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Some have called me a contrarian investor. Some have called me an Elliott Wave investor. And, some have called me outright crazy. Well, to be honest, I can understand each and every one of those statements. In fact, when you break it down, they are all saying the same thing.
We utilize Elliott Wave analysis to not only tell us where we are in the market trend, but it also identifies the points of extreme sentiment, which is where market tops and bottoms are struck. So, I am looking for tops and bottoms to the market just when the majority have become certain that the existing trend will continue unabated. And, when I invest based upon that perspective, many view me as a contrarian, and many others view me as simply crazy.
So, over the last 9 months, we have heard all the reasons as to why the market was going to continue to levels lower than the 3500 low struck in October of 2022: valuations are stretched, earnings are poised to fall, inflation is still too high, interest rates have higher to be seen, etc. Yet, all these reasons have kept people from joining a 30% nine-month rally off the October 2022 low.
Moreover, most people do not even recognize that the reason they continued to look at the market bearishly was because the sentiment was quite bearish. And, most people do not recognize a sentiment transition from bearish to bullish until the market is more than halfway through its rally structure. At that point, sentiment begins to shift bullish, and as the trend continues, sentiment turns to a bullish extreme, which ultimately marks a top. This is simply how the market works year after year throughout history.
The amazing thing about this is that the structure of the price movement often clues us in to where within the trend we reside. And, the structure is what allows us to identify where turns can occur.
Yet, I want to remind you that there is nothing that is perfect when attempting to understand human nature. So, we approach the market based upon probabilities, and not certainties. And, while we have been able to identify most of the major turns in the market through the years, there are times we will inevitably be wrong.
But, the point to our method is that it provides us with a correct assessment of the market context the great majority of the time. Yet, one of the most valuable aspects of our analysis methodology is that it provides an early warning as to when we are wrong in a minority of circumstances, so we are able to course correct quite quickly.
But, as I am sure you have seen over the course of the last nine months, market participants were viewing valuations, earnings, inflation, and interest rates as being the
Is a Market Crash Still Possible?
