Here’s Why Blind Contrarianism Failed in 2020
There is only one instance when the investing crowd is right
by Bob Stokes
Updated: January 12, 2021
Yes, there are many times when the market's Elliott wave structure suggests that an investor should take a position "against the crowd," or put another way, be a contrarian.
Prime examples are at market bottoms and tops.
However, keep this in mind from a classic Global Market Perspective:
[S]trict adherence to the wave model habitually puts wave analysts where they should be: against the market crowd. But not always. At specific points in the market's wave structure, wave analysts run with the herd.
A prime example of when Elliott wave practitioners have a lot of company is during the most severe part of a bear market. At such times, the Elliott wave model suggests that more downside is likely ahead and the crowd is likewise fully aware that the market is in the grip of a ferocious bear. The same applies to the strongest part of a bull market.
So, following the Elliott wave model and consistent contrarianism are not the same.
Indeed, read this quote from our just-published January Global Market Perspective:
Blind contrarianism failed in 2020, because some of the world's most influential benchmarks -- the DJIA in the United States, the DAX in Europe, and the Shenzhen Composite in China -- spent much of the year rallying in small-degree third waves.
That issue of the Global Market Perspective went on to show this chart and said:
Turns out that 2020 was not just a bad year for contrary investing, it was the strategy's worst year on record.
The contrary strategy's best years are also illustrative. The technique returned 80% as the first technology bubble burst in 2000, and it made 60% in 2009, as equities rallied following the 2008-09 financial crisis. The year 2016 was also a good year for contrarians who wagered that cyclical stocks would benefit most from an economic expansion.
What about major global markets in 2021? Will contrarian investing be successful for the market or markets in which you are interested? In other words, should you be selling when others are buying, and vice versa?
We can help you with that answer right now. One thing is certainly evident to our 25+ global market strategists: 2021 appears to be a major milestone year for many global financial markets.
Get our latest market insights by following the link below now.
Historic Global Market Volatility Awaits in 2021...
...According to the Elliott wave model.
Are you prepared?
You can be by reading our just-published January Global Market Perspective, a monthly publication that was once exclusively reserved for our institutional subscribers.
Today, you get the same pro-grade insights into Bitcoin and other cryptocurrencies, global stock markets, bonds, metals, forex, energy and much more -- 50-plus of the world's biggest markets.
When you're finished reading, you'll know you are thoroughly prepared for what's likely next.
Follow the link below and read Global Market Perspective instantly.
Mood Riffs: Civil War in Pakistan? Plus, the Art of Vandalism
Our Video Mood Riffs feature goes beyond the markets to examine social and cultural trends. The new episode explains what Pakistan's stock market trend says about the country's civil war prospects, plus brings you a one-of-a-kind take on why we've seen so many cases of art vandalism lately.
Commodity Prices: After 1 Year of Declines, What’s Next?
Commodity prices and emerging markets tend to move together. Watch our Global Market Perspective contributor Mark Galasiewski walk you through a chart of Invesco DB Commodity Index Tracking Fund (DBC) to show how well it's been following its Elliott wave path.
“One of my favorite Elliott wave patterns”
How many euros does one Swedish krona buy? That's not your everyday question -- unless you're a forex trader. Watch European Short Term Update Editor Murray Gunn walk you through a EUR/SEK chart for some useful insights.