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"The Single Most Important Insight" About Market Behavior
The principle of investor expectations
By Bob Stokes
Wed, 31 Aug 2011 14:45:00 ET
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Many average investors could not stand it anymore.
 
They had watched prices go up without them for two years, as institutional money drove the market higher. So at the beginning of 2011, "main street" investors flocked back in:
 
"The very latest figures...show that the public in January finally started 'plowing cash back into these funds' at the fastest monthly rate in seven years...Many people cite this buying as the beginning of new money entering the stock market, but I think the capitulation of the only skeptical sector along with the media’s bullish spin on the data are more likely signs of a top."
Elliott Wave Theorist, February 2011
 
Just four months later, prices did register the high for this year.
 
The public's behavior in January points to an insight that Robert Prechter once shared with an interviewer.
 
Asked if there's a basic secret to market behavior, he said this in Prechter's Perspective:
 
"The single most important insight is the fact that markets act paradoxically from what novices typically expect."
 
True to form, the apparent final months of the equity market's rally arrived when Main Street finally joined Wall Street.
 
As implied above, hedge funds and institutional buyers had contributed all along to the relentless gains since the March 2009 low. If anything, these big-time money managers were over-committed to the stock market in February 2011:
 
 
 
What do we see ahead -- for professionals and individual investors alike?
 
We do not see what most others expect. Millions of investors will likely be unprepared.
 
If there's ever been a time to read an Elliott Wave Theorist, it's now.
 
The importance of today's market juncture is exquisitely detailed in the recently-published video issue (with a transcript). The video is 54-minutes long, and includes over 50-charts.
 

Tags: Elliott Wave Theorist, hedge funds, Prechter's Perspective, Robert Prechter, stock indexes
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