Do financial investors act "rationally"? It's the question of all questions, the ultimate topic of economic debate. And, for the better part of Wall Street, the answer is unequivocally yes -- stocks turn down on negative news, rally on positive news, and market participants predictably follow suit.
Not on this planet. More times than we can count, when the "stuff" hits the fan, market participants move in even closer, standing firmly to the ground in direct line of fire.
Take, for example, the news events of February 29. On that day, the Dow Jones Industrial Average honored the "Leap" Year by taking a giant, 300-point leap off a cliff, marking the index's fourth straight month of decline. From its October 2007 peak, in fact, the Dow has lost nearly 20% in value.
Rather than dampen the bullish flame, however, the slide in stocks fanned the blaze even higher. Instead of weakness, the usual suspects see a way in to one of the biggest buying opportunities in quite some time. To wit: "Wall Street Sees Signs Of A Bottom" (CNN Money) -- AND – "Now is an ideal time to at least begin watching for bargain stocks" (Canadian Business.com)
Translation: The harder stocks fall, and the worse the economic data, the stronger becomes the public's faith in the future of the overall market. "Rational"? We think not. Regular -- however -- it is very much so.
On this, our just-published March 2008 Elliott Wave Financial Forecast presents the following graphic illustration of the average holding period for a NYSE stock since the 1920s.
One look at this phenomenal picture and the reality is clear: "Investors actually turn up the hope and cling most tenaciously to their shares" as the larger trend in stocks turns down. Only at major bottoms, i.e. "optimum buy points," do investors then release their grip.
So, what does the current "buy and hold" mantra mean for the future of the U.S. stock market and economy at large? The March 2008 Elliott Wave Financial Forecast is the first word on what the road ahead beholds. Click here to learn more now.