What follows is an excerpt from this weekend's 283rd Edition of Zenolytics Turning Points.
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What we are witnessing presently is a classic “wall of worry” for the markets that is so vivid, terrifying and all encompassing that investors forget about all the past examples of markets climbing during periods of extreme anxiety, as investors only understand the “why” part of the equation many months later, when the markets are significantly higher.
Yes, the markets are indeed forward looking, which is why the study of price never makes sense to the stringent fundamental investor. Current data can never take into account future events, as investors will have no idea how that data will evolve.
Price, however, is essentially the wisdom of the market hivemind or collective intelligence expressing itself numerically.
Price becomes especially relevant when it expresses itself in direct contradiction to prevailing wisdom. The more powerful the price move in direct contradiction to the prevailing wisdom, the more relevant the signal.
What we saw during July and especially during the last week of July, when everyone expected the market to fall after the Fed announcement and earnings is a very powerful signal if you believe in the power of the collective intelligence of the market.
The prevailing psychology of absolute disbelief only means that this market has a long ways to go on the upside before properly shifting minds, as it must do prior to a real reversal.
With that said, it will certainly take all of August to perform this task.
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