Sentiment Speaks: Inflation Is For Fools

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
June 15, 2021

I asked you in my last article if you were more concerned with name calling than with profiting from the market. So, I was wondering if you gave it any more thought, and if you had come to a conclusion?

If not, well, let's discuss this a bit further.

Everyone today is so concerned about "inflation." Yet, everyone seems to be arguing as to whether we are experiencing inflation today. Some claim that this is true inflation, whereas others claim that it is simply transitory.

My personal opinion resides on the transitory spectrum of this issue, and I believe that over the next 6-12 months we will see the shortages easing, especially in the labor force, as we stop paying people to stay at home. But to be honest, I don't care whether my opinion is right or wrong on this issue, as it does not help me make money in the stock market.

You see, there is a further debate as to what inflation will mean to the stock market. Some argue it will make the market rally, and others argue it will make the market crash. And everyone has their extremely well-reasoned opinions, along with their plans as to what they are going to do based upon inflation.

Well, as Mike Tyson was purported to have said, "everyone has a plan until they get punched in the face."

If you have been paying close attention, inflation theorists just got punched in the face. And many are too busy adjusting their definitions to even realize it.

This past week, we saw that inflation was running higher than market expectations. Moreover, May also showed us that inflation was running higher than market expectations as well.

So, if you are in the camp that believes inflation will hurt the market, then you would have expected that the market would drop on this type of news. That is what we saw in May. And those that are in the camp that says inflation will cause the market to rally would expect this type of news to push the market higher. That is what we saw in June.

Are we seeing a problem here yet? Both sides just got punched in the face by the market. So, can one really prognosticate the market in an intellectually honest manner using this information?

Moreover, even the dollar has "surprisingly" rallied after the recent supposed inflationary report, which provided yet another punch to the face of the inflation protagonists. And lastly, interest rates have also "surprisingly" been on the general decline during this time, providing yet another punch in the face to the inflation protagonists.

I am quite certain that many commenters will attempt to provide some amount of convoluted reasoning as to why inflation data supposedly caused the market to drop last month and rally this month, has caused the dollar to rally, and also caused interest rates to drop. But if you are being intellectually honest with yourself, you have to dismiss these discussions as simply wasting your time as an investor. The market is clearly telling you that none of this "noise" matters.

So, I will ask you this again: Are you more concerned about debating the definition of inflation and whether we are experiencing it, or are you more concerned with making money in the market by being on the correct side of the trend?

You see, there are so many articles out there that debate whether we have inflation or not. And those that claim that inflation will crash the market will offer you no parameters as to how that will occur. Rather, they will drone on and on about how sure they are that it will happen... eventually.

Yet, these folks have been saying the same thing over and over since the Fed started Quantitative Easing back in 2009. Yes, they have been warning us that QE is going to cause inflation since 666SPX. And "eventually," they may be right. While we may be at 6000SPX by then, how much do you think they have really helped you in making money in the market? Yet, they continue to claim how right they are despite remaining wrongly bearish on the stock market for the last decade.

Folks, your responsibility is to increase your investment portfolio by remaining on the correct side of the market trend. That is it. Are you here to debate the meaning of "inflation," especially when those that are attempting to define it disagree as to its affect upon the market? No, you are not. Again, you have only one job, and that is to maintain the correct side of the market trend. And unless they can show you how to do that, then you are wasting your time debating this nonsense. Spending time on anything that cannot help you maintain the correct side of the market trend is an exercise in futility. It is simply foolish.

So, how do we stay on the correct side of the market trend at this time? Well, to answer that question you need to determine the time frame within which you invest. For those that attempt to gain some price improvement from the market over the coming months, the following discussion can assist with your goals. For those that are only looking to get out of the market when the bull market is coming to completion, well, I still think you have a few years left until we get to my ideal target in the 6000SPX region. And for those who just want to hold for the next 10-20 years, you have my sympathies.

Last week, I outlined my expectation for us to be able to rally towards the 4360SPX region, which is a point on the way to a target in the 4400SPX region. While that is still my preferred path, this past week's action has certainly made me question that potential.

You see, my expectation is still to see much higher levels in 2021, as 4600SPX is my ideal minimum target for 2021. Yet, I am expecting a 200-300 point pullback in the market before we are ready to attack the 4600+ region. While I saw the higher probability potential as being that the market will rally to the 4400SPX region before we see that 200-300 point decline, the action this week is making me question whether we can exceed the 4300SPX region before we see that pullback.

So, I will tell you that the 4190SPX support region is going to be key to us being able to get to the 4400SPX region sooner rather than later. Should we break that support before strongly breaking out over 4300SPX, then the door opens to re-testing the 4000SPX region before we begin the run to 4440+. A further break down below 4150SPX would make it likely we will revisit the 4000SPX region first.

As I have been warning of late, the market is setting up for a bit of volatility as we head into the summer solstice. And it seems that the bears are going to be temporarily rising from their hibernation for a feeding in the first half of the summer. So, the question with which I am personally grappling is where that 200-300 point pullback is going to begin, and not whether we have inflation. The next few weeks will be quite instructive regarding that 200-300 point pullback.


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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