Sentiment Speaks: Will You Ever Learn?

Summary

  • The Fallacy That Earnings Drive Markets.
  • The Fallacy That Gold Trades Opposite Equities.
  • Price Pattern Sentiment Indications and Upcoming Expectations.

Over the last week, I have seen several market fallacies being presented as propositions upon which article writers have attempted to discern market direction. And, I think we all know what happens when you build a house on a faulty foundation.

The Fallacy That Earnings Drive Markets

The first fallacy I have seen was that investors were in a precarious position until "corporate earnings support the elevated levels" of the stock market. First, it seems that only those who did not expect this rally view the market at "elevated levels." But, at Elliottwavetrader.net, we came into 2016 looking for a pullback to the 1800SPX region, which we believed would ignite a rally to 2300SPX for 2016. You can click this link to see our 2016 analysis summarized. So, for us, these are not "elevated levels," but attained targets for 2016.

But, I digress. The bigger issue that I will address is the fallacy that earnings support the direction of the market. For that, I do not have to re-create the wheel, as our friends at Elliott Wave International have done the research which addresses this utter fallacy.

Since 1932, corporate profits have been down in 19 years. Did stocks fall? No: The Dow rose in 14 of those years. Conversely, in 1973-74, earnings rose 47% -- yet, the Dow fell 46%. In fact, 12-month earnings peaked at the bear market low.

But who cares about the 1930s and '70. That's ancient history, right? Things are different now. OK, then how about the very recent history: the financial crisis and Great Recession, when the stock market peaked and crashed (in 2007-2008) and bottomed (in 2009)? . . . earnings were at their highest level in June 2007. Stocks were at record highs, too. The mainstream "vision" of how earnings affect stock prices demands that strong earnings should have propelled stocks even higher. Yet, the exact opposite happened: It 2007, earnings were the strongest right before the stock market's historic top.

Then, after stocks had crashed, earnings turned negative in December 2008 (actually negative, for the first time since 1935!). That should have pushed stocks even lower. Yet, the exact opposite happened: Stocks began a huge rally shortly after earnings turned negative.

You see, much of what is propagated as "analysis" is simply the regurgitation of market fallacies. Sadly, too many article writers (since I can hardly call them analysts) have bought into these market fallacies and continue to spew them as truth.

The Fallacy That Gold Trades Opposite Equities

Another fallacy I have seen propagated yet again of late is that gold trades opposite the stock market. This is another example where the propagator of such fallacies never having reviewed the history of gold and the stock market. Again, I do not have to re-create the wheel, so I will simply link an article I have written on Seeking Alpha which outlines many times throughout history, with a number of them lasting for years, where the metals trade alongside the stock market and not opposite to it:

seekingalpha.com/article/3999138-sentiment-speaks-time-buy-gold-prepare-stock-market-crash

Sadly, there is too much fallacy being pushed as "analysis," and it only hurts investors who rely on such perspectives. As an investor, it is your job to test what you are being told from a factual standpoint, and from an intellectually honest standpoint. You will find that much of what you read fails at least one, if not both of these tests. And, the only way you are able to perform such tests is if you approach market analysis from an intellectually honest perspective, rather than looking for confirmation of your personal market bias, no matter what you base that bias upon.

Price Pattern Sentiment Indications and Upcoming Expectations

So, as far as GLD is concerned, it matters not to me what the stock market does, as I am still expecting much higher levels to be seen in 2017. Rather, much depends on what gold does and nothing else. For now, I am still a long-term bull on the gold market. I believe that gold will be significantly higher in 5 years than where it stands today. But, I also think that the lows of 2015 were "likely" the lows in the market, and that this drop is akin to the deep correction seen in 2001. While I can clearly be wrong, and have been in the past, I have to side with what the market sentiment patterns I track suggest, and they point to this being a corrective, but deep, pullback. My analyst at Elliottwavetrader.net notes the importance of the 1110 level in gold, which "should" hold if this is truly a corrective pullback, and the next phase of the bull market will begin in 2017.

This article was written by

Avi Gilburt profile picture
70.29K Followers
The #1 Service For Market and Metals Direction!
Avi Gilburt is founder of ElliottWaveTrader.net, a live trading room and member forum focusing on Elliott Wave market analysis with over 6000 members and almost 1000 money manager clients. Avi emphasizes a comprehensive reading of charts and wave counts that is free of personal bias or predisposition.

Avi is an accountant and a lawyer by training. His education background includes his graduating college with dual accounting and economics majors, and he then passed all four parts of the CPA exam at once right after he graduated college. He then earned his Juris Doctorate in an advanced two and a half year program at the St. John’s School of Law in New York, where he graduated cumlaude, and in the top 5% of his class. He then went onto the NYU School of Law for his masters of law in taxation (LL.M.).

Before retiring from his legal career, Avi was a partner and National Director at a major national firm. During his legal career, he spearheaded a number of acquisition transactions worth hundreds of millions to billions of dollars in value. So, clearly, Mr. Gilburt has a detailed understanding how businesses work and are valued.

Yet, when it came to learning how to accurately analyze the financial markets, Avi had to unlearn everything he learned in economics in order to maintain on the correct side of the market the great majority of the time. In fact, once he came to the realization that economics and geopolitics fail to assist in understanding how the market works, it allowed him to view financial markets from a more accurate perspective.

For those interested in how Avi went from a successful lawyer and accountant to become the founder of Elliottwavetrader.net, his detailed story is linked here.
Since Avi began providing his analysis to the public, he has made some spectacular market calls which has earned him the reputation of being one of the best technical analysts in the world.

As an example of some of his most notable astounding market calls, in July of 2011, he called for the USD to begin a multi-year rally from the 74 region to an ideal target of 103.53. In January of 2017, the DXY struck 103.82 and began a pullback expected by Avi.

As another example of one of his astounding calls, Avi called the top in the gold market during its parabolic phase in 2011, with an ideal target of $1,915. As we all know, gold hit a high of $1,921, and pulled back for over 4 years since that time. The night that gold hit its lows in December of 2015, Avi was telling his subscribers that he was on the phone with his broker buying a large order of physical gold, while he had been accumulating individual miner stocks that month, and had just opened the EWT Miners Portfolio to begin buying individual miners stocks due to his expectation of an impending low in the complex.

One of his most shocking calls in the stock market was his call in 2015 for the S&P500 to rally from the 1800SPX region to the 2600SPX region, whereas it would coincide with a “global melt-up” in many other assets. Moreover, he was banging on the table in November of 2016 that we were about to enter the most powerful phase of the rally to 2600SPX, and he strongly noted that it did not matter who won the 2016 election in the US, despite many believing that the market would “crash” if Trump would win the election. This was indeed a testament to the accuracy of the Fibonacci Pinball method that Avi developed.


Disclosure: I am/we are long PHYSICAL METALS AND VARIOUS MINING STOCKS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: While I have reduced my hedges, I still maintain hedges until the market proves a bottom being in place.

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