Stocks: What to Make of Wall Street’s Sky-High Optimism

“I believe that the market moves in whatever direction hurts the most participants”

By Elliott Wave International

The U.S. stock market has been in an uptrend since March 2009 — so, more than 12 years.

To add icing to the cake, there’s this notable factoid (CNBC, August 16):

S&P 500 doubles from its pandemic bottom, marking the fastest bull market rally since WWII

So, after such a historic run, one might think that many Wall Street analysts would say that it’s time to take at least some chips off the table.

Well, not so. Look at this astounding August 14 Bloomberg news item:

Wall Street Is the Most Bullish on Stocks in Almost Two Decades

So, what should one make of this uniformity of thinking and historic bullishness among Wall Street analysts?

Let’s turn to Robert Prechter’s landmark book, The Socionomic Theory of Finance:

Consensus regarding the future course of financial-market prices has an awesome power to become ossified in the wrong direction at markets’ major turning points.

The dictionary defines “ossified” as “having become rigid or fixed in attitude or position.”

That’s the very attitude that prompted Dave Lutz, head of ETFs at JonesTrading Annapolis to say:

“I’m a believer that the market moves in whatever direction hurts the most participants. If all the analysts on the Street are bullish, I’d be very cautious.”

That quote is from the same Bloomberg news item mentioned a moment ago, and Elliott Wave International agrees with that view.

After all, history shows that most investors, including professionals, are “surprised” at major turning points in the stock market.

The same patterns of investor psychology have played out time and again. Elliott waves are a direct reflection of these patterns.

Here’s what’s important to know:

The Wave Principle is governed by man’s social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value.

That’s a quote from Frost & Prechter’s Wall Street classic, Elliott Wave Principle: Key to Market Behavior.

You can get the details of how the Wave Principle helps investors to forecast the price paths of financial markets by reading the online version of the book — 100% free!

All that’s required for free access is a Club EWI membership, which is also free.

In case you’re unfamiliar with Club EWI, it’s the world largest Elliott wave educational community. Members enjoy complimentary access to a wealth of Elliott wave resources on financial markets, investing and trading.

You can have the book on your computer screen in just a few minutes by following this link: Elliott Wave Principle: Key to Market Behavior — free and unlimited access.