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mercredi 10 juin 2020

Massive Quantitative Easing Will Corrupt the Economy

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Why You Should Pay Attention to This Time-Tested Indicator

Why You Should Pay Attention to This Time-Tested Indicator Now
"How High Can Markets Go?" -- asks this magazine cover

By Elliott Wave International

Paul Montgomery's Magazine Cover Indicator postulates that by the time a financial asset makes it to the cover of a well-known news weekly, the existing trend has been going on for so long that it's getting close to a reversal.

A classic case in point is this Time magazine cover from June 13, 2005:

As you can see, it says, "Home $weet Home," followed by "Why we're going gaga over real estate."

Interestingly, this was published around the time that the S&P Supercomposite Homebuilding index was peaking. The housing bubble of that time was on the verge of bursting, and you'll likely remember that major crash.

Fast forward and here's what was shown on the March 2 -- 8, 2024 Economist cover:

As a large cluster of balloons carries a bull upward, it asks, "How High Can Markets Go?"

The March Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets, said:

It is a bearish signal for stocks. ... In the context of the multitude of other sentiment extremes ..., as well as a fully mature wave pattern, we think this cover is meaningful.

Just a few weeks after that was published, the Dow Industrials hit a high of 39,889 on March 21. The NASDAQ indexes also topped on that date.

As you probably know, the stock market has trended lower since. Only time will tell if the downward turn morphs into a major bear market.

Also know, from a technical analysis point of view, that the price pattern of the Dow Industrials is also sending a major message.

If you're unfamiliar with Elliott wave price patterns, read Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here's a quote from the book:

Although it is the best forecasting tool in existence, the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. Nevertheless, that description does impart an immense amount of knowledge about the market's position within the behavioral continuum and therefore about its probable ensuing path. The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market's general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.

Here's the good news: If you'd like to read the entire online version of Elliott Wave Principle: Key to Market Behavior," you can get complimentary access by following this link: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Why You Should Pay Attention to This Time-Tested Indicator Now. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Magnificent Seven

S&P 500: Heard About Those "Magnificent 7" Stocks?
Here's how remarkably skewed stock market leadership has been

By Elliott Wave International

You may find it hard to believe, but just seven stocks have been holding the stock market up -- at least, mainly.

You may have heard their names a time or two: They are Meta (Facebook), Apple, Amazon, Alphabet (Google), Microsoft, Nvidia and Tesla -- now known as the "Magnificent Seven."

We've been keeping an eye on them for a while. Just to give you a progression of our coverage, let's start with this chart and commentary from the July 2023 Elliott Wave Theorist, which has covered major financial and cultural trends monthly since 1979:

[The chart] shows how skewed the leadership has been. Just 7 stocks account for nearly the entire gain of the S&P Composite index of 500 stocks for 2023, never mind how much they dominated the NASDAQ indexes.

The October Elliott Wave Financial Forecast, a monthly publication which focuses on key U.S. financial markets, offered this updated perspective:

Just seven tech-focused stocks ... known as the Magnificent Seven, are responsible for nearly the entire year-to-date change in the capitalization-weighted S&P 500. The "other" 493 stocks in the index have contributed less than 1% to the S&P's change this year.

The persistent enthusiasm for those well-known big-cap tech names is captured in this September headline (Marketwatch, Sept. 16):

Here's an Easy Way to Make a More Concentrated Play on the 'Magnificent Seven' Stocks

This is also a perfect example of crowd behavior.

Elliott Wave International's coverage of these seven stocks continued with this update from the Nov. 22 U.S. Short Term Update, which provides near-term forecasts for major U.S. financial markets thrice weekly:

The top line on this chart from Bloomberg shows the percentage change in 2023 in the market cap of the Magnificent Seven: Apple, Microsoft, Alphabet (Google), Amazon, Meta (Facebook), Tesla and Nvidia. The bottom line on the chart shows the percentage change in the market cap of the Bloomberg 500, an index similar to the S&P 500, excluding the market cap of the Magnificent Seven. Were it not for seven stocks, the market cap increase in the Bloomberg 500 would be less than the return on short term U.S. T-bills. ... There has never been such a high weighting in the S&P in such a few number of companies.

When investors finally turn sour on these seven stocks, expect the S&P to plunge.

When might that happen, and how do you know the signs to look for?

Just know that Elliott waves directly reflect the repetitive patterns of crowd behavior, and these recognizable patterns can help you anticipate major market turns.

If you're unfamiliar with Elliott waves or need a refresher, read Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here's a quote from that book:

After you have acquired an Elliott "touch," it will be forever with you, just as a child who learns to ride a bicycle never forgets. Thereafter, catching a turn becomes a fairly common experience and not really too difficult. Furthermore, by giving you a feeling of confidence as to where you are in the progress of the market, a knowledge of Elliott can prepare you psychologically for the fluctuating nature of price movement and free you from sharing the widely practiced analytical error of forever projecting today's trends linearly into the future.

You can get free access to the online version of Elliott Wave Principle: Key to Market Behavior by becoming a Club EWI member. Club EWI is the world's largest Elliott wave educational community and it's free to join. A big benefit of Club EWI membership is that you get instant access to a wealth of Elliott wave resources on financial markets, trading and investing without any obligations.

Follow this link to get the ball rolling: Elliott Wave Principle: Key to Market Behavior -- free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline S&P 500: Heard About Those "Magnificent 7" Stocks?. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Interest Rates: From 0% to Above 5% -- to ...?
"The lines in the chart will turn up, and no policy will stop it"

By Elliott Wave International

As you're probably aware, many people who want to borrow to make a major purchase like a house or a car are bemoaning higher interest rates.

It wasn't so long ago that 3-month T-bill rates were around zero, and at least one prominent figure at the Federal Reserve said rates needed to stay super low for a good while.

Indeed, let's go back to this June 18, 2021 headline (CNBC):

Fed's Kashkari opposed to rate hikes at least through 2023

Well, as Elliott Wave International has said time and again, the market determines the trend of bond yields (and interest rates), not the Fed. The Fed merely follows the bond market.

