Believe it or not, but whether or not blind dart throwers can nail the final squiggles prior to collapse is not the point. EW theory postulates that social mood is the primary driver behind markets and economies. Unfortunately, in the context of a liquidity driven market controlled by Central Banks and HFT Bots, Elliot Wave has been hijacked by a low volume, low volatility Jedi Mind Trick. As long as the "RISK ON" button remains in the "On" mode it's all good.
In other words, markets have been driving Social Mood rather than the other way around. What better indication of that can we find than to see the correlation between consumer sentiment and the Dow? Most U.S. consumers don't even own stocks, but still they look to the Dow as the overwhelming indicator that everything is A-OK. Leave aside that median income has dropped 10% since 2007:
Unfortunately, Skynet was programmed for return on capital, not return of capital
As I've said many times, liquidity drip feed to HFT (Skynet) in a low volume, low volatility environment can appear to work just fine for long periods of time. However, at the point at which investor sentiment peaks and rolls over, then the name of the game is return of capital not return on capital. Which is impossible in aggregate of course.
The News Breaks With the Cycle
One of the related tenets of EW theory - and one I believe in much more than squiggles on a chart, is that investor perceptions to the news change over the course of the investment cycle. For years, now we've been in a 'glass half full' environment in which every article of bad news has been rationalized away. However, on the other side of the sentiment peak, investors see the world as 'glass half empty'. In other words, situations for example like Greece which have been known about for months, all of a sudden become major problems. Like tonight when the S&P futures dropped 30 points in a few minutes on news that the ECB was rejecting Greek bonds as collateral. Wasn't that why Greek bonds were yielding 18% in the first place?
This is what we should expect in a Third Wave
A change in sentiment visualized.
Greece
Ukraine
Collapsing commodity prices
Widening credit spreads
Record low treasury yields
Artificially levitated stocks
Fake recovery
Growing deflation
Global recession
U.S. recession
Declining profits
Reversing Carry Trades
Middle East turmoil
Etc. Etc. These problems never went away. They were just all simmering in the background, waiting to return with a vengeance.
ALL AT THE SAME TIME.
In other words, markets have been driving Social Mood rather than the other way around. What better indication of that can we find than to see the correlation between consumer sentiment and the Dow? Most U.S. consumers don't even own stocks, but still they look to the Dow as the overwhelming indicator that everything is A-OK. Leave aside that median income has dropped 10% since 2007:
Unfortunately, Skynet was programmed for return on capital, not return of capital
As I've said many times, liquidity drip feed to HFT (Skynet) in a low volume, low volatility environment can appear to work just fine for long periods of time. However, at the point at which investor sentiment peaks and rolls over, then the name of the game is return of capital not return on capital. Which is impossible in aggregate of course.
The News Breaks With the Cycle
One of the related tenets of EW theory - and one I believe in much more than squiggles on a chart, is that investor perceptions to the news change over the course of the investment cycle. For years, now we've been in a 'glass half full' environment in which every article of bad news has been rationalized away. However, on the other side of the sentiment peak, investors see the world as 'glass half empty'. In other words, situations for example like Greece which have been known about for months, all of a sudden become major problems. Like tonight when the S&P futures dropped 30 points in a few minutes on news that the ECB was rejecting Greek bonds as collateral. Wasn't that why Greek bonds were yielding 18% in the first place?
This is what we should expect in a Third Wave
A change in sentiment visualized.
Greece
Ukraine
Collapsing commodity prices
Widening credit spreads
Record low treasury yields
Artificially levitated stocks
Fake recovery
Growing deflation
Global recession
U.S. recession
Declining profits
Reversing Carry Trades
Middle East turmoil
Etc. Etc. These problems never went away. They were just all simmering in the background, waiting to return with a vengeance.
ALL AT THE SAME TIME.
