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Investors Look to Experts for Stock Market Signals
Discover the patterns of crowd behavior

By Bob Stokes
Mon, 04 Mar 2013 10:30:00 ET
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Stock market prices reflect the collective psychology of the people who buy and sell equity shares. Decades of observation show that this psychology unfolds in recognizable patterns. 

Most members of this investment crowd believe that they lack sufficient knowledge to make truly independent decisions. So they unconsciously look to other investors and information sources for signals.
 
Robert Prechter put it this way:
 
Most people get virtually all of their ideas about financial markets from other people, through newspapers, television, tipsters and analysts, without checking a thing. ... This dependence is nearly universal, even among long-term investors. Financial markets induce a form of hypnosis in most people. Outwardly, they appear rational. Inside, their unconscious is in control. They are driven to follow the herd because they do not have firsthand knowledge adequate to form an independent conviction, which makes them seek wisdom in numbers. The unconscious says: You have too little basis upon which to exercise reason; your only alternative is to assume that the herd knows where it’s going.
 
The Wave Principle of Human Social Behavior, p. 153
 
The Elliott Wave Principle shows that these herding patterns swing from optimism to pessimism and back in a natural sequence.
 
Lately, optimism has prevailed. The Dow Industrials is near its all-time high. Even so, a startling number of market professionals believe the rally has much more to go -- even some previously steadfast market bears think so. To boot, investors have reduced their bearish stock bets to the lowest level since at least 2007.
 
"Short sales in the Standard & Poor’s Composite 1,500 Index fell to 5.6 percent of shares available for trading in February, down from a record 12 percent during the credit crisis and the lowest ever in data … starting six years ago," said a March 1 Bloomberg article. "The last time the number of shares borrowed and sold short approached this level, the equity gauge lost 3.3 percent in the next three months."
 
Could the herd be right this time? Or is a major correction approaching?
 
Well, the Wave Principle helps identify patterns, and key junctures in those patterns. The February double-issue of the Elliott Wave Theorist elaborates on one such pattern ...
 
... With an emphasis on "elaborates." You see, the February Theorist is 120% longer than the standard issue, spans 22 pages and contains 31 charts. (April 9 update: Subscribe today for instant access to the February, March and April issues.)
 
Get comfortable and set aside the better part of an evening to absorb the issue's contents. You may want to reference the issue more than once.
 
 

Apply the Power of the Wave Principle. Benefit from Tomorrow's News Today. Invest Independently from the Herd.

Published continuously since 1979, Robert Prechter's Elliott Wave Theorist is more than the most-trusted, longest-lasting Elliott wave letter on the planet. It's guaranteed to be the most thought-provoking, well-researched and insightful 10 pages of commentary you read each month.

Prechter's Theorist is the resource that will help you anticipate important trend changes in finance, macroeconomics, business, politics, entertainment, demographics and beyond – insights that can help you identify lucrative investment opportunities and avoid dangerous market risks.

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Pages/Format: 10/PDF
Markets: U.S. focus
Scope: Medium to long term
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The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading and investing decisions.