If you had been following the market closely this past week, it likely would have left you scratching your head if you were trying to align the news with the market action.
For example, on Wednesday, the inflation report came out hotter than expected. Yet, it did not phase the market in the slightest, as the market continued to hit its head on the 5180SPX resistance region we outlined a few weeks ago. Then on Thursday, we again supposedly received some "bad" inflation news an hour before the market opened. Yet, the futures did not react to the downside. In fact, the futures remained elevated and again tested the 5180SPX region into the open before the market decided to turn down.
As one of our subscribers noted at the time:
"Weeks like this week just prove that sentiment reigns supreme. Some people still believe the market can't top unless this or that indicator flashes red or some fundamental number gets stretched but this kind of proves the market will do anything it wants whenever it wants."
Yet, I saw many misleading headlines and articles on Friday claiming the market dropped due to the inflation reports. I guess they must have considered that the market took 2 days to think the inflation information over before it decided to begin to drop. Yeah, that makes sense.
But, as Ben Franklin once noted, "[s]o convenient a thing it is to be a reasonable creature, since it enables one to find or to make a reason for everything one has a mind to do."
By Mr. Franklin's standards, does that mean we have to consider the business media "reasonable?" I may beg to differ on that point. But, they certainly are often quite creative in their desire to align news with market moves, while truly not being burdened by the facts.
This is why I urge investors to turn off the television and stop trying to correlate the substance of news events with market moves. And, in the over 13 years during which I have been providing analysis services to the public, not a single person has come back to me to say that it did not improve their results.
"Avi has shown me again and again, in real time, how news doesn't drive the markets. Investor sentiment drives the markets, and even if you get the news right, you can get the reaction wrong. My returns have been significantly higher since I joined and discovered sentiment is the important piece of the puzzle, not the news itself."
"I used to read news articles that backed up the trade I was in. Until I found Avi and his team and he said ignore the news and only pay attention to the price. That's when I actually started making money - 11 years ago."
So, let's look at what is truly important for our view of the market action.
Several weeks ago, I outlined that as long as the market holds 5048SPX, it has a set up in place to point us to the 5350SPX region before we potentially strike a market top. Thus far, the market has clearly respected that support, and has been hitting its head on the 5180SPX resistance we have been highlighting as well.
At this point in time, I would say that as long as the market holds over 5091SPX, we still have a set up in place pointing to 5350SPX. However, should the market break down below 5091SPX before we see a sustained break-out over 5180SPX, then that could open the door to begin our confirmation of what may be a major market top.
Some of you wonder why I provide two aspects to my analysis. While some would interpret it as my saying that the market is either going to go up or go down, that is a ridiculously simplistic and superficial manner in which to view this type of analysis. That is completing, not recognizing the fact that the market is a non-linear environment. Therefore, one must utilize a non-linear approach when navigating a non-linear environment. In other words, you must objectively know when you are wrong early enough to be able to protect yourself and significantly reduce any potential losses that could otherwise occur.
As I have said many times before, my analysis perspective is no different than if an army general were to draw up his primary battle plans, and, at the same time, also draw up a contingency plan in the event that his initial battle plans do not work in his favor. It is simply the manner in which the army general prepares for battle. We prepare for market battle in the same manner.
Again, while I will never be able to tell you with certainty how the market will move in the coming weeks, months, and years, I present you with enough information to know where my primary perspective is wrong so that you can adjust in order to take account for the alternative situation. And, until such time that the market proves our primary perspective is wrong, we will continue to follow our primary perspective, which has been guiding us extraordinarily well for many years.
"By failing to prepare, you are preparing to fail." - Ben Franklin
About the author
