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Santa May Be Bringing Coal For Christmas

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
December 5, 2023

The market presents investors with a game based in psychology. However, most market participants are much too interested in what the Fed is doing, or what the CPI is going to be, or what unemployment will do to the market to even realize they are not playing the right game. In other words, while the market is playing a game of chess, most market participants are playing a game of go-fish.

I think a market psychology study published back in 1997 probably explained this best:

“Stock markets are fascinating structures with analogies to what is arguably the most complex dynamical system found in natural sciences, i.e., the human mind. Instead of the usual interpretation of the Efficient Market Hypothesis in which traders extract and incorporate consciously (by their action) all information contained in market prices, we propose that the market as a whole can exhibit an “emergent” behavior not shared by any of its constituents. In other words, we have in mind the process of the emergence of intelligent behavior at a macroscopic scale that individuals at the microscopic scales have no idea of. This process has been discussed in biology for instance in the animal populations such as ant colonies or in connection with the emergence of consciousness.”

Yet, most continue to turn over one rock after another to find the singular factor that they believe will cause the market to move one way or another. And, if you read article after article, you realize that authors continue to guess as to what that one factor will be that will drive the market. But, it seems that no matter how many times they get it wrong, they still do not take a step back and question their analytical methodology. So, their next article is the exact same attempt using the exact same process, while claiming that the market simply got it wrong.

What did Einstein say about the definition of insanity?

What I find most intriguing is when an analyst is 100% correct in their prognostication of some market ‘fundamental’ such as unemployment, or earnings, or the Fed, or inflation, yet the stock market moves in the exact opposite direction ‘logically’ expected by that underlying prognostication. Again, it leaves them scratching their heads, and never questioning their analytical methodology. And, yes, their next article is the exact same attempt using the exact same process, while claiming that the market simply got it wrong.

As Isaac Asimov noted:

“Your assumptions are your windows on the world. Scrub them off every once in a while, or the light won't come in.”

Now let’s be honest. We are all here to make money. And, the way to make money is to be able to divine, and then align our investment account with, the correct direction of the stock market. While you may get an attaboy or a pat on the back for prognosticating an economic factor or a Fed decision correctly, if that leads to a wrong directional expectation for the stock market then you have miserably failed in your ultimate goal. Yet, analysts continue to attempt to divine market direction in this indirect mechanical fashion time and again, while failing in their true goal time and again.

Until the times of R.N. Elliott (who discovered Elliott Wave analysis), the world applied the Newtonian laws of physics as the analysis tool for the stock markets. Basically, these laws provide that movement in the universe is caused by outside forces. And, that is how most view our stock market even to this day.

However, as Einstein stated:

“During the second half of the nineteenth century new and revolutionary ideas were introduced into physics; they opened the way to a new philosophical view, differing from the mechanical one.”

Yet, even though physics has moved away from the Newtonian mechanical viewpoint, financial market analysis has not. As Ralph Nelson Elliott noted:

“In the dark ages, the world was supposed to be flat. We persist in perpetuating similar delusions.”

So, it is quite likely we will continue to see article after article attempting to divine the direction of the stock market based upon the mechanical form of stock market analysis centered around some exogenous factor such as unemployment, CPI/PPI, interest rates, the Fed, etc. But, I hope many readers are beginning to see the folly of engaging in such mechanical market analysis.

Let’s take this to another level.

When I try to explain that I foresee a bear market that can last us a decade or more, I am outright told that it simply cannot happen. One of the main reasons that are proffered is the common belief that AI is going to revolutionize the world, and cause a massive economic boom. Clearly, this perspective is also based upon the Newtonian mechanical viewpoint of how the market works. They believe an exogenous factor is what is going to cause a directional reaction in our stock market.

Now, as many of you may already know, I care not for fundamentals of the economy when I analyze the stock market. And, that position is also supported by many recent studies.

In a 1988 study conducted by Cutler, Poterba, and Summers entitled “What Moves Stock Prices,” they reviewed stock market price action after major economic or other type of news (including major political events) in order to develop a model through which one would be able to predict market moves RETROSPECTIVELY. Yes, you heard me right. They were not even at the stage yet of developing a prospective prediction model.

However, the study concluded that “[m]acroeconomic news . . . explains only about one fifth of the movements in stock market prices.” In fact, they even noted that “many of the largest market movements in recent years have occurred on days when there were no major news events.” They also concluded that “[t]here is surprisingly small effect [from] big news [of] political developments . . . and international events.” They also suggest that:

“The relatively small market responses to such news, along with evidence that large market moves often occur on days without any identifiable major news releases casts doubt on the view that stock price movements are fully explicable by news. . . “

What is even more amazing is that there is now research that proves that the market would basically act as we see on our current price charts, even if we did not have any news. Read that carefully again. There is evidence that the market would act as it currently does even if we did not have any news.