Nearly a month after that Fed official called for a continuation of very low rates, the July 13, 2021 Elliott Wave Theorist offered its own perspective via this chart and commentary (The Elliott Wave Theorist is a monthly publication which provides insights into major financial and social trends):

Rates at Zero, but Not for Long

[The chart] shows that U.S. Treasury bill rates have edged closer and closer to zero .... Nonexistent T-bill yields are due to one thing: historically elevated social mood. ... When optimism and complacency finally melt like popsicles in the sun, the lines in [the chart] will turn up, and no policy will stop it.

Fast forward to the just-published August 2023 Elliott Wave Theorist, which provides an update on that July 2021 call with this chart:

As you can see, since our forecast, the 3-month T-bill rates have climbed from around zero to north of 5%. The black arrow points to the juncture at which the July 2021 Theorist made that noteworthy forecast. Mind you, Elliott Wave International was almost alone in making such a call.

Is the rise in interest rates over?

Well, at least one observer says "no." This Aug. 18 Fox Business caption captures the view of a contributor to a news and opinion website:

[Financial and economics editor]: Interest rates will go higher than Americans think

This is in stark contrast to a recent Reuters poll of economists, the majority of whom say that interest rates have plateaued.

Who's right?

You may want to check out a chart of bond yields and its Elliott wave structure.

If you're unfamiliar with Elliott wave analysis, read Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here's a quote from the book:

Without Elliott, there appear to be an infinite number of possibilities for market action. What the Wave Principle provides is a means of first limiting the possibilities and then ordering the relative probabilities of possible future market paths. Elliott's highly specific rules reduce the number of valid alternatives to a minimum.

If you'd like to find out about "Elliott's highly specific rules," you can do so by reading the online version of Elliott Wave Principle: Key to Market Behavior for free.

That's right -- Elliott Wave International has made this definitive text on Elliott wave analysis available to Club EWI members for free. A Club EWI membership is also free and members enjoy free access to a wealth of Elliott wave educational resources.

Join the approximately 500,000 Club EWI members who are already gaining insights into trading and investing from an Elliott wave perspective by following this link: Elliott Wave Principle: Key to Market Behavior(get free access now).

This article was syndicated by Elliott Wave International and was originally published under the headline Interest Rates: From 0% to Above 5% -- to ...?. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Tech Stocks and the Dot-com "Echo"

Tech Stocks and the Dot-com "Echo"
"Downside surprises should become the norm"

By Elliott Wave International

The Wave Principle's basic pattern includes five waves in the direction of the larger trend, followed by three corrective waves, as illustrated in both bull and bear markets below:

You probably recall the bursting of the dot-com bubble when the tech-heavy Nasdaq 100 plummeted 78% between March 2000 and October 2002.

In recent months, a slew of financial articles compares today's "tech wreck" to that dot-com crash of about 20 years ago.

Here are just a couple of sample headlines:

'Tech wreck' looks more like another dotcom bubble bursting (March 9, The Financial Times)
It's looking a lot like the dot-com crash again. ... (May 22, Fortune)

It's been said that history may not repeat exactly but it does often rhyme. And the current downturn in many tech names does remind of that dot-com bubble.

You may be interested in knowing that our Global Market Perspective, a monthly Elliott Wave International publication which covers 50-plus worldwide financial markets, provided this prescient warning as far back as November 2020:

Big tech is transitioning from a bull market to a bear market at a high degree of trend, so downside surprises should become the norm.

Price shocks across the tech sector began almost immediately after that analysis.

Here's the latest from our June 2022 Global Market Perspective:

French IT company Atos dropped 12% on January 7, 2021, and investors have sold the stock relentlessly ever since. Sweden's Spotify, the world's largest music streaming service, peaked in February 2021 and fell 70% to its current level. Switzerland's Logitech (computer peripherals) and Germany's Infineon Technologies (semiconductors) held up a bit longer, but the companies' bear-to-date losses have piled up to 50% and 36%, respectively.

So, yes, the current trend in the tech sector does rhyme with the dot-com bust -- or, call it an "echo." Here's more analysis from the June Global Market Perspective:

It took until November 2021 for the broader technology complex to reverse. The Stoxx 600 Technology Index peaked after failing to surpass its top from the dot-com mania, and, at this point, the "echo bubble" is producing a host of air pockets, flash crashes and general market disturbances.

Here's what you need to know: In addition to the European tech sector, our Global Market Perspective offers insights into U.S. and Asian-Pacific tech names and indexes.

You'll also find Elliott wave analysis of other stock market indexes, cryptocurrencies, forex, bonds, crude oil, gold, silver – all in all, more than 50 worldwide financial markets.

If you’re new to Elliott wave analysis or need a refresher, an ideal book to read is Frost & Prechter’s Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the Wall Street classic:

Although it is the best forecasting tool in existence, the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. Nevertheless, that description does impart an immense amount of knowledge about the market’s position within the behavioral continuum and therefore about its probable ensuing path. The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market’s general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable. Many areas of mass human activity display the Wave Principle, but it is most popularly used in the stock market.

Here’s good news: You can read the entire online version of the book for free once you become a member of Club EWI, the world’s largest Elliott wave educational community.

A Club EWI membership is free and opens the door to instant access to a treasure trove of Elliott wave resources on investing and trading – all without obligation and 100% free.

Get started right away by following this link: Elliott Wave Principle: Key to Market Behavior – free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline Tech Stocks and the Dot-com "Echo". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

This is "Anything but Positive for Housing"
Has the rise in mortgage rates only begun?

By Elliott Wave International

A tug-of-war between bullish and bearish forces appears to be playing out in the U.S. housing market.

On the one hand, some areas of the country are still experiencing record-high home prices as buyers outnumber sellers.

On the other, the number of home sellers who dropped their asking price spiked to a six-month high of 15% during a four-week period ending on May 1, according to a Redfin report released on May 6.

Another development that falls in the bearish category for residential real estate is rising mortgage rates.

Here's what the April Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets, noted as it showed this chart:

The rising interest-rate story is anything but positive for housing. This chart shows a surge in the cost of financing a home. Over the last 15 months, the Freddie Mac 30-year mortgage rate rose from a record low 2.65% to 4.67%, a 76% increase. ... As the chart title suggests, mortgage rates have much higher to go.

In fact, about a month after that commentary published, a May 9 Fox Business news item said:

The 30-year fixed-rate mortgage surged to 5.27% annual percentage rate (APR) for the week ending May 5, 2022, according to Freddie Mac. ...

That's the highest 30-year fixed mortgage rate since 2009.

