The U.S. market has reached consensus on six key issues and that means the trend may be about to reverse, according to The Elliott Wave Theorist Robert Prechter.
Prechter explains this trend reversal through events in the 1980’s. Here, investors and economists believed there was no way interest rates would go down, with the Wall Street Journal writing it would take a “miracle” for a decline in 1984. And yet, it happened.
Photo: The Elliott Wave Theorist
From Prechter:Any individual can be wrong about markets. In the past when I have been wrong I realised in retrospect that either I was a member of a herd or I bet too early against one. But the fact remains that when representatives across an entire profession of exogenous-cause thinkers agree on the future trend of a market, it’s a signal.
The lessons are: (1) Any passionate consensus among economists is a terrific market timing signal, because it means that there is no one left to convince and therefore the market in question should have extreme difficulty continuing in the predicted direction; and (2) an alert analyst can learn to recognise these times and use them to advantage.
Prechter argues there are several themes out there right now that investors, economists, and markets all believe to be true just like they did with interest rates in the 1980s.
- The dollar – everyone is bearish.
- Interest rates – everyone thinks they’re going to rise.
- The stock market – everyone is bullish but corporate insiders.
- Inflation expectations – everyone thinks it is going to go higher.
- Economy – everyone is confident in 2011.
- Oil – everyone thinks it is heading higher.
It may be time for investors to turn on these trends, and bet the opposite way, according to Prechter.
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