News and the Elliott Wave Theory

Fundamental to Elliott Wave analysis is the assumption that whilst news items can often cause extremes in the degree of a cycle, sometimes even affecting the time scale, but they can never actually alter the cycle itself.

If the prevailing mood is pessimistic, a bearish news announcement will reinforce any existing downtrend, but a bullish statement may briefly arrest its downward momentum. On the other hand, if optism is the mood of the day, a bearish announcement could slow down, but not reverse, an uptrend which, equally, could be given further stimulus by good news. In both cases, the overriding cyclical forces governing the immediate market trend dominate the daily price fluctuations provoked by news items.

A mid-1970s study showed that 75% of the reasons given by investors for their actions relate to foreseeable fundamental events. The rest is attributed to unstinctive human response to unforeseeable fundamental events (such as hurricanes, coups d’etats, etc), which add specific randomness to share price movement.

Events which stimulate the bulk of investor reaction and so have an effect on the overriding cyclical forces, tend to fall into three broad categories:

1. Events of a historical nature which may motivate the buying or selling of shares.
2. Events which can be anticipated, which influence the economy as a whole and have specific effects on industrial groupings.
3. Events which can be anticipated and which affect the performance of a particular company.

Short term influences which cause random noise within the overriding trend, and to which investors attribute about 25% of their decisions, are those unforeseen events which fall into the following categories:

1. Acts of God: earthquakes, volcanic action, droughts, floods and other natural phenomena. Also assassinations, insurrections and other political action.
2. Conflicting reports which attempt to forecast the unforecastable, such as self-interest reports issued by governments, pressure groups, or members of the securities industry, commenting on or countering longer-term economic forecasts.
3. Reports which are simply ill-conceived, such as much market commentary in daily newspapers and predictions widely disseminated by individuals based on a priori judgements catering to the herd instinct.
   

Recommended Reading
	Elliott Wave Principle Robert Prechter and A.J. Frost's groundbreaking investment classic hailed by reviewers as "the definitive textbook on the Wave Principle." It's the most useful and comprehensive guide to understanding and applying the Elliott Wave Principle. More info ...
	Leonard of Pisa by Joseph and Frances Gies A wonderful book about Leonardo Fibonacci's rediscovery of the Golden Ratio in the 13th century. Includes Fibonacci's own math problems, and quaint woodcut illustrations. (Softback, 128 pp). More info ...
	Spiral Calendar by Christopher Carolan A once in a generation analytical breakthrough, and an instant investment best seller. The Spiral Calendar reveals one of the most exciting market forecasting discoveries of our time. (Large Format Hardback, 158 pp). More Info ...
	RN Elliott's Masterworks edited by Robert R. Prechter, Jr. Presents three ground-breaking works in which Elliott first described his discoveries to the world, plus a detailed biography, rare photos and more. (Hardback, 308 pp). More Info ...
	RN Elliott's Market Letters (1938-1946) edited by Robert R. Prechter, Jr. Real-time analysis and market forecasts from the master, with many essays on the applications of the Wave Principle. The letters and essays are extensively footnoted and cross-referenced by Robert Prechter. (Hardback, 234 pp). More Info ...

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