As the Campbell Real Estate Timing Letter noted (May 15):

In April 2022, a $1,000 principal and interest mortgage payment currently affords a loan that is 30% smaller than at the beginning of 2021.

Now, let's mention another bearish factor for U.S. housing -- and that's the action of the stock market.

You see, the stock and real estate markets tend to be highly correlated. They may not be in perfect synchronization, but generally, they both tend to rise and fall together.

And, as you probably know, the Dow Industrials and S&P 500 index have been in a downtrend since January.

Now is the time to pay close attention to the Elliott wave structure of the stock market, which, as mentioned, can help you get a handle on the housing market.

If you need a refresher on Elliott wave analysis, or are entirely new to the topic, you are encouraged to read Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here's a quote from the book:

In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or "waves," that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.

Although it is the best forecasting tool in existence, the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. Nevertheless, that description does impart an immense amount of knowledge about the market's position within the behavioral continuum and therefore about its probable ensuing path. The primary value of the Wave Principle is that it provides a context for market analysis.

You can learn more about the Wave Principle by reading the entire online version of the book for free!

All that's required for free access is a Club EWI membership.

Club EWI is the world's largest Elliott wave educational community and is free to join.

You may be interested in knowing that Club EWI members enjoy complimentary access to a wealth of Elliott wave resources on investing and trading with zero obligations.

Just follow this link to get started: Elliott Wave Principle: Key to Market Behavior -- free, unlimited and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline This is "Anything but Positive for Housing". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling

By Elliott Wave International

The world of cryptos includes something known as non-fungible tokens, which go by the acronym NFTs.

If you're unfamiliar with them, they're a bit bizarre but quite simple. Here's what the April Global Market Perspective, a monthly Elliott Wave International publication which covers 50+ worldwide financial markets, noted:

Investors' manic behavior has expanded to include non-fungible tokens, paying large sums of money for essentially a picture of something.

Getting more detailed, "a non-fungible token is a unique identification code that is affixed to a [digital] asset using blockchain to distinguish it from all other [digital] assets."

The April Global Market Perspective provided more insight with this chart and commentary:

The chart shows the performance of one of the most unseasoned of all collectibles, the non-fungible token (NFT), which first hit the market in December 2017. ... In addition to rocketing prices, NFTs surged into the culture at large with tokens tied to everything from basketball and football players to Passover and a Saturday Night Live skit. Capping the rage is a "digital collage" of bizarre, post-apocalyptic images called Everyday, which sold for $69.3 million through Christie's on March 10.

Well, the NFT craziness has persisted, as the May Global Market Perspective followed up by showing this NFT and saying:

Apparently, NFTs are still a thing. Paris Hilton, who is famous for being famous, garnered a bid of $1,111,211.00 for this Iconic Crypto Queen token on [April 25]. The absurdity of it all is not lost on everyone. "Each market frenzy seems crazier than the last," says MarketWatch.

As for one of the latest developments, on June 10, Barron's showed this image under the headline:

'Covid Alien' CryptoPunk Sells for $11.75 million in Sotheby's Sale

The reason for pointing out investors' interest in non-fungible tokens is to emphasize the level of financial mania that has been reached.

The monthly Global Market Perspective employs Elliott wave analysis to forecast what's next for cryptos, global stock markets, rates, metals, energy, forex and much more.

If you'd like to learn how the Wave Principle can help you analyze financial markets, you are encouraged to read Frost & Prechter's Wall Street classic book, Elliott Wave Principle: Key to Market Behavior. Here's a quote from the book:

In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or "waves," that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.

Although it is the best forecasting tool in existence, the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. Nevertheless, that description does impart an immense amount of knowledge about the market's position within the behavioral continuum and therefore about its probable ensuing path. The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market's general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.

Good news! You can read the entirety of the online version of the book for free!

All that's required for free access to Elliott Wave Principle: Key to Market Behavior is a free Club EWI membership. Club EWI members enjoy free access to a wealth of Elliott wave resources on investing and trading.

Just follow this link and you can have the online version of this Wall Street classic on your computer screen in moments: Elliott Wave Principle: Key to Market Behavior -- free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Gold / Silver: What This "Large Non-Confirmation" May Mean

By Elliott Wave International

When a trend is strong, related markets tend to move in unison.

However, when a trend is near exhaustion -- either bullish or bearish, "non-confirmations" often occur. This is when one market continues to rise (or fall), but a related market does not.

As a case in point, the Feb. 3 U.S. Short Term Update, an Elliott Wave International thrice weekly publication which provides near-term forecasts for major U.S. financial markets, discussed the details of a non-confirmation between the price action of gold and silver. Here's a chart and commentary:

[Silver] plunged nearly 13% in a matter of ten hours from Monday night to Tuesday morning. The sketchy new stories of an impending "short squeeze" for silver prices were bogus. As we showed in Monday's Update, speculators are net-long a third of all open interest in silver, not net-short as some have erroneously reported.... The push to $30.09, Monday night's high, [was a] move not confirmed by gold, creating a large 5½-month non-confirmation. Fractured trends are often unsustainable.

Making portfolio decisions based on "sketchy news stories" can get speculators into hot water.

As Bloomberg reported on Feb. 2:

A single block of $30 June calls in iShares Silver Trust (SLV) sold for $3.4 million on January 28. Yesterday the same block was worth about $1.2 million.

Keeping your eye on a financial market's Elliott wave pattern can help you avoid such financial missteps.

That doesn't mean that the Elliott wave model can foretell the future to a "T," however, here's an insight worth knowing from the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter:

Although it is the best forecasting tool in existence, the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. Nevertheless, that description does impart an immense amount of knowledge about the market's position within the behavioral continuum and therefore about its probable ensuing path.

We've already learned that a non-confirmation suggests a trend turn is ahead.

Now, learn how Elliott wave analysis can provide you with even more precision for spotting key junctures in the chart patterns of the financial markets in which you are interested.

You can do so by reading the entirety of the online version of Elliott Wave Principle: Key to Market Behavior for free!

Free access to the book becomes instantly available to you after you join Club EWI, the world’s largest Elliott wave educational community (approximately 350,000 worldwide members).

Don’t worry about the cost of joining because Club EWI membership is 100% free and allows you free access to a treasure trove of Elliott wave insights into financial markets, trading and investing.

