Time: Tue Jul 22 12:04:09 1997
	by primenet.com (8.8.5/8.8.5) with ESMTP id MAA18743
	for [address in tool bar]; Tue, 22 Jul 1997 12:04:28 -0700 (MST)
	by usr01.primenet.com (8.8.5/8.8.5) with SMTP id LAA06590;
	Tue, 22 Jul 1997 11:53:10 -0700 (MST)
Date: Tue, 22 Jul 1997 11:52:40 -0700
To: (Recipient list suppressed)
From: Paul Andrew Mitchell [address in tool bar]
Subject: SLS: Inefficient Market Hypothesis (fwd)

>----------------------------Original message----------------------------
>Date:     Tue, 22 Jul 97 00:56:52 EDT
>From:     Stock Market Update Page <http://www.ucc.uconn.edu/~jpa94001/>
>Subject:  Inefficient Market Hypothesis
>        To read the following article with related hyperlinks,
>                     go to the following location:
>               http://nw3.nai.net/~virtual/sot/j11.html
>                              By J. Adams
>                       Revised Edition: 7/21/97
>                          (Original: 2/25/95)
>    Recently the Dow Jones Industrial Average (DJIA) reached  an  all-
>time  high  just above the psychologically important 8000 mark and has
>since started a significant reversal.  Based upon  past  stock  market
>behavior, there is reason to believe that a "Grand Supercycle" top has
>been reached and the worst crash in history is now at hand. This crash
>involves  a total upset of irrational popular beliefs and expectations
>and, in particularly, the worldview of economists.
>    According to mainstream economists,  greed,  in effect,  is  good.
>Reigning  theory holds that,  if individuals and organizations seek to
>maximize utility and profits,  respectively,  and there  is  "perfect"
>competition,  then,  as if guided by an invisible hand,  market prices
>and the overall economy  will  tend  toward  general  equilibrium  and
>maximum happiness for all in the long-run.  The reality,  however,  is
>that greed is not good,  and,  in the long-run,  it is leading to  the
>collapse  of  civilization  and  maximum unhappiness for all.  In this
>sense,  reigning economic theory constitutes a dangerous extraordinary
>popular delusion.
>    Stemming  from  pervasive greed and competition,  market societies
>such as our own historically suffer from general disequilibrium in the
>form of persistent price instability and  so-called  business  cycles.
>These  cycles involve swings between extreme optimism and pessimism in
>popular mood which,  in turn,  lead to the formation  of  irrationally
>high  and  low collective beliefs and expectations,  respectively.  On
>Wall Street,  irrational swings in prevailing expectations are readily
>observed  as general cycles in stock price movements commonly known as
>"bull" and "bear" markets.
>    Experienced  Wall  Street  professionals  have  learned  that  the
>general ups and downs in stock prices can be predicted using technical
>analysis. One effective approach is based upon a contrarian investment
>strategy  that  involves  "going against the crowd" (see David Dreman,
>'The New Contrarian Investment Strategy',  1982).  By paying attention
>to  "psychological indicators" like the put-to-call ratio and polls of
>investor sentiment ,  one can determine when extremes of optimism  and
>pessimism  are  being reached on Wall Street and time tops and bottoms
>accordingly (see Martin  Zweig's  'Winning  on  Wall  Street',  1986).
>Irrational extremes in consensus expectations are indirectly reflected
>in generally overvalued and undervalued stock prices at major tops and
>bottoms, respectively.  Thus, a contrarian investment strategy is also
>applied using indicators of relative historic valuation like price-to-
>earnings ratios and dividend yields (see Dreman's book  and/or  Norman
>Fosback's 'Stock Market Logic').
