"Fundamental" analysis of financial markets follows one simple formula: negative economic data equal a fall in stock prices; positive data equal a rise.
And, underneath every mainstream finanical news report, this equation lies. Take, for example, the long-awaited release of the S&P/Case-Shiller Index of US Property Values in 20 major cities.
On January 31, the Case-Shiller index showed a 3.7% decline from November 2010, a drop that shattered all hopes of a sustained housing recovery. In the words of one January 31 Bloomberg:
"We've seen home prices take a turn for the worse... and we do think that there is more downside from here."
As far as stock market "fundamentals" go, the Case-Shiller reading was a huge upset to the bullish apple cart. So, when US stocks refused to budge from their downtrend following the release of the data, the usual sources quickly tied the one negative event to the other. Here, these January 31 news items capture the scene:
- "Home Prices Shake Market Optimism" (Huffington Post)
- "Stocks Under Pressure After Disappointing Housing Data" (Associated Press)
- "House Price Fall Triggers Wall Street Reversal... At 10 am, stocks reversed course as data showed US home price had fallen." (Financial Times)
There's just one small wrinkle in this "fundamental" fabric: namely, data show that the long-term performance of home prices has had no effect on the performance in stocks.
Here, we turn to the latest issue of Robert Prechter's
Elliott Wave Theorist. There, Prechter presents the following chart of the S&P Case-Shiller Composite-20 Home Price Index since 2002.
As you can see, since its 2009 bottom, the S&P 500 stock index has enjoyed a 100% rally DESPITE a zero-net gain in home prices over the same period.
If you find this fact eye-opening, you should see others that Prechter shows you in the new Theorist.
The 11-page January 2012
Elliott Wave Theorist cuts through the false news-moves-markets causality to reveal the
REAL long-term trend underway in real estate -- along with the dollar, gold, and the inflation-deflation debate.
You have a limited-time opportunity to read ALL of Robert Prechter's latest Elliott Wave Theorists and ALL of the latest Elliott Wave Financial Forecasts (EWI's two flagship letters) - 7 recent issues in all, including Prechter's 54-minute "BIG-picture" video issue - at a deep discount off regular prices. (Plus, it's yours risk-free for 30 days!)
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