those that read my analysis that it is based upon probabilities, as there is no such thing as certainty within non-linear environments such as the financial markets. The majority of the time, the market provides us with a relatively clear path and provides us strong goal posts as it moves through its structures. But, none of my analysis is meant to be seen as a certainty. And those that have followed me for many years know how well we have done in the markets we track, and being flexible and listening to the market has certainly kept us out of trouble and kept us profitable.

By Avi Gilburt, ElliottWaveTrader.net

Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuring his analysis on the S&P 500, precious metals, oil & USD, plus a team of analysts covering a range of other markets.

This Market Makes No Sense

The stock market and the economy

As I have always tried to make people understand, the stock market and the economy are not one and the same. Rather, there is a reason that the stock market is considered the best “leading indicator” for the economy. And, it is purely because market sentiment (the true underlying driver of the stock market) is seen in action much quicker within the stock market as relative to the fundamentals within the economy, which take time to catch up to the market action.

To put it most simply, consider how long it takes you to effectuate growth in a business when sentiment turns bullish (obtaining funds, placing those funds to work in producing goods and services, marketing and selling those goods and services, earning profits, etc.) as compared to how long it takes to press the button on a computer to buy a stock. It is simply much faster to effectuate a turn in sentiment in the stock market than in the economy. And, this lag explains why the stock market always bottoms well before you see a turn in the economy.

As I read in other articles of late, it is quite clear that many have missed this rally off the 2191SPX bottom and are in complete disbelief due to their lack of understanding of what I just outlined above.

In fact, these are a smattering of the comments I have received from my prior two articles wherein I was calling for higher levels to be struck in the market:

“This “market” is so RIGGED it’s pathetic . . . Highest unemployment in decades and the “market” roars back faster than it ever has in over EIGHTY YEARS? I feel like I’m in some parallel matrix of backwards reality”

“buying in to this rally is absolute suicide.”

“If you think this is over you are simply wrong”

“This bear market is just getting started.”

“Bulls are so incredibly delusional if they think this is over”

While it is clear that most investors have reacted quite emotionally to the events of recent days, that is often the worst way to approach the market. So, let’s take a step back and review where we have been and then we can look to where we are likely going.

For those that have been following my analysis closely, you would know that I was building a short position in the EEM back in January and February, as it was presenting the clearest break down pattern, along with providing us with a very low risk set-up with wonderfully defined parameters. Moreover, as I wrote regarding the SPX late last year and early in 2020, if the market was going to break down below the 3100SPX level, it would open the door to take us back down to the 2200SPX region.

And, as we approached that 2200SPX region in March of this year, I highlighted to the members of ElliottWaveTrader my expectation that the SPX should bottom in the 2187SPX region, and rally back up towards the 2600-2725SPX region from there. As we now know, the SPX bottomed at 2191 (within 4 points of my targeted support), and we clearly rallied back to our original 2600-2725 target.

However, as the market moved into the 2600-2725SPX target zone, the structure made it quite clear to us that this rally had not run its course. Rather, the structure was actually pointing us to the 2890SPX region, as I highlighted in my last public article as well. So, we set our sights on the 2890SPX target. The market then proceeded to rally to the 2879 level (within 11 points of my target), whereas the futures struck my target.

For those that followed my analysis closely, you would know that once we struck this target region, I expected a pullback to be seen. Ideally, that pullback would hold the 2700SPX region before continuing higher. As we know today, the market proceeded to pullback from the 2890SPX target region, and bottomed at 2727SPX. Thereafter, we began a rally that has struck a high of 2955SPX (with 20 points higher seen in the futures).

Now, you are either thinking to yourself that this is the luckiest guy in the world or that this is some kind of voodoo.

 

 

Elliott Wave analysis

But, to be honest, this is simply our Fibonacci Pinball system of Elliott Wave analysis, which provides us with these high probability targets on both the upside and downside as the market acts as a pinball through these Fibonacci extensions and retracements we track in the standard structures we see quite commonly in the market.

When the market is acting in a standard manner, then it moves through these targets in an almost perfect “pinball-like” manner. However, if the market reacts in a manner outside of these standards, it provides us an early warning that something else is playing out and allows us to move into our alternative plans, which have been outlined well before the diversion from the standard occurs.

So, what does our methodology suggest at this point in time? Well, when the market rallied into the 2900-2950SPX region this past week, the structure of the market told me that the risks have risen high enough for me to suggest to the members of ElliottWaveTrader that they should significantly reduce their long positioning within the 2900-2950SPX region. Allow me to explain.