>    With  the recent all-time high above Dow 8000,  collective beliefs
>and expectations  reached  an  unprecedented  irrational  extreme.  In
>economics  and finance this irrationality is reflected in the reigning
>"Efficient Market" hypothesis of stock price  behavior.  According  to
>this   hypothesis,   in   the  aggregate,   investors  form  "rational
>expectations" of the future using all available information  including
>lessons  learned  from  past  mistakes.   Assuming  the  stock  market
>efficiently discounts investors' rational expectations,  stock  prices
>reflect   an   accurate  assessment  of  intrinsic  value  based  upon
>available, relevant information.  Consequently,  only new,  unexpected
>information  can  lead  to  a  price  change  (a  movemement of market
>equilibrium).  Thus,  stock market prices are  expected  to  follow  a
>random  walk  in  which  only  unpredictable,   random  shocks,  i.e.,
>unexpected news, moves prices up and down.
>    According to the weakest form of the Efficient Market  Hypothesis,
>stock  prices fully reflect the information implied by all prior price
>movements.  Price movements,  in effect,  are totally  independent  of
>previous  movements,  implying  the absence of any price patterns with
>prophetic significance;  investors should be  unable  to  profit  from
>studying charts of past prices.
>    Unfortunately,  the  Efficient  Market  Hypothesis,  like economic
>theory in general,  is,  for the most  part,  wrong.  While  pervasive
>evidence  of  irrational  swings  in investors' expectations mentioned
>above is sufficient for undermining the key  assumption  of  "rational
>expectations"  in  efficient  market theory,  a straightforward way to
>falsify the efficient market hypothesis is by making a  prediction  of
>the  future  direction  of  stock  prices  based upon historical price
>patterns in the Dow Jones Industrial Average.
>             -Psychological Barriers in the Stock Market-
>    When the DJIA reaches thousand marks, stock prices meet resistance
>and usually head substantially lower.  For example,  between 1966  and
>1982,  the  DJIA  reached  or slightly breached (by a few percent) the
>"Magic 1000" barrier on five separate occassions:  1966,  1968,  1973,
>1976  and 1981.  Following each peak around 1000 on the Dow there was,
>on average,  a decline in stock prices of 34.4 percent over the course
>of 17.2 months. Then, in 1982, the DJIA blasted through the Magic 1000
>barrier in a dramatic rally that marked the beginning of a bull market
>that many consider still in force today.  When the DJIA approached the
>2000 mark in 1986,  it ran into resistance for almost a year,  and  in
>early  1987  the  DJIA  broke  through 2000 in one of the most dynamic
>rallies (in terms of market volume and breadth) ever observed on  Wall
>Street.  In  1990,  the  DJIA  climbed to the 3000 level for the first
>time.  In mid-July,  the Dow closed two days in a row at what was then
>an all- time high of 2999.75 and subsequently entered a sharp,  three-
>month  correction  of  over  twenty  percent.  The  3000  barrier  was
>eventually breached in 1991 with,  again, a historically strong rally.
>The first time the Dow reached the 4000 mark was in January  of  1994.
>Specifically, the DJIA reached an intraday high of 3985 and registered
>a closing peak at 3978. Following this test of the 4000 barrier, stock
>prices  dropped  by  ten  percent and then struggled with Dow 4000 for
>about a year.  (See:  "Dow Industrials' Failure to Break 4000  Barrier
>Stiffens  Bears'  Doubts" in the Wall Street Journal,  9/19/94 & "Once
>Again,  Industrials Close In on  4000  Barrier"  in  the  Wall  Street
>Journal,  2/6/95.)  In  November of 1995,  the DJIA ran up to the 5000
>mark for the first time and then briefly retreated  by  five  percent.
>Next, after soaring through 6000 last year, the DJIA reached above the
>7000  mark  for the first time in February of this year.  The Dow then
>retreated to 6300 into April,  the first ten percent correction  since
>the index tested the 4000 mark in 1994.