In 1997, the Europhysics Letters published a study conducted by Caldarelli, Marsili and Zhang, in which subjects simulated trading currencies. However, there were no exogenous factors that were involved in potentially affecting the trading pattern. Their specific goal was to observe financial market psychology “in the absence of external factors.”

One of the noted findings was that the trading behavior of the participants were “very similar to that observed in the real economy.”

Now, maybe you can better understand why I care not for fundamentals when it comes to the market. I care even less for stock market prognostications based upon economic analysis. In fact, they often have you looking in the wrong direction. Does anyone remember this?


Yes, my friends, the world was supposed to be falling apart in April, May, June, etc. of 2020 because of Covid. Economies all over the world were shutting down. Death rates continued to spiral upwards. Unemployment was hitting record highs.

In fact, all economists had declared us well within a recession. And, clearly, the market was not supposed to go up. Yet, it did. And, it did so despite the absolute certainty of expectations to the contrary. In fact, the economists did not rescind their “recession” call until the market had rallied 50% off its 2200SPX low.

Then, may I also remind you of the “tech bubble” high struck in 2000. The internet was going to revolutionize the way the world did business (and it did), and the market was supposed to continue much higher because of that (it did not for the next 13 years).

So, again, fast forward to 2023, and everyone is so certain that AI is going to be the next revolution that drives the market into its next major decade-long bull market. Well, let’s just say that I have learned enough about history, economics, human nature, and the stock market to have serious doubts.

Let’s now move to our current view of the market. When we were down at the 4100SPX region, I outlined my expectations for the market to rally back to the 4350-4475SPX region. And, at the time, I was actually castigated for such a near-term bullish expectation by other analysts. So, not only did the market follow through on our expectations, but it has now even exceeded those expectations.

But, I will be the first to state that I will never be able to garner every single point the market has to offer in all of its movements in each direction we track. That is simply an impossibility. Yet, our record does evidence that we have been able to identify almost all of the major turning points in the market during the 12 years we have been publishing our analysis publicly. As one of our members who has been with us for more than a decade recently noted:

“The number of different markets, i.e., TLT, Metals, Oil, IWM, SPX etc.., that you have absolutely nailed over the years is legend.”

Last week, I explained that I am looking for the market to provide us with a pullback. But, I also noted that until we actually break down below noted support (4480-4500SPX as noted in my last week’s public article), the market may attempt to invalidate the immediate bearish potential by taking out the 4607.07 recent high before that pullback begins. Now, truth be told, as the market progressed this past week, early in the week (and based upon the market structure) I raised that support for members to the 4500-4535SPX region. And, the low struck during this past week’s pullback was 4537SPX.

Based upon the micro-structure in the market as we closed on Friday, there is a pattern in place which can point us north of 4607.07 in the coming week. And, should that happen, then it will invalidate the immediate major bearish set up in the market which I was outlining for the last several weeks.

Now, as I explained to members, I went relatively neutral on the market once we moved up into the 4475SPX region I expected off the 4100SPX support. So, that meant that I have trimmed some of my holdings (some of which I added at the 4100SPX region), as I am simply in a holding pattern until the market provides evidence of its next major move.

The question in the coming week will still revolve around whether the market can take out the 4607.07 high before we break down below 4537SPX low struck this past week. If we do, then the next pullback will likely be a corrective pullback, which will then set up the market to rally into 2024 to 4800+.

However, if we are unable to exceed that level overhead before we break back below 4537SPX, then the nature of the decline will tell us the direction of the next 400+ point move in the market. If the decline is clearly corrective, then it still sets up a rally into 2024 to 4800+. However, if that decline is clearly impulsive, then we have begun a decline that ultimately points us south of 3500SPX in 2024.

One way or another, it seems ‘likely’ that the market is going to see a pullback in the coming weeks, just as many look towards and expect the Santa-rally. While it is certainly a nicety, it is clearly too linear of an expectation to maintain within a non-linear environment such as the stock market.

And, once the market confirms its top in this rally off the 4100SPX support, we can then assess the support levels to watch for the next potential buying opportunity if the decline is indeed corrective in nature, which will then point the market to 4800+. If it is not, then we will have to raise a significant amount of cash before the market continues to those targets below 3500SPX.

So, as for me, I am not going to be swayed by any of the fundamental perspectives held by most in the market. Moreover, you can all continue to waste your time debating the Fed and interest rates and whether we will have a soft or hard landing. I care not for any discussions of the Fed or interest rates as related to the stock market, as the Fed and interest rates were at generally the same level when the market was at 3500SPX as they were when the market was at 4600SPX.

Again, the debate is an absolute waste of time, and if you cannot be honest enough with yourself to realize that it has not helped you to divine the directional turns taken by the market over the last year, then you are just playing go-fish while the market is playing chess.

Instead, I am going to follow market price which has kept me and our clients on the correct side of the stock market during the significant majority of the 12+ years we have been providing our analysis to the public.

*Note: This article was written on Saturday night, December 2nd.


Avi Gilburt is a widely followed Elliott Wave technical analyst and author of, 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: [email protected].

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