Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in the METAVERSE Stocks Universe - 8th Dec 21
Stock Market Sentiment Speaks: I Expect 15-20% Returns For 2022 - 8th Dec 21
US Dollar Still Has the Green Light - 8th Dec 21
Stock Market Topping Process Roadmap - 8th Dec 21
The Lithium Breakthrough That Could Transform The Mining Industry - 8th Dec 21
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Witness the Epic Battle Between Stock Market Investor Hope and Investor Fear

InvestorEducation / Stock Market Sentiment Jul 17, 2012 - 03:53 AM GMT

By: EWI

InvestorEducation

Best Financial Markets Analysis ArticleCan an investor ever know enough about financial markets to make a truly informed decision?

Even professionals must cope with imperfect knowledge, and the constant uncertainty that comes with it. That's why every investor looks to others for signals about what to do.

Have you ever watched a dog interact with its owner? The dog repeatedly looks at the owner, taking cues constantly. The owner is the leader, and the dog is a pack animal alert for every cue of what the owner wants it to do.


Participants in the stock market are doing something similar. They constantly watch their fellows, alert for every clue of what they will do next. The difference is that there is no leader. The crowd is the perceived leader, but it comprises nothing but followers. When there is no leader to set the course, the herd cues only off itself, making the mood of the herd the only factor directing its actions.

The Elliott Wave Theorist, May 2009

Around the turn of the last century, Elmer Gates also observed how people take cues from others. He once ran the largest private non-commercial laboratory in the United States and obtained more invention patents than Thomas Edison. Remarkably, he worked on his inventions only during his spare time. His regular working hours were devoted to the study of the mind. Gates noted:

A companion, helper, associate, co-worker, influences one's mental functioning by every gesture, tone, look, suggestion, opinion, approval or disapproval, argument, and mood. Minds interact consciously and subconsciously especially during quiescence, dirigation, introspection, and awareness; by their congeniality, presence and other ways.

Elmer Gates and the Art of Mind-Using (p. 246)

Investors take their cues from others then rationally justify their buy or sell decisions

Most market observers believe that investors respond logically to the latest news and buy or sell based on objective valuations.

Nothing could be further from the truth.

If investor behavior was rational, price charts would be linear and without sharp rises or declines. But that is not the case. The market's price charts do show sharp price rises and steep declines, often when the market's fundamentals offer no explanation to justify such a move. In a word, those near-vertical price moves are irrational. They're not driven by logic, but by hope or fear.

People have no idea where prices are going, so to satisfy the reasoning portions of their brains, they make up reasons to justify their buying and selling actions....Investors are not reasoning but unconsciously herding, and unconscious processes aren't random; they proceed according to mental constructs. That's why financial markets display patterns such as persistent trends, head and shoulders formations, trend channels, Elliott waves, and so on. [emphasis added]

The Elliott Wave Theorist, January 2008

These price patterns occur at all degrees of trend. That means collective investor psychology is evident in 5-minute, hourly, daily, weekly, monthly, quarterly and yearly charts.

Investor hope is even on display during major market downtrends

Notice how the Dow Industrials rebounded after the 1929 crash but before the worst part of the price decline of 1930-32 (see wave b in the chart below).

In the chart, you'll notice that bursts of "hope" even occurred several times during the worst part of the decline itself. Memories of the Roaring 'Twenties bull market still lingered.

More recently, investor hope lasted over three years after U.S. markets bottomed in March 2009.

Today's market is a full degree of trend larger than even 1929-1932

After the market declined in May and the start of June, yet another burst of hope started on June 4. But brace yourself.

Get ready for a psychological change that will be reflected in the price patterns of U.S. markets


Learn to Think Independently

You'll get some of the most groundbreaking and eye-opening reports ever published in Elliott Wave International's 30-year history; you'll also get new analysis, forecasts and commentary to help you think independently in today's tumultuous market.

Download Your Free 50-Page Independent Investor eBook Now

This article was syndicated by Elliott Wave International and was originally published under the headline Witness the Epic Battle Between Investor Hope and Investor Fear. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in