Last week one of our clients forwarded to us an email by another
“analyst” about FM Wealth Management analysis. And, that analyst
suggested that our analysis is “useless as a tool for market analysis.”
So, please allow to us deal with the issues that was brought up, and that is the accuracy and usefulness of FM Wealth Management analysis.
As we have said before, Chairman Alan Greenspan, the former Chairman of the Federal Reserve, stated that markets are driven by “human psychology” and “waves of optimism and pessimism.”
Ultimately, as Mr Greenspan recognized, that it is this so-called social mood, which swings between optimism and pessimism that effect the movement of markets. As we have stated in our previous posts, news does not cause a change in the direction of the market, unless that trend is already set to change.
In fact, have you ever wondered why markets or equity will continue to go up after the announcement of bad news, or inversely will go down after good news?
So now you may start to understand why the stock market has continued higher despite all the bad news being thrown at it.
This is why investors who are able to rise above news and emotion, and identify prevailing social moods and trends, can have an advantage over other investors.
How does one accurately and consistently track these changes in sentiment?
Ralph Elliott postulated that mass psychology and public sentiment moves in a 5-wave cycle within a primary trend, and a 3-wave cycle in a counter-trend. Once a 5-wave cycle in public sentiment is done, then it is time for the subconscious sentiment of the public to shift in the opposite direction.
This is simply a result of a natural cause of events in the human psyche, and not the effect from some form of “news.”
This mass form of progression and regression is seen to be hard wired deep within the psyche of living things. This is what we have come to know today as the “herding principle,” and the herd seems to follow at “Fibonacci” ratios, as supported by many recent studies.
Human beings are hard wired for herding within their brains, which is a biological response they share with all animals. In fact, in studies performed by psychologist Dr. Joseph Ledoux, at the Center for Neural Science at NYU noted, “emotion and the reaction caused by such emotion occur independent and prior to, the ability of the brain to reason.”
In the 1997 paper entitled “Large Financial Crashes,” published in iPhysica A, done for the European Physical Society, the authors, within their conclusions, present this summation for the overall herding phenomena that effect financial markets:
Financial markets are fascinating structures with analogies to what is arguably the most complex dynamical system found in natural sciences, i.e., the human mind. Instead of the usual interpretation of the Efficient Market Hypothesis in which traders extract and incorporate consciously (by their action) all information contained in market prices, we propose that the market as a whole can exhibit an “emergent” behaviour not shared by any of its constituents. In other words, we have in mind the process of the emergence of intelligent behaviour at a macroscopic scale that individuals at the microscopic scales have no idea of. This process has been discussed in biology for instance in the animal populations such as ant colonies or in connection with the emergence of consciousness.
One of the readers of one of our recent posts, made the following point regarding how news affects herding trends:
If we look at the stock market as a stream of ants marching bye in a single direction. Then run a stick across their path, though there will be a moment of confusion and reaction to the stick but ultimately the original parade of ants continues and the stimulus is forgotten.
Therefore, based upon much research, we can conclude that the market is on a path that is determined by a mass form of herding that is given its direction by social mood. That would explain the question of why markets go up on bad news or vice versa. It also takes out all the guesswork in attempting to determine how the next “big news” may move markets.
So in order to perform an appropriate analysis on a an individual stock or the market as a whole, there is a significant amount of detail work which needs to be performed. Since equity markets are fractal iby nature, any appropriately supported analysis must conform d to an appropriate wave structure.
So we have developed a method wwhich takes much of the subjective analysis out of a standard waveform, and provides an objective analysis to our methodology. However, each wave must conform to these objective standards so we can predict movements with relative certainty.
That rarely provides an accurate analysis of tracking market sentiment, and when most of the projections based upon this type of “analysis” fail, you can now understand why.
This “analyst” also took issue with the fact that FM Wealth Management analysis suggests you should maintain both a primary analysis while at the same time maintaining an alternative analysis.
This simply illustrates the foolishness of those who make who say we are calling it both ways. As we have stated previously, financial markets are non-linear by nature. For this reason, you need to adopt a methodology, such as this wave analysis, which adapts to the non-linear nature of the market.
