As Far As Your Portfolio Is Concerned, It's All Fake News

June 9, 2020
Elliot Wave Technical Analyst & author @ Elliott Wave Trader

Rarely do you enter a market environment when the fear is as palpable as it was in the middle of March of this year. The world was coming to an end based upon most of what I was reading. And, as we were approaching the market lows (and even all throughout the 45%+ rally we just experienced), many continued to call for further crashes with many targets being noted at 1800, 1600, and even 1000 in the S&P500.

Yes, my friends, most “analysis” was simply providing us trend extrapolation driven by fear so extreme that I do not recall seeing its equal in my investing career. And, anyone who has allowed their emotion to drive their investing decisions has not been doing terribly well of late.

Moreover, those that have been following the news cycles have been doing equally as poorly. Consider that the market has now rallied over 45% off its March lows and most people are still thinking “this is impossible.” The “impossibility” argument is based upon record unemployment and the fact that the market has continued to rally in the face of riots occurring throughout the country. How can the market rally with such headwinds? It truly is impossible, right? Or, is it all just “fake news?”

As one of our members  put it: “There's so much bad news out there, and has been for a long time. The world economy is a mess, GDP collapsing, businesses closing, stock market soaring, people getting sick and... wait, what?”

Clearly, this member is driving home the point that none of these “bad news” factors have dictated market direction. The market simply did not care.

I know that thinking in this manner is so counter-intuitive to most reading this article. Yet, if after the last 3 months you do not finally come to the realization that the news cycle really does not matter, then I doubt you will ever understand the market. You will continue to think the market is disconnected from reality just like all the other investors who got caught flat footed during the February and March melt down, likely selling near the lows, and then missing the rally off those lows.

But, when the market was bottoming out in the 2191 region, and within 4 points of our bottoming target at 2187SPX, we began looking up (to the disbelief of many), with an initial target in the 2650-2725SPX region. And, when the market began to set up to break out over 2725, we outlined our expectation for a rally to 2900SPX next, to be followed by a pullback towards the 2700 region, with further gains likely to be seen thereafter, and an ideal target in the 3234-3339SPX region. And, if you looked at how the market has reacted, you would see that our expectations were quite prescient.

As it stands today, we are now a stone’s throw away from the ideal target we set back in early April. And, I followed no news events or economic reports when I provided my analysis to the members of ElliottWaveTrader. In fact, I told my subscribers to turn off their TV’s, and they have been thanking me for it ever since, as it has allowed them to remain on the correct side of the market without any bias.

As one of my members recently noted:

Every day, the media "explains" the stock market according their top headlines. But market sentiment moves more closely in patterns described by Elliott Wave theory. . . once you've seen it, you won't follow financial news the same way ever again.

Now, as we are approaching our target, there is a camp of optimists which have been steadily growing in number, as they see us coming out of this poor economic situation. And as usually happens, the optimists start increasing in number just as the market begins to top out. But, consider that they have already missed a 45%+ rally. And, this was no different than what we experienced in 2016, but in a much more extreme fashion.

In late 2019, I warned that we could still have the potential for a 30% decline in the first quarter of 2020. In fact, I even began shorting the EEM back in January and February since it had the lowest risk and most clearly defined downside set-up. And, with the market providing us with a 35% decline, it has now reset market sentiment to be able support the rally I have been expecting to 4000+.

I have made no secret of my expectation for the stock market to reach and potentially exceed the 4000 region. In fact, as we were bottoming in the 2200SPX region back in March, I strongly reiterated my perspective, despite the huge number of doubters responding negatively to my expectations. Some people even asked me what I was smoking.

But, as I write this article today, I can see several paths the market may now take to get us to that 4000+ region. And, I view the price action we see in the month of June as providing us significant clarity regarding the path the market will take to 4000+ in the coming years.

For now, 3080SPX and 3000SPX are the main supports upon which I will be focusing to let us know how much of a pullback we will see (if any) before we begin the run to 4000+ in earnest. I have outlined the detail of these paths to the members of ElliottWaveTrader, but the price action in June is what will determine the specific price pattern we see over the coming 2-3 years.

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Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net, a live Trading Room featuring his intraday market analysis (including emini S&P500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education. You can contact Avi at: info@elliottwavetrader.net.

It is estimated that the total amount of gold mined up to the end of 2011 is approximately 166,000 tonnes.

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