Sentiment Speaks: How Wrong You Are Mr. Market

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
November 9, 2021

So, I decided to read yet another article calling for a market crash. Needless to say, the body of the article offered nothing of true substance upon which I cared to comment, and I was saddened by the several minutes of time I wish I could have gotten back. That is, until I read the comments section, which provided me fodder to write this article.

“News flash, that bull market ended last year. We're in the beginning stages of a new one.”

“That crash is still going on, the market just hasn't caught up with it yet”

“Article #512 on SA in 2021 about the upcoming crash. Eventually, they will all be right. I do nothing different ever. I believe in my investments and I ride out crashes and corrections. Have cash available to buy which are wealth building opportunities. I always feel sorry for the poor panic sellers who miss out on so many gains because they are out of the market. It is only a loss if you sell. And, the market will come back and make new highs 100% of the time. This is an historical fact.”

Let me start by addressing the comments in order.

First, the bull market did not end last year and we are not in a new one. Rather, we are still within the bull market which began in March of 2009. But, we did see a correction to the bull market off the 2009 low, which began in 2018 and ended last year. You see, many do not have an appropriate grasp of market context. And, that is why people make the comment I quoted above. I addressed this point in a prior article, and you may wish to refresh your perspective on this matter as it places the term “bear market” into context within our larger degree market structure:

Sentiment Speaks: Watch Out For The 'Bear Market'

The next comment is quite laughable to me. You see, that person clearly believes that the economy and the market are one and the same. But, any true market historian knows that the market leads the economy. And, I have explained why this occurs in my articles as well:

How To Analyze Market Sentiment Along With Market Fundamentals

Do I have to bring back my favorite picture from the Jim Cramer show to make this point again?

Eventually, the economy will look in much better health in the coming years, and that is exactly when the market will finally top out. Professor Hernan Cortes Douglas, former Luksic Scholar at Harvard University, former Deputy Research Administrator at the World Bank, and former Senior Economist at the IMF, once noted “[b]efore contractions begin, macroeconomic flows always look fine. That is why the vast majority of economists always proclaim the economy to be in excellent health just before it swoons.”

And, if your perspective it that the market is wrong, then I suggest you take off the blinders and recognize that price is the only truth in the market. Until you realize that, then you are going to continually fool yourself and remain on the wrong side of the market.

Lastly, I want to address the third comment noted above. This comment represents exactly what the market trains people to think as we begin to approach a major market top. In fact, it is almost criminal as to what the market has done to train us since we bottomed in 2009, as it has begun to convince the great majority of investors that the Fed has our backs, and the market will always continue on to new higher highs relatively quickly. Again, I urge you to read three articles I wrote in the past, and it should dispel you of this false notion as well, so that you will be able to protect your hard earned investment holdings before the storm of the century arrives:

Sentiment Speaks: The Fed May 'Cause' You To Get Caught In The Next Crash

Sentiment Speaks: This Pavlovian Market Is Training You Well - But Prepare To Pay The Piper

Sentiment Speaks: It's The Roaring 20's Again - Begin To Prepare For The Same Ending

So, moving past the “crash” article I read, later that same day, I was watching a news program wherein a TV pundit claimed that Biden’s low approval rating is good for the market. (Many of you are now probably thinking that I have too much time on my hands if I am reading useless articles and listening to foolish news reports - and you may be right).

And, a few days later, to top it all off, it became abundantly clear to me that the market does not understand what the word “taper” means, as it rallied strongly after that Fed announcement instead of crashing, as so many of you and other authors have clearly explained to me it would.

It really is amazing that wherever you turn in today’s market, you run into a glut of absolute falsehoods. Now, do I really have to address the absurdity of the television pundit’s perspective regarding Biden’s approval rating? So, let’s just move past that and savor the chuckle it gave us.

But, I am quite sure that most of you believed that when the Fed announced it would begin to taper, the market was going to crash. And, please do not deny it. I have heard it more times than I have hair on my head. Well, admittedly, I have been losing more hair as I age, but likely from my tearing it out after reading such market nonsense.

