By Avi Gilburt, ElliottWaveTrader.net
Many of you have noted through the years that you simply do not understand how our analysis methodology works. Yes, it can be more complex than most other forms of analysis, but it is also often more reliable and accurate in identifying targets and trends. As an example, where we have used it at the end of 2015 to call for a drop in the market from the 2100 region down to the 1800 region, to set up a rally to the 2500 region.
Yet, many still view it as a form of “voodoo.”
But, what we are doing is attempting to analyze market sentiment, as presented by the manner in which the way the stock market acts. And, the benefits of understanding the broader trend utilizing this methodology has greater implications than simple profitability through trading and investing.
You see, studies have been done about when the overall mood of society is ripe for war or peace. It does not necessarily mean that a large-scale war will certainly break out, but it does give you warning that the environment is one in which war has become more likely. Remember, we are unable to tell the future, but are able to understand what the implications of social mood may mean to society as a whole.
Along those lines, over the last few years, I have gotten to know Dr. Cari Bourette of MarketMood.net. Dr. Bourette has been studying the overall impact of market mood upon society and the stock market for many years. In fact, she has built an algorithm which is able to identify not only turning points in the markets based upon this algorithm, but also to identify potential effects of mood upon society.
Eerily, her weekend update posted this past Saturday morning (September 30) was entitled “Terrorist Alert Through October 12, 2017.” Moreover, her expectation was that an attack can occur near Denver, Colorado:
“While this does not imply that we are certain that a terrorist attack will occur in the Denver area by October 12, it does mean that during a period where increased terrorist activity is likely, that the highest probability for such an event to occur within the U.S. is near Denver, Colorado.”
We all know what happened in Las Vegas the very next day, a sickening, horrific attack.
Dr. Bourette's mood forecasts are based on an analysis Internet search trends, using research spanning two decades. To understand more about how she arrived at her uncanny forecast last Saturday, I'll point you to her article here.
Whether or not the tragedy in Las Vegas was what her analysis was pointing to -- and let's hope and pray that there is nothing more -- it does raise the question of whether analyzing social mood can help us predict more than just the stock market. As further study is done into the effect of mass sentiment, I think there are many more aspects of life for which this study can prepare us.
As for how social mood and sentiment analysis can produce relatively accurate predictions regarding the stock market, I hope you have seen evidence of this in our analysis over the years. Further evidence is presented when you look at the impact of news and exogenous events on the markets.
Amazingly, there has been no exogenous event over the last year and a half which has had any effect upon the market trend. Sadly, the market has struck further all-time highs even after the horrific events witnessed in Las Vegas.
As I have noted time and again, exogenous events do not effect market direction until the market sentiment patterns have run their course. And, we can sadly add this event to the list of exogenous events which have not stopped this trend at all over the last year and a half, in addition to the Spanish referendum unrest seen at the same time:
Brexit – NOPE
Frexit – NOPE
Grexit - NOPE
Italian referendum - NOPE
Rise in interest rates - NOPE
Cessation of QE - NOPE
Terrorist attacks - NOPE
Crimea – NOPE
Trump – NOPE
Market not trading on fundamentals – NOPE
Low volatility – NOPE
Record high margin debt – NOPE
Hindenburg omens - NOPE
Syrian missile attack - NOPE
North Korea – NOPE
Record hurricane damage in Houston, Florida, and Puerto Rico
Spanish referendum – NOPE
Las Vegas attack - NOPE
The overall market structure still suggests that as long as the SPX remains over 2487-2496 support, we can subdivide to the 2575SPX+ region by Thanksgiving before this wave (3) tops and provides us another pullback to the 2350-2400SPX region. However, if the market should break that upper support on the coming test of support, that provides initial warning that wave (3) has topped as an ending diagonal. For now, the bulls remain in charge, and negative exogenous events will continue to have no effect upon the market until this wave (3) pattern off the February 2016 lows has completed.
Please join me in praying for those who lost their life in the horrific Las Vegas attack, along with those who were injured, and for those whose lives have been forever changed.
Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.