More Evidence Of Stock Market Tidal Flows

If you read mainstream reports, they are distilled to make the public believe that stocks are "fundamentally" driven.

Yet squaring "fundamentals" with market actions would seem like describing circle as square--they simply won't fit!

Instead, we've been asserting that inflationism and inflation psychology has been the major forces behind the gyrations of stock market pricing.

I've called this the Machlup-Livermore model. A model which combines the empirical accounts of the legendary trader Jesse Livermore, who deals with market psychology, and the theoretical insights of inflation from economist Fritz Machlup.

The recent episode of stock market corrections abroad seem to strengthen our case.

According to Bespoke Invest (chart courtesy of Bespoke too),

``Today's drop to new correction lows has once again put the percentage of stocks in the S&P 500 below the 10% level (currently 7%). Prior pullbacks during the runup from the March 2009 lows only saw declines in this indicator to around 20-25%, and they didn't stay down there long. The current correction has seen the indicator remain in the single digits and teens for some time, and the bounce we got two weeks ago didn't take the indicator back above the 50% level. Clearly we're in a period that's testing the resolve of bulls, and multiple days like today cause more and more bulls to throw in the towel."

In short, most stocks move in the general direction of the market, which hardly accounts for micro-"fundamentals".