So, please allow to us deal with the issues that was brought up, and that is the accuracy and usefulness of FM Wealth Management analysis.
As we have said before, Chairman Alan Greenspan, the former Chairman of the Federal Reserve, stated that markets are driven by “human psychology” and “waves of optimism and pessimism.”
Ultimately, as Mr Greenspan recognized, that it is this so-called social mood, which swings between optimism and pessimism that effect the movement of markets. As we have stated in our previous posts, news does not cause a change in the direction of the market, unless that trend is already set to change.
In fact, have you ever wondered why markets or equity will continue to go up after the announcement of bad news, or inversely will go down after good news?
So now you may start to understand why the stock market has continued higher despite all the bad news being thrown at it.
This is why investors who are able to rise above news and emotion, and identify prevailing social moods and trends, can have an advantage over other investors.
How does one accurately and consistently track these changes in sentiment?
Ralph Elliott postulated that mass psychology and public sentiment moves in a 5-wave cycle within a primary trend, and a 3-wave cycle in a counter-trend. Once a 5-wave cycle in public sentiment is done, then it is time for the subconscious sentiment of the public to shift in the opposite direction.
This is simply a result of a natural cause of events in the human psyche, and not the effect from some form of “news.”
This mass form of progression and regression is seen to be hard wired deep within the psyche of living things. This is what we have come to know today as the “herding principle,” and the herd seems to follow at “Fibonacci” ratios, as supported by many recent studies.
Human beings are hard wired for herding within their brains, which is a biological response they share with all animals. In fact, in studies performed by psychologist Dr. Joseph Ledoux, at the Center for Neural Science at NYU noted, “emotion and the reaction caused by such emotion occur independent and prior to, the ability of the brain to reason.”
In the 1997 paper entitled “Large Financial Crashes,” published in iPhysica A, done for the European Physical Society, the authors, within their conclusions, present this summation for the overall herding phenomena that effect financial markets:
Financial markets are fascinating structures with analogies to what is arguably the most complex dynamical system found in natural sciences, i.e., the human mind. Instead of the usual interpretation of the Efficient Market Hypothesis in which traders extract and incorporate consciously (by their action) all information contained in market prices, we propose that the market as a whole can exhibit an “emergent” behaviour not shared by any of its constituents. In other words, we have in mind the process of the emergence of intelligent behaviour at a macroscopic scale that individuals at the microscopic scales have no idea of. This process has been discussed in biology for instance in the animal populations such as ant colonies or in connection with the emergence of consciousness.
One of the readers of one of our recent posts, made the following point regarding how news affects herding trends:
If we look at the stock market as a stream of ants marching bye in a single direction. Then run a stick across their path, though there will be a moment of confusion and reaction to the stick but ultimately the original parade of ants continues and the stimulus is forgotten.
Therefore, based upon much research, we can conclude that the market is on a path that is determined by a mass form of herding that is given its direction by social mood. That would explain the question of why markets go up on bad news or vice versa. It also takes out all the guesswork in attempting to determine how the next “big news” may move markets.
So in order to perform an appropriate analysis on a an individual stock or the market as a whole, there is a significant amount of detail work which needs to be performed. Since equity markets are fractal iby nature, any appropriately supported analysis must conform d to an appropriate wave structure.
So we have developed a method wwhich takes much of the subjective analysis out of a standard waveform, and provides an objective analysis to our methodology. However, each wave must conform to these objective standards so we can predict movements with relative certainty.
That rarely provides an accurate analysis of tracking market sentiment, and when most of the projections based upon this type of “analysis” fail, you can now understand why.
This “analyst” also took issue with the fact that FM Wealth Management analysis suggests you should maintain both a primary analysis while at the same time maintaining an alternative analysis.
This simply illustrates the foolishness of those who make who say we are calling it both ways. As we have stated previously, financial markets are non-linear by nature. For this reason, you need to adopt a methodology, such as this wave analysis, which adapts to the non-linear nature of the market.
No comments:
Post a Comment