Please Don't Shoot The Messenger, But You Still Need To Understand This Message

In many of my articles, I have been attempting to enlighten those with open minds as to the true nature of the stock market. While most market participants have been trained to believe that the market is mechanically driven by exogenous causation, I have been providing historical and recent examples of why this simply is a market fallacy.

We have had some resounding real world examples over the last two years to poke some significant holes into the mechanical exogenous causation perspective. Remember back to the Charlie Hebdo attack in France, the Fed rate hike in December of 2015, the certain "crash" calls in February 2016, Brexit, Trump, the Fed rate hike in December 2016, etc. We have experienced many news "shocks" which were supposed to cause serious damage to the market over the last several years. Yet, the market was still able to provide us with a 600 point rally up to 2400SPX from February of last year, and this is all AFTER the Fed stopped QE.

Sentiment directs the market

I have also been showing you how markets are driven by the sentiment of the masses on all time frames, rather than by news, events, or fundamentals. Yet, the mechanical exogenous causation perspective is so deeply ingrained into the minds of investors, many attempt to "reason" that while sentiment may drive the market, news and fundamentals drive sentiment. Nothing can be further from the truth, as such a feedback loop would only cause the market to move in one direction. Moreover, if everyone admits that there are many times where the market is not aligned with the fundamentals, then it is clear this "reasoning" must fail.

I have written many articles attempting to dispel readers of this notion, but many remain quite intractable in their beliefs in the market fallacies surrounding mechanical exogenous causation. But, as R. N. Elliott said back in the 1930's:

"At best, the news is the tardy recognition of forces that have already been at work for some time and is startling only to those unaware of the trend....kings have been assassinated, there have been wars, rumors of wars, booms, panics, bankruptcies, New Era, New Deal, "trust busting", and all sorts of historic and emotional developments. Yet all bull markets acted in the same way, and likewise all bear markets evinced similar characteristics that controlled and measured the response of the market to any type of news as well as the extent and proportions of the component segments of the trend as a whole. These characteristics can be appraised and used to forecast future action of the market, regardless of the news....Those who regard news as the cause of market trends would probably have better luck gambling at race tracks than in relying on their ability to guess correctly the significance of outstanding news items....To sum up our view, then, the market essentially *is* the news."

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Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net ( more

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