Squawk Morning Briefing: Do Markets Have OCD?

I have a confession to make: I always wear my seat belt when in the car. Just about anything which we repeat for 40 or more days can become a habit and I have repeated the ritual of fastening my seat belt when entering an automobile so many times that I feel uneasy without it on. This is more than just a realization that I haven’t engaged protection which might help in case of an accident, I feel a strong sense of discomfort as if something is wildly amiss because when I’m in a car my seat belt should be on. That is just how things are.

We don’t know why the observations that compose our Elliott wave framework keep holding true so often but we imagine it is for similar reasons. Buying or selling just doesn’t feel natural to a large portion of market participants until certain objectives have first been fulfilled. We reject the notion that markets lack free will. I could easily get in my car and drive off without my seat belt if I convinced myself to. It would be unnatural, however, and I would be unlikely to do it.

So that brings us to the situation in markets since you’re unlikely to care too deeply about my driving habits. We know that we are in a news driven environment and just about any statement could come out of Europe at any time, let alone any surprises which might pop up from other corners of the globe. There is no way to know which way those might drive markets. What we do know is that the decline from May 1st needs to be corrected; the market couldn’t travel too far without doing so.

There are many types of corrections and that complicates telling exactly when they might complete. Our presumption remains that this one isn’t yet complete. Nevertheless, if the right news event comes in to knock markets down a count could be found which we could rely on in a pinch.

Think of it like a nesting instinct where a soon-to-be-mom suddenly feels compelled to clean the house as labor approaches. Despite that compulsion, if some things were left undone they would have to remain that way if labor starts progressing.

Elliott waves appear to be one of the best techniques we have to measure the markets habits and compulsions. Some days we might prefer that the market would have a severe case of OCD so that it was more regimented and predictable with how it went about making its twists and turns.  We will need to be content, however, with the observation that it has many ingrained habits that it repeats again and again.   The way it goes about its business has us anticipating that the correction up off the June swing low isn’t typical of what would satisfy the market before returning to a downtrend.

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Elliott Squawk delivers thorough market preparation every morning in time to take action during the trading day. By combining up-to-the-minute futures activity with traditional end-of-day analysis from cash indices, you receive analysis based on the latest conditions as the trading day sets to open. Each issue of Elliott Squawk goes beyond traditional Elliott Wave analysis because we recognize that trading Elliott Waves is much more than just looking at the most likely current count. Squawk will prepare traders to assess the market action as it unfolds by answering questions that any Elliott Wave trader should consider:

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Kevin McEwen and David Starr are best known to First Wave chat room participants as Kevy99 and Managematics and by their reputation for their Elliott Wave counts that have predicted market turning points. Kevin has been counting Elliott Waves for 28 years, successfully forecasting market moves in virtually every financial environment. David brings together talents in financial market analysis and software development to his wave counting. He has authored many of the studies used by First Wave Traders as well as a number of proprietary studies to aid in counting waves.

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