Feeling Speak: Beware of signs of recession / deflation


While I now provide analysis to more than 5,000 subscribers between my services on Elliottwavetrader, The Market Pinball Wizard and FATrader, I am the recipient of many reactions from various segments of the financial markets. In fact, because we have more than 500 fund managers, I see a lot of what people think on the street.

Lately, I have pointed out the dollar's upside potential in the 99-100DXY and TLT region to get us to the 131-136 region. And, it seems that many in the street are on the wrong side of the boat on this one. In fact, when I wrote a recent article on the TLT, which may have rallied strongly over the coming months, I suffered quite a bit of inconvenience in the comments section of this article.

But, that's what happens normally at inflection points, and I guess it will not be different.

In addition, I still see a strong potential for market downturn in the 2100-2200SPX region in the coming months. And many will associate the "bad times" of deflationary periods with the rising dollar, falling yields and falling asset prices. And, that's exactly what my graphics suggest, we can see it over the next few months.

Now, I know that many believe that declining yields suggest a flight to safety and bear market conditions. This is how the media and the experts "make the bond market turn" up. But I have to ask if these people have even bothered to look at the rates over the past 30 years, when they fell with the stock market rally? But I keep away from the subject.

So, should a declining return, a rise in the dollar and asset prices in the coming months affect you?

Well, in my humble opinion, I do not think that should concern you as a whole. Although I think we have the potential for the stock market to descend into the 2500-2600SPX region, and as deep as the 2100-2200SPX region in the coming months, I do not think it will end the market. bullish that started in 2009.

For those who want to know a little more about my main analysis methodology, I consider the market sentiment as the most powerful factor of the big financial markets. You see, markets are not better when people sell. Instead, a stock market finds a peak when buyers are short of money. When there are more buyers, while everyone has reached a state of maximum nervousness, there remains only one direction to follow for the market, to know the bottom. It is at this point that the sale begins. In other words, when the bullish sentiment reaches an extreme and the bearish sentiment reaches the opposite extreme, we often see a peak in the stock market.

In addition, I think that market sentiment follows a specific pattern, unaffected by exogenous factors, and many recent studies have proven it.

In the 1930s, an accountant by the name of Ralph Nelson Elliott had identified behavioral patterns within the stock market that massively represented the collective behavior patterns of society. And, in 1940, Elliott publicly linked the movements of human behavior to the natural law represented by Fibonacci mathematics.

Elliott understood that the financial markets provide us with a representation of the general mood or psychology of the masses. And, he also understood that markets are fractal in nature. This means that they are similar in varying degrees to different degrees of tendency.

Specifically, Elliott theorized that public sentiment and mass psychology moved in 5 waves in one main trend and 3 waves in a counter-trend. Once the public's feeling has taken five waves, it's time for the subconscious feeling of the public to move in the opposite direction, which is simply the natural cycle of the human psyche, and not the actual effect of the human psyche. a news. "

This form of mass progression and regression seems to be deeply rooted in the psyche of all living creatures, and this is what we know today as the "principle of gathering," which gives this theory its ultimate power.

And, over the past 30 years, many social experiments have been conducted around the world and have provided scientific support to Elliott's theories presented nearly a century ago.

For example, in an article entitled "Large Financial Crashes", published in 1997 in Physica A., a publication of the European Physical Society, the authors present in their conclusions an interesting summary of the general phenomenon of the concentration of financial markets:

Stock markets are fascinating structures with analogies to what is arguably the most complex dynamic system of the natural sciences, that is, the human mind. Instead of the usual interpretation of the market efficiency assumption in which traders extract and incorporate consciously (through their action) all the information contained in market prices, we propose that the market as a whole can present an "emerging" behavior that does not share any of its values. components. In other words, we think of the process of emergence of intelligent behavior on a macroscopic scale that individuals at the microscopic scale have no idea. This process has been discussed in biology, for example in animal populations such as ant colonies or in relation to the emergence of consciousness.

As Elliott said:

The causes of these cyclical changes seem to clearly originate in the immutable natural law that governs everything, including the various states of soul of human behavior. The causes therefore tend to become relatively unimportant in the long-term progress of the cycle. This basic law can not be transformed or annulled by laws or restrictions. The news and political developments are only of secondary importance, they are quickly forgotten. their presumed influence on market trends is not as important as is generally believed.

– R.N. Elliott on the causes of waves, October 1, 1940

In 1997, Europhysics Letters published a study by Caldarelli, Marsili and Zhang, in which subjects were simulated, but there were no exogenous factors that could affect the structure of trade. Their specific purpose was to observe the psychology of the financial markets "in the absence of external factors".

One of the conclusions noted was that the commercial behavior of the participants was "very similar to that observed in the real economy", in which the price distribution was based on Phi.

In another study conducted at the School of Social Sciences at the University of California, they came to the following conclusion: "It can be assumed that in a human being, there is a special algorithm for working with independent codes of particular objects ". when subjects were asked to sort indistinguishable objects into two stacks, their decision-making during this process divided the objects into a ratio 62/38. In other words, these people have manifested a Fibonacci trend in their personal decision-making.

Therefore, more research is done on this issue, plus we highlight the behavior and decision-making within a herd and on an individual basis, with mathematically calculated distributions based on Phi, which do not seem to be affected by exogenous events. .

This basically means that mass decision making will move forward and back based on the mathematical relationships within their movements, not on outside stimuli. It is the same mathematical basis with which nature is governed, as Elliott suggested in 1940.

In the end, ALL investors should arm themselves not only with the understanding of market fundamentals, but also with market psychology. As Bernard Baruch once said:

All economic movements, by their very nature, are motivated by the psychology of crowds. Without the proper recognition of public opinion … our economic theories leave much to be desired. … It has always seemed to me that the periodic madness that afflicts humanity must reflect a trait deeply rooted in human nature – a trait close to the force that motivates the migration of birds or the precipitation of lemmings. to the sea … It is a force absolutely impalpable … However, the knowledge of it is necessary to judge events well.

I therefore consider that the market is inscribed in a structure in 5 waves compared to the troughs of 2009. And, within this structure, I see us as always in the 4th wave in this 5-wave structure. In addition, my ideal target for this 4th the wave is in the region 2100-2200. It is possible that the market has already completed this 4th wave in December when it came within 100 points of my target area, the way we are going down in the 2600 area in the next few weeks will give us more guidance as to whether we will still target the region 2100-2200, or if we will see only a dip on the 2500-2600SPX before we head to new highs in the coming years.

In terms of my long-term goal, well, we had a minimum target of 3200SPX before this long-term rebound from the 2009 lows was complete. However, I am beginning to see signs that it can extend to the 4000-4100SPX region by 2022/23. It will depend a lot on how the market has developed over the remainder of 2019, which should then give us a more accurate perspective on the height of this final.th the wave can take us. Stay tuned.

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Disclosure: I / we have / we have no position in the actions mentioned, and we do not intend to initiate a position within the next 72 hours. I have written this article myself and it expresses my own opinions. I do not get compensation for that. I do not have any business relationship with a company whose actions are mentioned in this article.

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