Following this link gets you started:

Elliott Wave Principle: Key to Market Behavior– free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Gold / Silver: What This "Large Non-Confirmation" May Mean. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Stock Market: Why You Should Prepare for a Jump in Volatility
This volatility indicator "has made a series of higher lows" -- and it's not a good sign

By Elliott Wave International

Stock market volatility is like a roller-coaster ride -- extreme ups and downs.

However, unlike thrill-seeking roller-coaster riders who often rise from their seats after the ride with a smile, investors often exit with a frown.

That's because extreme volatility after a stock rally often ends with prices much lower.

Having said that, many investors -- even professionals -- do not anticipate a jump in volatility right now.

Indeed, the San Diego Union-Tribune asked the senior principal of a financial advisory firm on Jan. 15:

Will 2021 be a volatile year for the stock market?

He replied:

NO: If 2020 had not been a volatile stock year -- what with the pandemic, recession, elections, and riots -- then it is reasonable to expect that 2021 should be relatively stable.

Yet, a key stock market indicator is revealing.

Here are insights from the Jan. 15 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which provides near-term forecasts for major U.S. financial markets:

The chart shows the DJIA in the top graph and the CBOE Volatility Index (VIX) in the bottom graph. We've inverted the scale of the VIX so it aligns with stock prices. This index measures investors' expectations for market volatility for the coming 30 days. Most of the time, the VIX trends and reverses with stocks. When the behavior changes, it's time to watch both stocks and the VIX closely. The most recent intraday low in the VIX occurred at 19.51 on November 27. Since then, the DJIA has made a series of higher highs while the VIX has made a series of higher lows. This divergence is denoted with a red trendline on the chart.

The Jan. 15 U.S. Short Term Update goes on to describe a "clue" in spotting when volatility might start to spike.

Moreover, subscribers are provided with the Elliott wave labeling of the DJIA, which provides even more precision in ascertaining when to expect a change of character in the market.

Right now, you can read EWI’s U.S. market analysis FREE inside the State of the U.S. Markets FreePass event.

Now through February 3, you’ll see what Elliott waves show next for U.S. stocks, U.S. Treasuries, the U.S. dollar, gold and more

Follow the link to see everything that’s included and join now: State of the U.S. Markets FreePass.

Margin: How Stock Market Investors Are "Reaching for the Stars"
"This is the highest ratio in the 20-year history of the data."

By Elliott Wave International

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A Global "Debt Mountain": Beware of This "New Peak"
Prepare now for a situation that is "building to an epic finale"

By Elliott Wave International

Most people going about their daily business probably never give a moment's thought to global debt.

But, in EWI's view, the topic deserves serious attention.

You only have to think back to the 2007-2009 subprime mortgage meltdown to know why. Of course, subprime mortgages are a form of debt, and when many of these loans turned sour, the entire global financial system teetered on the brink of collapse.

But, why were so many of these bad loans made in the first place? It boils down to one word: confidence ... confidence that the loans would be repaid, confidence that the stock market would continue to rally, confidence in the economy and confidence in the future, in general.

In the years following the 2007-2009 global financial crisis, that confidence has returned in spades.

A global "debt mountain" has hit a new peak.

Here's a chart and commentary from our just-published November Global Market Perspective:

Whether or not countries can service their debt will be the defining economic question of the coming decade. ... For now, mood remains positive, so the world remains awash in IOUs and governments still retain the ability to add more. ... Across the world, advanced economies have seen their collective debt-to-GDP ratios push past levels last seen at the end of World War II. The situation is building to an epic finale. ...

The 2020 edition of Robert Prechter's Conquer the Crash discusses unsustainable debt levels:

The ability of the financial system to sustain increasing levels of credit rests upon a vibrant economy. At some point, a rising debt level requires so much energy to sustain -- in terms of meeting interest payments, monitoring credit ratings, chasing delinquent borrowers and writing off bad loans -- that it slows overall economic performance. A high-debt situation becomes unsustainable when the rate of economic growth falls beneath the prevailing rate of interest on money owed and creditors refuse to underwrite the interest payments with more credit.

Getting back to the 2007-2009 financial crisis, that alarming episode may have only been a preview of what's next.

It does appear that an "epic" deflation is likely.

Learn what you need to know by reading the special free report, "What You Need to Know Now About Protecting Yourself from Deflation."

Here's a quote:

Near the end of a major expansion, few creditors expect lots of default, which is why they lend freely to weak borrowers. Few borrowers expect their fortunes to change for the negative, which is why they borrow freely.

Deflation involves a substantial amount of bad debts because almost no one expects deflation before it starts. Surprise is a prerequisite of deflation.

However, you and your family can be prepared.

You can have Elliott Wave International's special free report on your computer screen in moments by following this link: "What You Need to Know Now About Protecting Yourself from Deflation."

This article was syndicated by Elliott Wave International and was originally published under the headline A Global "Debt Mountain": Beware of This "New Peak". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

How Elliott Waves Simplify Your Technical Analysis
Here's a key insight into Elliott waves and classic technical chart patterns

By Elliott Wave International

First, before we explore a key insight into Elliott waves and technical chart patterns, expect to see a growing number of comments about technical analysis in the financial press.

That is, if a bear market in stocks has started. (The rally over the past few days notwithstanding -- after all, stocks are still well off their highs for the year.)

As a classic Elliott Wave Theorist, a monthly publication which provides analysis of financial markets and social trends, says:

Technical analysis becomes popular in bear markets and loses popularity in bull markets.

For example, the country's first major books on technical analysis -- Technical Analysis and Stock Market Profits (Richard Schabacker) and The Dow Theory (Robert Rhea), were published in 1932. Of course, during that year, the nation was in the depths of a historic bear market.

Now, here in the closing weeks of 2020, some technical analysis references are already being made by some high-profile investment pros.

For example, on Oct. 27, a long-time and well-known global money manager was quoted in a CNBC headline:

Looks like a 'double top' in the S&P 500, [veteran] investor warns

On Oct. 30, Barron's warned:

A double top is bad news. It's a pattern in stock charts that forms after a security or index hits two highs close to one another with a dip in between. It looks like a capital letter M.

Of course, there are many other classic technical chart patterns, both bullish and bearish.

