DOW Plunges 400 Points

The media will be agog over the fact that the DOW was down 400 points today.  Actually Paul Harvey probably had the best summary of this - the Chinese exchange doubled in the last year or two, a correction is to be expected. 

I am convinced that markets don't advance and contract so much on financial information as they do on expectations.  The Elliott Wave is a description of mass psychology.  Click to read a capsule summary. 

Here is an example of how mass psychology works, though I am sure Bill Clinton would not agree.

The basis of the theory, to the upside, is like this.  Bill Clinton the come from behind kid is elected. This starts Wave One, which is unexpected by the masses.  Soon however, there is a bump in the road the the trend reverses. This Wave Two confirms what the naysayers say about the current move, it is just a blip, not a long term trend.  For Bill this would have been the 1994 Republican capture of the House and Senate, leaving Bill to defend whether the President was relevant.  But, adopting a more middle of the road stance as advised by Dick Morris, Bill's popularity again soars. This is Wave Three, the largest of the five wave pattern.  Wave Four usually is opposite in severity from Wave Two.  If Two was down hard, Four is likely to be sideways. For Bill this was the Monica Lewinsky, well let's avoid the word affair. Again it brought out the naysayers.  But, buoyed by a great stock market and economy, Bill was soon back on top with Wave Five taking his popularity to new heights. Bill went out just as things were about to turn down in the dot.com crash, lucky for him.  But he peaked at a fifth wave top and of course now wanders the world looking for a way back into that kind of popularity.  Once a fifth wave top, the only way out is down.  Now as I said I am sure that no one who thinks he or she is IN CHARGE of their career or America or whatever thinks that they are subject to the whims of pop culture as defined by the Elliott Wave, but they are. 

The stock market is a mass phenomenon as it is the collective voice of millions of investors all voting at the same time.  Today you will hear that investors fear blah blah, well gee, where was all that fear last week?  A trend change, also evidenced in Chaos Theory, this is why a school of fish appears to change direction all at once, or were they just following the lead fish?

DLE

Comments

[Jason Raper]

Interesting theory...I too agree that about the expectations causing the market to change more than anything else. I mean if you use common sense and have the least bit of financial knowledge you will understand that if company makes money, the stock will technically increase. But why the decrease after quarterly earnings are announced and they don't make the grade....people get frustrated with a loser and that can make them pull out quickly. We all have some kind of short term investor in us if we can make a quick buck.