The stock market has been described before as a game of numbers. Prices of stocks and commodities fluctuate based on supply and demand. If a drought destroy acres and acres of wheat, that is less wheat that will go onto the market. If the effect is large enough, investors may begin to buy wheat futures anticipating the rising wheat prices from future demand and lower supply. This is true for stocks as well. If some news or event impacts the mindset of stock holders of a particular company, collectively their actions could be enough to drive the stock in a certain direction. Some investors may believe the rise in wheat prices will mean a potential squeeze on restaurant's profits, due to higher cost of supplies for wheat, flour, grains, etc.. This could result in restaurant stocks being sold off and the prices falling. The smart money managers want to be ahead of the curve. They want to operate in the future based on their analysis and judgment of an investing move. Some may even watch for the fall of these type of stocks and decide they may look like a good short sale. Whichever direction these stocks move and the trades go, there are only three possible directions: Up, Down, and Horizontal. That means stocks will be moving in those directions at some point. Trying to locate a cycle or pattern is important in seeing the whether rises are upward trends, or simply an upward movement of a stock trading in a range.
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