Maybe someone should tell the market it is wrong for continuing to rally even after the Fed announced its tapering intentions? Does the market not know that the Fed is what drives it higher? But, then again, we have many authors (as I really cannot call them analysts) trying to convince us that the market is wrong all the time.

What I find truly funny is that we have so many authors that predict a recession or market crash week after week. Yet, they are lauded for “telling the truth.” Alternatively, I can accurately call the larger degree movements in the market the great majority of the time, but when I miss one pullback call, I am considered a charlatan.

So, yes, this charlatan was expecting more of a pullback before we began the move to 4900SPX. But, before you are ready to burn me at the stake, allow me to present to you what I have been saying, and maybe you will consider clemency for my hopeless situation.

When the market was bottoming in March of 2020, I was one of the very few who turned quite bullish and suggested that people buy for a rally that I expected to take us from 2200 to at least the 4000SPX region, with an ideal target at 6000. And, at the time, I was certainly taken to task for such an outlandish expectation:

Are You As Foolish As Most Market Participants?

Clearly, we now know how that turned out. And, as we came into October of 2020, I began to prepare readers for what I expected to be a 20%+ rally in 2021:

Sentiment Speaks: Prepare For 20%+ Returns In 2021

As we turned the calendar into 2021, the stock market started out in the 3750SPX region. And, in early 2021, I outlined my views that we will rally from 3750 to the 4400+ region:

Sentiment Speaks: You May Not Believe My 2021 Targets

Then, as we approached my ideal target between 4440-4600SPX, I outlined my expectation for a 200-300 point decline. At the time, I provided the details to the members of ElliottWaveTrader.net and The Market Pinball Wizard on Seeking Alpha that my target for a pullback is in the 4165-4270SPX region, with my ideal target being the 4270SPX region.

Sentiment Speaks: The Market Is About To Crash - Part XXIII (SP500)

As we know, the market dropped down and bottomed at 4270 in the futures, and began the rally we see today. But, I was not entirely perfect during this last segment of my expectations in the micro structures.

You see, as the market was in the bottoming region, I was not able to make out a clearly completed bottoming structure. So, I was not entirely sure if we had bottomed at the time. Nevertheless, I pointed out to our members that even though there was some potential to still see a bit lower into our support region, based upon the oversold nature of the market, along with us striking our minimum target region, I was a buyer at the time. While I did recognize there was still some potential to drop deeper into our support region, I noted that the upside potential significantly outweighed any remaining downside risk, so now was a great time to buy.

As we know, the market bottomed at 4270, and began the rally within which we now find ourselves. But, this brought me to my next imperfection within the smaller degree structure. As we began the rally off the lows, the structure at the time suggested to me that it was not likely to see a direct rally to 4700SPX+ off those lows. Rather, I thought it was reasonable to expect a pullback from the 4600SPX region before we continued to rally to my next major target in the 4900SPX region. But, Mr. Market seems to have had other ideas, as no pullback was forthcoming.

So, while my larger macro expectation of market turns has been almost perfect, there were a few twists offered by Mr. Market that I was not able to foresee. While I certainly wish I was able to be perfect in outlining every twist and turn within the market, I am still bound by my human limitations, working within an uncertain and non-linear market environment, which will sometimes react in a manner outside of our standards.

At the end of the day, we correctly called for a 20%+ rally in 2021, with a minimum target of 4600SPX correctly. We also correctly called for a 200-300 point pullback into our 4165-4270SPX support region, with an ideal target of 4270SPX, at which the market bottomed exactly. Furthermore, we also outlined our expectation for a rally to 4900SPX after the 200-300 point pullback completed. Again, while we were not perfect all around, I can say that we have done quite well in 2021.

For now, support is in the 4550-75SPX region. And, as long as the next pullback holds that support, we are setting ourselves up for a continuation rally to the 4900SPX region. And, what happens thereafter is going to confuse and confound most market participants. I have already outlined it to our members in my weekend update this week. So, feel free to join us for a free trial to learn more about what how we analyze markets.

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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: [email protected].

The King James Bible mentions gold 417 times. Not once does it mention a paper currency.

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