And, the key insight into how Elliott waves relate to these technical chart patterns is this: Elliott waves subsume all of them. This includes the head and shoulders top and bottom, rounding tops and bottoms, triangles, rectangle, double and triple tops and bottoms, diamond, falling and rising wedge, pennant, flag and any other valid technical chart pattern.

Let's pick out just one of them -- the head and shoulders top -- to show an example of how the Wave Principle accommodates classic technical patterns. The commentary is from an Elliott Wave Theorist:

In a normal wave development, wave five of 3 and wave 4 form the "left shoulder" of the pattern, wave 5 and wave A form the "head," and wave B and wave one of C form the "right shoulder." Wave two of C creates the return to the neckline that is typical of the pattern.

In another issue of the Theorist, Robert Prechter approached the subject this way:

Traditional technical-analysis stock patterns, Dow Theory and other descriptions of market form fall within the compass of the Elliott wave model. I think this is an important point, because the Wave Principle can consolidate technical analysis under a single model.

Now, even though the Wave Principle subsumes well-known patterns -- that doesn't mean a technically inclined investor should stop being on the lookout for these patterns.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

The Elliott Wave Principle not only supports the validity of chart analysis, but it can help the technician decide which formations are most likely of real significance.

If you want to learn more about the Wave Principle, you can read the online version of Elliott Wave Principle: Key to Market Behavior -- free.

That's right -- this Wall Street classic can be on your computer screen in moments right after you sign up for a Club EWI membership. Club EWI is the world's largest Elliott wave educational community with about 350,000 members and it's free to join. Members get free access to a wealth of Elliott wave insights into financial markets, trading and investing.

Simply follow this link to get started: Elliott Wave Principle: Key to Market Behavior -- free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline How Elliott Waves Simplify Your Technical Analysis. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Why the Market's "Faith in the Fed" May Be Dwindling Fast
A chart that could be "a proxy for the market's faith in the Fed" shows "a classic loss of momentum"

By Elliott Wave International

Legendary financier John Pierpont Morgan was -- for all practical purposes -- a one-man central bank before the Fed came into existence in 1913.

During the financial panic of 1907, the banking titan used his influence to provide bailouts for faltering financial institutions. And, back in 1895, he had actually loaned the federal government money during another crisis.

As the October Global Market Perspective, an Elliott Wave International monthly publication which covers 50-plus markets worldwide, noted:

The creation of the Fed had J.P. Morgan at its heart and, since then, the relationship has been very cozy (witness the Fed gifting J.P. Morgan Bear Stearns for a tenth of its value in 2008).

All of what's been said relates to this chart and commentary -- also from the October Global Market Perspective:

[The chart] shows the relative performance of J.P. Morgan to the U.S. banking sector. A very clear five-wave advance can be seen from 2002 with the fifth wave being shallower than the third, a classic loss of momentum as the impulse fades. This chart could be a proxy for the market's faith in the Fed. If that is so, the Fed's zenith is being crested right now.

Of course, the conventional wisdom has been that the Fed holds a lot of power over the economy and even the stock market.

The 2020 edition of Robert Prechter's Conquer the Crash calls this the "potent directors" fallacy. Here's a quote from the book:

It is nearly impossible to find a treatise on macroeconomics today that does not assert or assume that the Federal Reserve Board has learned to control the credit supply, interest rates, the rate of inflation and the economy. Many people believe that it also possesses immense power to manipulate the stock market.

The very idea that it can do these things is false. ...

Real economic growth in the U.S. was greater in the nineteenth century without a central bank than it [had] been in the twentieth century with one.

The U.S. has experienced numerous financial crises in its history.

Here in the waning weeks of 2020, the evidence suggests that the next one may be one of the most severe. This financial earthquake will likely shake the entire globe.

Prepare now.

Let's return to the 2020 edition of Conquer the Crash:

The discrepancy between the value of total debt outstanding and the value of its real underlying collateral is huge. It is anyone's guess how much of that gap ultimately will have to close to satisfy the credit markets in a deflationary depression. For our purposes, it is enough to say that the gap itself, and therefore the deflationary potential, has never been larger.

Now is the time to read Elliott Wave International's special free report: "What You Need to Know Now About Protecting Yourself from Deflation."

This article was syndicated by Elliott Wave International and was originally published under the headline Why the Market's "Faith in the Fed" May Be Dwindling Fast. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

What This Survey Reveals About Investor Sentiment
Swings in mass emotions tend "to follow a similar path each time around"

By Elliott Wave International

After a multi-month rally since the March low, many stock market investors remain optimistic.

Here are a sample of October headlines:

[Major bank] lays out 3 reasons why the stock market will continue to rise ... (Business Insider, Oct. 11)
'Get long' -- ... stocks higher no matter who wins election (CNBC, Oct. 12)
... Study Reveals Retail Investors Remain Bullish ... (businesswire.com, Oct. 14)
Big Money is Bullish ... (Money & Markets, Oct. 21)

This continued financial optimism is not surprising. Indeed, it's to be expected at this juncture in the stock market's trend.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

The progression of mass emotions from pessimism to optimism and back again tends to follow a similar path each time around, producing similar circumstances at corresponding points in the wave structure.

And, right now, it appears the current mass emotion of optimism has progressed to an extreme.

The Oct. 21 U.S. Short Term Update, a thrice-weekly Elliott Wave International publication which focuses on near-term forecasts for major U.S. financial markets, showed this chart and said:

This week's Investors Intelligence Advisors' Survey has pushed to 59.2% bulls, just shy of the September 1-2 extreme. The red arrows on the chart show the four prior instances since September 2018 when the II survey was at a similar level or slightly higher.

The Investors Intelligence Advisors' Survey doesn't mean that the stock market will make a dramatic turn on specific day in the near future. Market history repeats, but not exactly.

The best approach at this juncture is to keep a close eye on the market's unfolding wave structure.

Let's return to Elliott Wave Principle: Key to Market Behavior:

No matter what your convictions, it pays never to take your eyes off what is happening in the wave structure in real time. Ultimately, the market is the message, and a change in behavior can dictate a change in outlook. All one really needs to know at the time is whether to be long, short or out. ...

Would you like to have all of the book's content available to you -- free?

Well, Elliott Wave International has made that possible -- all that's required is a Club EWI signup, which is also free. Club EWI is the world's largest Elliott wave educational community with approximately 350,000 members (and growing). Members enjoy free access to a wealth of investing and trading insights from an Elliott wave perspective.

