“Its most striking characteristics are its generality and its accuracy.” Its generality gives market perspective most of the time, and its accuracy in pointing out changes in direction is almost unbelievable at times.
That quote references the Elliott Wave Principle, an economic forecasting tool that learns more from the Life and Leisure pages of the newspaper than the Business or Politics sections. Needless to say, such whimsical indicators are seldom found on many Financial Analysts’ desks but perhaps they should be. The Elliott Wave, as championed by authour and well-respected financial advisor Robert Prechter, is a fascinating and apparently quite accurate crystal ball on the investment future.
For a hundred years, investors have noticed that events external to the market often seem to have no effect on the market’s progress. With the knowledge that the market continuously unfolds in waves that are related to each other through form and ratio, we can see why there is little connection. The market has a life of its own. It is mass psychology that is registering. Changes in feelings show up directly as price changes in the barometer known as the DJIA, or the S&P 500, or any other index. The Wave Principle is a catalog of the ways that the crowd goes from the extreme point of pessimism at the bottom to the extreme point of optimism at the top. It is a description of the steps human beings go through when they are part of the investment crowd, to change their psychological orientation from bullish to bearish and back again. That description fits the movement of any market, as long as human beings are involved, rather than Martians, who may have a differently operating unconscious mind. Since people don’t change much, the path they follow in moving from extreme pessimism to extreme optimism and back again tends to be the same over and over and over, regardless of news and extraneous events.