Sentiment Speaks: The Absolute Stupidity About The Market

Bull and Bear Symbol with Stock Market Concept.

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If you are scratching your head about the market rallying over 1% off the overnight lows despite a higher than expected inflation report, then you’re not alone. Listening to the confusion amongst the talking heads on Tuesday morning just made me laugh.

I will say this yet again: While news can act as a catalyst for a market move, the substance of the news will not be indicative of the direction of the move.

In all honesty, the narratives were developed well before the announced inflation number:

1- Market down – “inflation is running hot causing recession fears;”

2 – Market up – “inflation is running hot pushing investors into dollar denominated assets”

Can you see how ridiculous it is to try to trade the news? And, of course, there’s the time old excuse that it was “priced in” when they cannot come up with a reasonable excuse for their confusion.

But, Im certain there are a number of people who are trying to come up with a reason as to why the market is up even though inflation is running hotter than expected. If you’re attempting to reason that picking apart the inflation number shows that the gas number is what really pushed up the larger number and everything else is slightly down… well, then ask yourself:

1 – Does that mean you think that people really don’t buy gas?

2 – Or there are some costs that don’t matter?

In truth, I think the best answer is what was noted by Ben Franklin long ago: “So 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.”

But, if we are willing to think a bit deeper, then Daniel Kahneman provides us with a better interpretation as to what these pundits are doing when they attempt to find a reason as to why the market rallied when most would believe it should have dropped on that news: “Evidence is that we are born prepared to make intentional attributions.” In other words, our minds engage in an automatic search for causality. Moreover, we also engage in a deliberate search for confirming evidence of those propositions once we hold them dear. This is known as “positive test strategy.”

“Contrary to the rules of philosophers of science, who advise testing hypotheses by trying to refute them, people seek data that are likely to be compatible with the beliefs they currently hold. The confirmatory bias [of our minds] favors uncritical acceptance of suggestions and exaggerations of the likelihood of extreme and improbable events… (our minds are) not prone to doubt. It suppresses ambiguity and spontaneously constructs stories that are as coherent as possible.”

In the meantime, while the market did hold the 4400SPX region for now and has now begun to rally, the structure has provided us with an overlap that’s not indicative of a standard Fibonacci Pinball structure. While I will not bore or confuse you with the detailed Elliott Wave analysis, it has caused additional complication with the structure. So, I’m going to turn a bit more protective until we are able to exceed 4637SPX.

Resistance is now between 4511SPX-4575SPX. And a drop from that resistance to below 4385SPX opens the door to a test of the 4000SPX region. But, as long as this week’s low in the futures holds, and the market can exceed the 4637SPX, then the market has given us a very bullish pattern for the second half of 2022. But, keep in mind, we may still see a bigger retracement from that higher high.

As I warned the members of The Market Pinball Wizard when we were hovering just below the recent rally high of 4637SPX region, I expected the bears and bulls will battle it out during a pullback from that resistance region. And, how they resolve their dispute will tell us if we can revisit the 4000SPX region, or if we have begun the rally to 5500SPX already. They seem to still be mauling themselves while we wait them out for the victor to arise.

Housekeeping Matters

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Also, I am going to be quite busy with travel during the spring and summer, and will not be able to post public articles regularly, but will do when I can. Moreover, when I do post, I may not leave the comments section open if I am unable to monitor it and respond to comments. And, for those celebrating later this week, Chag Kasher V’Sameach and Happy Easter.

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