You can have the online version of this Wall Street classic on your computer screen in moments by following this link: Elliott Wave Principle: Key to Market Behavior -- free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline What This Survey Reveals About Investor Sentiment. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

How to Stay Ahead of Price Turns in the U.S. Long Bond
This method of analysis applies to any widely traded financial market

By Elliott Wave International

Back in August, the volatility index for Treasury debt was at an all-time low, indicating record commitment to the idea the markets would continue to calmly rise.

Indeed, here's a July 27 Bloomberg headline:

Bond Investors Are Getting Fresh Reasons to Stay Record Bullish

Bloomberg mentioned U.S.-China tensions as a reason that investors would seek a safe haven in bonds, hence, pushing prices higher.

Then, a week later (Aug. 3), Reuters quoted the co-head of global bonds for an asset management group:

"I think the downward pressure on yields will continue for the foreseeable future."

Of course, as you probably know, a "downward pressure on yields" correlates with higher bond prices. Yields and prices move inversely to each other.

But, it's best to look beyond "fundamentals," such as the chilly relationship between the U.S. and China, and focus on the price pattern of bonds.

That's what Elliott Wave International's Aug. 5 U.S. Short Term Update did (the U.S. Short Term Update is a thrice weekly publication which provides near-term analysis and forecasts for major U.S. financial markets). Here's a chart and commentary:

Last night, [U.S. Treasury long bond futures] met the wave ... high from April 21, with a rally to 183^00.0. Prices could modestly exceed this high, but the pattern does not require it.

In other words, the wave pattern suggested that the next move would be down, as indicated by the red arrow at the end of the price line.

Well, the long-bond high was reached the very next day (Aug. 6), and prices have been trending downward since.

Here's a chart from the Oct. 26 U.S. Short Term Update:

You can see that high notated on the chart and the subsequent slide. Since that slide began, prices have tumbled by about 5.5% (as of Oct. 26) -- and yields, they've been rising.

So, the way that investors can stay ahead of turns in the bond market is by using the Elliott wave model. This method works with any widely traded financial market.

Here's a glimpse into the Wave Principle from Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter:

The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market's general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.

Would you like to learn more about the Wave Principle?

If your answer is "yes," then you may be interested in knowing that the online version of Elliott Wave Principle: Key to Market Behavioris available to you free when you become a member of Club EWI, the world's largest Elliott wave educational community. Membership is free -- and you'll gain instant access to a wealth of valuable resources on investing and trading from an Elliott wave perspective once you join. Club EWI has about 350,000 members.

Gain instant, unlimited and free access to the Wall Street classic book by following this link: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline How to Stay Ahead of Price Turns in the U.S. Long Bond. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Do These Explanations Make Sense for This Intraday Stock Market Turn?
The market "is not propelled by ... external causality"

By Elliott Wave International

On Oct. 19, the DJIA had been trading higher for much of the morning, but by the last hour of trading, the index was more than 400 points in the red.

During that last hour of trading, a major financial website offered this explanation (CNBC):

Dow drops more than 400 points as stimulus uncertainty grows and coronavirus cases rise

Also toward the end of that day's trading, the Wall Street Journal said:

U.S. Stocks Fall on Stimulus Worries

Well, these explanations seem to make sense. However, one must also consider that the lack of progress on another stimulus package and an increase in coronavirus cases are nothing new.

Moreover, the stock market has seen advances when bad news on either or both fronts were grabbing headlines.

For example, on August 12, Barron's said:

The S&P 500 Closed Just Below a New High

U.S. stocks gained on Tuesday, despite the lack of progress in efforts to negotiate another stimulus package ...

And, on Sept. 25, Barron's said:

The Dow Rises Despite Virus ...

Note that word, despite. Even in cases when the news clearly doesn't fit the market action, news outlets still try to tie one to the other. You see it all the time. It's hard to blame them, because almost everyone is conditioned to expect the news to drive the market.

But getting back to our example, it seems questionable that stimulus uncertainty or COVID-19 developments caused the DJIA's slide on Oct. 19. Indeed, it didn't; a change in market sentiment did.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are causal conditions. The reason is that the market has a law of its own. It is not propelled by the external causality to which one becomes accustomed in the everyday experiences of life. The path of prices is not a product of news.

So, what does determine the path of market prices?

The answer is, market psychology, which unfolds according to the paths described by the Elliott Wave Principle. This illustration shows the basic design in both bull and bear markets:

As Elliott Wave Principle: Key to Market Behavior says:

One complete cycle consisting of eight waves ... is made up of two distinct phases, the five-wave motive phase ... and the three-wave corrective phase. ... When an initial eight-wave cycle ends, a similar cycle ensues, which is then followed by another five-wave movement.

When you look at the news to gauge what's next for the market, you are by definition putting yourself one step behind. First, something must happen, then the market is supposed to react -- and only then you can act.

By contrast, when you track wave patterns in market charts, you can see what pattern is underway now, so you can predict what pattern is next -- news or no news. Now you are one step ahead!

So, look to Elliott wave analysis rather than the news for insights into the market's next big move.

Once again, let's return to Elliott Wave Principle: Key to Market Behavior:

It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

The ability to identify such junctures is remarkable enough, but the Wave Principle is the only method of analysis that also provides guidelines for forecasting.

Learn more about how the Elliott wave model can help you navigate widely traded financial markets by reading the online version of Elliott Wave Principle: Key to Market Behavior for free.

Follow this link to get started: Elliott Wave Principle: Key to Market Behavior -- unlimited, free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Do These Explanations Make Sense for This Intraday Stock Market Turn?. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Global Banking: Some Sectors Look as "Precarious as Ever"
"Financial flameouts" are occurring despite relief from the European Central Bank

By Elliott Wave International

Most people remember that the entire global financial system teeter-tottered on collapse during the 2007-2009 financial crisis due to the debacle related to subprime mortgages.

As you'll recall, even a financial institution as large as Citigroup was brought to its knees.

Of course, that was more than a decade ago and the fear of a "financial Armageddon" would seem to be a distant memory.

However, here in 2020, some European banking sectors appear to be on shaky ground, despite the European Central Bank's regulatory relief.

As a Sept. 17 Bloomberg article notes:

Banks Get More Capital Relief as ECB Wants Stimulus to Work

With a looser leverage ratio for the next nine months, banks will be able to make more loans with less capital.