In the most bullish case scenario, we expected the market to rally from the 2191SPX region back up to the 3200/3300SPX region. That means that once we moved into the 2900-2950 region, we caught 70% of this rally off the March low rather safely. But, the last 30% carries with it the most risk, as I cannot be certain that the market will reach the most bullish target in my expectations.

Now, this is where our Fibonacci Pinball method of Elliott Wave analysis provides us even more insight when it comes to market context. Even if the market provides us with the most bullish scenario of a rally to the 3200-3300 region, I would then expect a pullback in the market to the 2600-2800 region. So, considering we caught the rally from 2191 to 2950SX, and we will likely come back down to levels lower than that later this year, I questioned if it was really worth the risk for the remaining 30% overhead?

So, as I outlined to the members of ElliottWaveTrader.net, the easy money on the long side in the market has been made as we moved into the 2900-2950SPX region. And, now the market is going to tell us in the coming two months whether it will continue higher to complete 5-waves off the 2191SPX level or not.

If we do complete those 5 waves into the 3200-3300SPX region, then I am going to prepare to “buy-the-dip” into the 2600-2800SPX region. However, if the market is unable to complete this 5-wave rally structure off the 2191 low, then it will open the door to a drop to the 2060SPX region in the coming months. While I am going to leave the finer details of how I view this within the members section of ElliottWaveTrader.net, I hope I am being clear that risks have risen to the point where one has to question if they are worth the rewards on the long side of the market at this time.

So, again, if you have been following my work, then not only did you catch most of the decline earlier this year, but you have now also caught the rally from the 2200 region to the 2900 region. I would say you have now likely had the best year of your career, and it is time to head to the sidelines to see how the next few week’s shake out.

But, this brings me to other comments I see quite often. And, it really gives me a chuckle when I see them from fellow Seeking Alpha “contributors,” such as this one, which was posted in response to my public analysis calling for a major rally off the 2200SPX region:

“You want “really silly.” That’s really silly. And anyone who cannot see that isn’t playing with all their circuit breakers on… The market is delusional, and you, rather than following the news cycle, which obviously the market is not following, are following the market.”

Well, my friends, those that have been following the “news cycle,” as suggested by this other “contributor,” have been scratching their heads as the market has rallied 35% off the lows we caught back in March. And, yes, we have been following the market. Does that make the 35% we have earned on the long side a delusion? Well, I keep looking at my account and it certainly looks real.

And, that last sentence penned by this “contributor” really made me scratch my head. If one realizes that the market is not following the news cycle, does it make sense to continue to follow the news cycle? Well, I guess if your goal is to prove that you are smarter than the market, you continue to follow the news cycle. But, if your goal is to maximize profits from the market, then you have to question what this person is really doing.

You see, folks, markets do not work based upon news cycles and logic. Rather, markets are driven by emotion. And, unless you understand how emotion drives the market, you will be standing on the sidelines, scratching your head, and thinking the market is delusional due to your superficially correlated news cycle perspective, while others reap the profits from their more sophisticated and advanced level of understanding the market.

I have said this before, and it is certainly worth repeating. Unless you understand the larger market context, then you will often be scratching your head when you see moves that defy logic. And, I have not seen any better methodology to provide market context then our Fibonacci Pinball method of Elliott Wave analysis. Does that mean we will always be right in our assessments? Absolutely not. But, our analysis is quite accurate the great majority of the time. And, if the market deviates from our primary analysis, we are able to adjust rather quickly, as that is also part of overall methodology.

At the end of the day, some of you view me as crazy, some of you view me as practicing voodoo, and some of you view me as simply lucky. But, you will never be able to view me as a perma-anything. You see, those that are perma-bulls will be right most of the time because the market rises the great majority of the time. Yet, they will also get caught looking the wrong way during the periods of major draw-downs, such as what we experienced in February and March of 2020. And, those that are perma-bears are more like a broken clock. But, when they are “right,” boy do they turn loud and boisterous. And, we certainly heard from them in March, yet they have been rather quiet in April.

As for me, I am perma-profit. My goal is to simply listen to the messages in market price structure, and endeavor to be on the correct side of the market for the greatest majority percentage moves the market has to offer, while balancing reasonable risk management strategies.

So, to answer that “contributor’s” comment to me in my last articles, yes, I will continue to discount the news cycle and follow the market. And, while you may consider me to be “delusional” in doing so, the profits earned by me and the members of ElliottWaveTrader are clearly not a delusion.

Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuringhis analysis on the S&P 500, precious metals, oil & USD, plus a team of analysts covering a range of other markets.