>    The most recent psychologically important thousand mark reached in
>the  DJIA  is  Dow  8000.  Last week the DJIA broke above 8000 for the
>first time in history and then reversed sharply.  What seems  to  have
>occurred  is a euphoric top at 8000 similar to the peak in the DJIA at
>3000 in 1990.  Indeed,  it was on July 16th and 17th of 1990 when  the
>Dow  closed at a then record peak of 2999.75,  and it was on July 16th
>and 17th of last week that the Dow closed above the 8000 mark for  the
>first time in history and then fell back below 8000.  Based upon prior
>price  declines  following  peaks   at   or   above   thousand   level
>psychological  barriers  in  the  DJIA,  one  should expect at least a
>thirty percent drop in stock prices over the next year or so.
>               -The Dow Theory of Stock Price Movements-
>    Based upon "Dow Theory",  one can be a little more confident  that
>the  DJIA is currently entering a major bear market in the wake of the
>Dow's peak above the psychologically important 8000 mark.  Dow  Theory
>holds  that,  if  the Dow Jones Industrial Average reaches an all-time
>high when other major market averages do not make all-time highs, then
>there is a "non-confirmation" and one  should  expect  a  major  price
>decline and sell their stock holdings (the actual buy- and sell-signal
>is  a little more involved then that,  but "non-confirmations" are the
>key prerequisite for such signals).  If,  between 1897  and  1981,  an
>investor  had  bought  and  sold  the stocks in the DJIA with each Dow
>Theory buy signal and sell signal, respectively,  then they would have
>achieved  a  return  almost  nineteen  times that attained from simply
>buying and holding (see Martin Pring's 'Technical Analysis  Explained'
>(1985), p.21).
>    A  textbook  example of Dow Theory non-confirmations occurred when
>the DJIA peaked at 3000 in July of 1990. The Utilities reached an all-
>time high in 1988 and the Transports topped-out  in  August  of  1989.
>With  the  record  closing peak in the Industrials at 2999.75 in 1990,
>the Utilities and Transportation indexes were no where near new highs.
>Thus,  soon after that a sell signal  was  registered  that  correctly
>anticipated a twenty percent decline in stock prices.
>    With  the  recent  all-time  high  reached in the DJIA above 8000,
>there was another non-confirmation indicating  a  future  sell-signal.
>The Utilities last reached an all-time high in October of 1993.  Thus,
>when the Industrials reached an all-time high last  week  above  8000,
>the  record  peak  was not confirmed by a record high in the Utilities
>meaning that a Dow Theory sell-signal could occur  which  historically
>has  been followed by a major decline in stock prices.  (Notably,  the
>peak in the  Industrials  WAS  confirmed  by  a  record  high  in  the
>Transportation  average,  suggesting the final peak may still not have
>         -The Elliott Wave Principle of Stock Price Movements-
>    The potential scale of a future decline in stock prices  following
>the recent reveral from Dow 8000 and a Dow Theory non-confirmation can
>be  predicted  with  the  Elliott  Wave  Principle.  The  Elliott Wave
>Principle holds that stock prices  move  in  repeating,  fractal-based
>wave  patterns.  Based  upon  these  patterns,  Robert  Prechter,  the
>'Elliott Wave Theorist', predicted in the late-1970's and early-1980's
>that a major bull market in stocks was due that would carry  the  DJIA
>to  a  "Grand Supercycle" top which has been at least 200 years in the
>making.  Following the final peak, Prechter warned the 'worst crash in
>U.S. history' would occur.
>    Even  though  the  bull  market  has  lasted  longer than Prechter
>expected and the DJIA  has  gone  higher  than  first  projected,  the
>indication  is  that  the  final  high  has  now  been  reached.   One
>interpretation is that the huge Grand Supercycle rising  wave  pattern
>is  completing  with  a final "fifth wave breakout" above a Supercycle
>upper channel line which has been marking key  Elliott  Wave  tops  in
>stock prices since 1937.  This upper channel line,  which was breached
>when the S&P climbed above 700 last year, can be seen on a logarithmic
>chart of the S&P by drawing a line through the key 1937 peak, the 1966
>peak and current highs in the S&P.  As the  Wave  Principle  predicts,
>this  Supercycle  upper channel is parallel a lower trendline that can
>be drawn through the 1942 low, the 1974 bottom and the 1982 low.