Mind you, this is a fourth round of regulatory relief. Even so, some of the Continent's banks remain in a highly precarious position.

Elliott Wave International's October Global Market Perspective, a monthly publication which provides forecasts for 40-plus markets worldwide, showed these charts and said:

The ECB agreed to a fourth round of relief only because the previous three rounds failed. ... In total, the four rounds of regulatory relief equated to €73 billion, yet, for all the ECB's hard work, some banking sectors look to be as precarious as ever.

The snapshot comes from Spain, where Banco Sabadell, Spain's fifth-largest banking group, has barely retraced any of its 73% crash since December 2019. BBVA also continues to make fresh new lows, and Bankia ... is still off 33% since last year's high.

Clearly, the weakening position of these banks, even with all the financial assistance, is not a good development.

Yet, there's even more cause for concern.

The October Global Market Perspective also analyzes the "financial flameouts" of two other European banks, one of which is a global giant.

The financial woes of some European banks are just one sign of what appears to be a developing global deflation.

Prepare by reading the free report, "What You Need to Know Now About Protecting Yourself from Deflation." Here's an excerpt:

The psychological aspect of deflation and depression cannot be overstated. When the trend of social mood changes from optimism to pessimism, creditors, debtors, investors, producers and consumers all change their primary orientation from expansion to conservation. As creditors become more conservative, they slow their lending. As debtors and potential debtors become more conservative, they borrow less or not at all. As investors become more conservative, they commit less money to debt investments. As producers become more conservative, they reduce expansion plans. As consumers become more conservative, they save more and spend less. These behaviors reduce the "velocity" of money, i.e., the speed with which it circulates to make purchases, thus putting downside pressure on prices. The psychological change reverses the former trend.

The structural aspect of deflation and depression is also a factor.

Get insights into the "structural aspect of deflation," plus -- learn how to defend yourself and your loved ones by following this link: "What You Need to Know Now About Protecting Yourself from Deflation."

This article was syndicated by Elliott Wave International and was originally published under the headline Global Banking: Some Sectors Look as "Precarious as Ever". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Earnings Season: Here's What Stock Investors Need to Know

By Elliott Wave International

Many investors and financial journalists believe that corporate earnings play a large role in driving stock market prices.

Here's just a couple of headlines from Oct. 13:

Stocks open mixed on first day of earnings season (MarketWatch)
U.S. Stocks Drop as Earnings Season Begins (Wall Street Journal)

The idea that earnings drive stock market prices seems to make sense. After all, corporations exist to make money, and if they exceed expectations, it seems logical that their share prices should skyrocket. If earnings disappoint, logic suggests that stocks should tank. And, in all fairness, when it comes to individual companies' earnings, they can and do affect prices -- although not always, and not always logically. But when you compare broad market performance with trends in earnings, you start to see a glaring disconnect. Why?

Because investors are not governed by pure logic. They are governed by collective psychology -- which swings from optimism to pessimism and back again, regardless of factors like GDP numbers, unemployment or -- yes, earnings.

Let's make the point by using a historical example from Robert Prechter's 2017 book, The Socionomic Theory of Finance. Here's a chart and commentary:

... in 1973-1974, earnings per share for S&P 500 companies soared for six quarters in a row, during which time the S&P suffered its largest decline since 1937-1942. This is not a small departure from the expected relationship; it is a history-making departure. ... Moreover, the S&P bottomed in early October 1974, and earnings per share then turned down for twelve straight months, just as the S&P turned up!

A more recent historical example is from the December 2009 Elliott Wave Financial Forecast, a monthly publication which provides forecasts for major U.S. financial markets:

... quarterly earnings reports announce a company's achievements from the previous quarter. Trying to predict future stock price movements based on what happened three months ago is akin to driving down the highway looking only in the rearview mirror.

You'll notice on the chart that in Q4 2008, the S&P 500 had its first negative earnings quarter ever. According to conventional logic, stocks should have crashed afterwards.

Instead, a rally started in March 2009, which stretched all the way into 2020.

If earnings and other factors outside of the market do not determine the trend of stock market prices, what does?

The answer is the Elliott wave model.

You can get important insights into how it works by reading the online version of Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter.

Here's a revealing quote from the Wall Street classic:

In markets, progress ultimately takes the form of five waves of a specific structure. Three of these waves, which are labeled 1, 3 and 5, actually effect the directional movement. They are separated by two countertrend interruptions, which are labeled 2 and 4 ... . The two interruptions are apparently a requisite for overall directional movement to occur.

At any time, the market may be identified as being somewhere in the basic five-wave pattern at the largest degree of trend. Because the five-wave pattern is the overriding form of market progress, all other patterns are subsumed by it.

All that's required for free access to the online version of the book is a Club EWI membership. Club EWI is the world's largest Elliott wave educational community and is free to join.

Just follow this link to get started: Elliott Wave Principle: Key to Market Behavior -- free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Earnings Season: Here's What Stock Investors Need to Know. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

High-Profile Billionaire Gives Urgent Message to Stock Investors

By Elliott Wave International

In a deflationary depression, the prices of most financial assets crater, including stocks.

One well-known billionaire says it's time to shift into cash.

Here's an excerpt from a Sept. 22 CNBC article:

Billionaire media mogul Barry Diller on Tuesday urged investors to maintain sizable cash positions following the stock market's robust rally from coronavirus-induced lows in late March.

"Personally, and professionally, every nickel you can, keep it ... wherever it's banked," the chairman of both Expedia and digital media group IAC said ... "I think the market right now is a great speculation, I would stay home."

This calls to mind a chart and commentary from the April 2020 Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets:

In January, EWFF opened the year with a forecast titled, "2020 Foresight: Financial Assets and the Coming Return to Planet Earth." The centerpiece in our "return" scenario was a dissertation on the renewed value of cash. "In the 2020s, a countervailing public passion for cash will grab hold." Conquer the Crash anticipated this development by showing two charts of inverted stock averages in bear market periods. The point is that equities are the opposite of cash; risk-assets that require the surrender of cash. The relative value of cash will necessarily zoom higher when stocks plunge. The chart inverts the Dow's recent plunge to show the liftoff for a new bull market in cash, as discussed here in January. ... In a section on "The Wonder of Cash," CTC explained, "Owning an array of investments is financial suicide during deflation. They all go down, and the logistics of getting out of them can be a nightmare." It's not too late, but it's getting close, as CTC stated that the time to move into cash is before a sustained deflation emerges: "Then when the stock market reaches bottom, you can buy incredibly cheap shares that almost no one else can afford because they lost it all when their stocks collapsed." Also, be sure and check with CTC when it comes to the right forms of cash and cash equivalents. Not all of them will do. Chapter 15 covers the waterfront on that topic.

