Sentiment Speaks: Do We Rally Or Crash Into 2024?
By
Avi Gilburt
Over the Sukkot religious holiday this past weekend, my wife and I were hosting several families for lunch when the conversation turned to the stock market. The topic was about how much truth there is in the market today.
The discussion began with my friend, who is a therapist, telling me about a client with whom he is working (clearly without telling me anything specific) that is an employee at a major bank, who sells investment products for the bank. This client is struggling with guilt feelings about selling the products of the bank to individual investors, knowing that he is selling what is best for the bank’s profitability rather than what is best for the investor.
To this end, I explained to him that, overall, advisor’s interests are not aligned with those of their clients. I explained to him why this is so, just as I explained in this article I published on Seeking Alpha several years ago:
Sentiment Speaks: Most Money Managers Gamble With Your Money
We then moved on to a discussion of the intellectual dishonesty that is presented by the general financial news media and analysts alike. I explained that, rather than actually understanding why the market moves, they simply look at the most recent news feed and attempt to draw a causative conclusion as to why the market moves based upon the most recent news events. And, many times, these conclusions are absolutely non-sensical, often even contradictory to something they may have claimed just the day before. Yet, many investors are too easily willing to accept these perspectives as truth, no different than sheep willing to be sent to the slaughter.
These are the same issues upon which we focus week after week in the pages of the Sentiment Speaks series of articles I publish on Seeking Alpha and EWT. And, as I continually harp upon, one must take the wise words of Robert Prechter to heart in order for you to see the truth of our financial markets:
“Observers’ job, as they see it, is simply to identify which external events caused whatever price changes occur. When news seems to coincide sensibly with market movement, they presume a causal relationship. When news doesn’t fit, they attempt to devise a cause-and-effect structure to make it fit. When they cannot even devise a plausible way to twist the news into justifying market action, they chalk up the market moves to “psychology,” which means that, despite a plethora of news and numerous inventive ways to interpret it, their imaginations aren’t prodigious enough to concoct a credible causal story.
Most of the time it is easy for observers to believe in news causality. Financial markets fluctuate constantly, and news comes out constantly, and sometimes the two elements coincide well enough to reinforce commentators’ mental bias towards mechanical cause and effect. When news and the market fail to coincide, they shrug and disregard the inconsistency. Those operating under the mechanics paradigm in finance never seem to see or care that these glaring anomalies exist.”
And, amazingly, most of the 20+ people sitting around our table were quite surprised by some of these points I was presenting. Sadly, those sitting around my table were a representative example of the investing public, who are too easily swayed by these ridiculous causative narratives that are presented daily in the media and by financial advisors.
And, again, the goal of our Sentiment Speaks series is to open your eyes to these false narratives constantly on display throughout the financial media, and strongly urging you to focus upon what is truly important in the financial markets – and that is price.
So, without further ado, let’s move on to our price perspective.
In the bigger picture of our market, if you have been following my work, you would know that I was expecting the market to bottom at the 3500SPX region, and then begin a rally that would ultimately take us over the 4300 region, despite all the bearishness abound at the time.
As the market moved into the 4375-4425SPX region, I became very cautious, and suggested to our members that they begin raising cash again. While the market did travel a bit higher than I had expected at the October lows (my maximum expectation at the time was the 4505SPX region), I was outlining my primary expectation throughout the summer that we would likely return to the 4230-4275SPX region. I also outlined a lower support that I will be watching very carefully, and that is the 4165-85SPX region.
If you have read my articles over the last few week’s, you would also know that I again outlined in a September 11th article my expectations for the market to set up a drop to the 4230-4275SPX region. And then a week later, I even outlined my view that the expected drop will likely be blamed on the Fed, even if the Fed does nothing different. Well, thus far, this is exactly what has been occurring. In fact, the low struck thus far was 4238SPX.
Yet, I am not quite certain we are done with the downside, as the downside pattern does not look truly complete. From an Elliott Wave perspective, if the market is unable to climb back through the 4370/75SPX resistance, then I am seeing strong potential for another drop to take shape. And, where that drop finds support is going to be very important to my expectations of another rally to 4800SPX.
At this point in time, I am adjusting our support down to the 4165-4230SPX region. The reason I am adjusting the support is because the last segment of the drop exceeded the targets I set for that segment of the pattern. This opens the door to the lower end of support I highlighted in prior articles. From an Elliott Wave perspective, it means that what I am counting as a 3rd wave of the current segment of the decline exceeded standard targets for that 3rd wave, which means that the 5th wave of the current segment of the decline can test the lower end of our support.
So, in summary, as long as the market remains below the 4370/75SPX resistance region, I am expecting that we will test the 4165-4230 support region. Should we see that decline, then this should be the final test of this decline off the summer-time high. As long as the market successfully holds this support, then I am maintaining my expectation for a rally to the 4800SPX region next. Moreover, any move through the 4401SPX resistance region is a strong indication that the rally to 4800SPX has likely begun.
Alternatively, should the market instead see a sustained break down below 4165SPX, and then take us down to the 4000-4100SPX region, then the market is strongly signaling that a long-term top has likely been struck in the market, and we are setting up a decline that will likely take us down below the October 2022 low over the coming 6-9 months.
As for further confirmation for a bearish bias, I am also watching the IWM ETF, which represents the Russell Index. Should the IWM also break down below 167.46, then that would present another strong indication that a major top is in place, and that a bear market continuation will take hold over the coming 6-9 months.
For now, I am maintaining a more immediate bullish perspective, wherein another drop should hold cited support and begin a rally through 4401SPX, pointing us to the 4800SPX region over the coming months. But, of course, I must remain objective in my views. So, we will be watching our parameters quite intently over the coming weeks and listen to the messages provided to us by Mr. Market. There is nothing more reliable to an investor than price action, and that is upon which we must rely.