>    One of the main reasons to believe the Grand Supercycle  peak  has
>been  reached  above the Supercycle upper channel line and Dow 8000 is
>because the current high point in stock prices is  coinciding  with  a
>major planetary alignment.  Each of the Elliott Wave turning points at
>the Supercycle upper and lower channel lines listed above, i.e., 1937,
>1942, 1966, 1974 and 1982,  occurred around the time of rare planetary
>alignments.  This  pattern  is  repeating  now  as  the current top is
>coinciding with another major planetary alignment.
>    If,  indeed,  we are currently around the Grand Supercycle peak in
>stock  prices  above  the  Supercycle upper channel line and Dow 8000,
>then an historically unprecedented crash is near.  Given the scale  of
>the relevant wave patterns, this crash would be the opening phase of a
>bear  market  for  stocks  that  could  last  upwards of a century and
>involve a 99% decline in the DJIA.
>                -An Inefficient Market Hypothesis Test-
>    All in all,  the implication of historical price patterns  in  the
>stock  market  is  that  the worst crash and bear market in history is
>getting underway following the peak recently reached above  Dow  8000.
>Based  upon  psychological  barriers  in  the DJIA,  a Dow Theory non-
>confirmation, the Elliott Wave Principle and astroharmonics,  there is
>substantial  reason to believe that a major,  unprecedented decline in
>stock prices has just begun.
>    If the expected  decline  occurs,  then  this  will  significantly
>falsify   the  Efficient  Market  Hypothesis  and  undermine  reigning
>economic  theory.  Furthermore,  the  collapse  will  demonstrate  the
>inefficiency  of  markets  and how greed and competition result in the
>worst of all possible worlds  in  the  long-run.  Thus,  faith  in  an
>imaginal invisible hand is a dangerous mistake.
>    While   the   anticipated   crash  will  upset  the  worldview  of
>economists,  it also implies an upset of prevailing popular  opinions.
>Indeed,  since  general  swings in stock prices reflect swings in mass
>mood  between  irrationally  optimistic  and  pessimistic   collective
>beliefs  and  expectations,   the  recent  unprecedented  peak  likely
>involves the worst popular  delusions  imaginable.  Indeed,  one  such
>delusion  is  that a "New World Order" of East/West peace,  friendship
>and cooperation is at hand, when, in fact, there is substantial reason
>to expect a new world disorder and global war .  While the approaching
>war  will upset popular expectations and surprise the modern "secular"
>world, it shall fulfill biblical prophecy and thereby verify religious
>truth and the wisdom of faith in God.
>-> Send "subscribe   snetnews " to majordomo@world.std.com
>->  Posted by: Stock Market Update <JPA94001@UConnVM.UConn.Edu>

Paul Andrew Mitchell                 : Counselor at Law, federal witness
B.A., Political Science, UCLA;  M.S., Public Administration, U.C. Irvine

tel:     (520) 320-1514: machine; fax: (520) 320-1256: 24-hour/day-night
email:   [address in tool bar]       : using Eudora Pro 3.0.3 on 586 CPU
website: http://www.supremelaw.com   : visit the Supreme Law Library now
ship to: c/o 2509 N. Campbell, #1776 : this is free speech,  at its best
             Tucson, Arizona state   : state zone,  not the federal zone
             Postal Zone 85719/tdc   : USPS delays first class  w/o this

As agents of the Most High, we came here to establish justice.  We shall
not leave, until our mission is accomplished and justice reigns eternal.
[This text formatted on-screen in Courier 11, non-proportional spacing.]


Return to Table of Contents for

Supreme Law School:   E-mail