Also, read the special free report "What You Need to Know Now About Protecting Yourself from Deflation."

"Rates Down, Stocks Up"? Myth ... Busted!
Let's address widespread assumptions about interest rates and the stock market

By Elliott Wave International

There's a widespread belief that rising interest rates are bad for stocks and a lower interest rate trend is good for stocks.

The reasoning behind that belief is that bonds compete with stocks for investment funds. Hence, the higher the yield investors can get from bonds, the less attractive stocks become and vice-versa.

This assumption sounds logical, but in reality, stock market investors do not take their cue from rising or falling yields (or interest rates).

Yes, there have been times in financial history when rising rates have coincided with falling stock prices and vice versa. Yet, there have also been periods when stocks have risen as rates have risen, and times when lower rates have coincided with falling stock prices. A notable example of the latter in the U.S. occurred during the Great Depression of the late 1920s and early 1930s. The DJIA plummeted 89% from August 1929 to July 1932 as interest rates trended lower. Also, interest rates trended lower as the NASDAQ fell 78% from March 2000 to October 2002 and as the DJIA tumbled 54% from October 2007 into March 2009.

Even so, a September 2020 Financial Times column said:

Equity Investors Should Raise a Glass to Low Rates
This year, equity investors have been shouting "three cheers" for central banks.

Yet, the just-published October Global Market Perspective, an Elliott Wave International monthly publication which offers analysis of 40-plus worldwide markets, showed these two charts and said:

These two charts illustrate the fallacious, yet pervasive belief that falling interest rates are a big boost for stocks. Ten-year interest rates in Spain have dropped from 4% in 2007 to nearly 0% today. Yet the broad market IBEX plummeted almost 60% over the same span. In Portugal, 10-year rates were approaching 6% when the PSI 20 peaked at its 2000 all-time high. Rates surged to about 16% during the 2012 sovereign debt crisis and then crashed to 0.24%. Despite an overall decline in borrowing costs, the PSI-20 is lower today than it was in 2012, and shares are down an astounding 71% over the past 21 years.

So, it's a myth that the trend of interest rates determines the trend of the stock market.

Indeed, a review of financial history shows no reliable relationship between stock trends and any external factor.

However, the Elliott wave model's recognizable and repetitive patterns do offer predictive value for global stock market investors.

As the book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

The ability to identify such junctures is remarkable enough, but the Wave Principle is the only method of analysis that also provides guidelines for forecasting. Many of these [Elliott wave] guidelines are specific and can occasionally yield stunningly precise results.

Ah, yes, "results"!

Isn't that what every investor wants?

Delve into the online version of the Wall Street classic, Elliott Wave Principle: Key to Market Behavior, so you can learn the Elliott wave guidelines and gain other insights into the Elliott Wave Principle. You can do so 100% free when you become a member of Club EWI, the world's largest Elliott wave educational community (around 350,000 members and growing). Club EWI membership is free and allows you free access to an abundance of Elliott wave resources on financial markets, investing and trading.

Get started by following this link: Elliott Wave Principle: Key to Market Behavior -- free access.

This article was syndicated by Elliott Wave International and was originally published under the headline "Rates Down, Stocks Up"? Myth ... Busted!. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Fear Grips Stock Market Short-Sellers -- What to Make of It
"This is easily the lowest wager against rising S&P rises" in the history of the data

By Elliott Wave International

As you may know, short-selling a stock means that a speculator is betting that the price will go down.

This is a lot riskier than taking a "long" position in a stock -- or, betting that the price will go up.

The reason why is that the most a speculator can lose by going long is 100% of his investment -- say, if a company goes out of business. However, the losses a short-seller can suffer is potentially unlimited, in other words, short-sellers can lose way more than their initial investment.

As a case in point, a November 2015 Marketwatch article noted that ...

... an investor placed a $37,000 short position on [a micro-cap pharmaceutical firm] earlier this month, only to find out a day later that the shares had shot up about 800%.

However, despite the high risk, there are speculators who elect to play the short side.

Recently, however, their ranks have been dramatically dwindling, given the strong stock market rally since the March low.

Indeed, here's an August 21 Bloomberg headline:

Bears Are Going Extinct

The September Elliott Wave Financial Forecast, a monthly publication which provides analysis and forecasts for major U.S. financial markets, showed this chart and noted:

The story under the Bloomberg headline features Goldman Sachs' data on the short interest in the median S&P 500 stock, which fell to just 1.8% of market capitalization in early August. As the chart shows, this is easily the lowest wager against rising S&P prices in the 16-year history of the data. "Skeptics are a dying breed in American equities," concluded Bloomberg.

What should market participants make of this extraordinarily low short interest in stocks?

Well, financial history shows that when bears become few and far between, it's time for the bulls to start worrying. The same applies when the bulls become few and far between.

In other words, sentiment extremes often correlate with trend changes.

Having said that, it's best to use sentiment measures in conjunction with the Elliott wave model.

When the two are sending the same message, an investor can arrive at a high-confidence market forecast.

If you'd like to get an in-depth understanding of the Elliott wave model, you are encouraged to read the book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter.

Here's a quote from the Wall Street classic:

In its broadest sense, the Wave Principle suggests the idea that the same law that shapes living creatures and galaxies is inherent in the spirit and activities of men en masse. Because the stock market is the most meticulously tabulated reflector of mass psychology in the world, its data produce an excellent recording of man's social psychological states and trends. This record of the fluctuating self-evaluation of social man's own productive enterprise makes manifest specific patterns of progress and regress. What the Wave Principle says is that mankind's progress (of which the stock market is a popularly determined valuation) does not occur in a straight line, does not occur randomly, and does not occur cyclically. Rather, progress takes place in a "three steps forward, two steps back" fashion, a form that nature prefers. More grandly, as the activity of social man is linked to the Fibonacci sequence and the spiral pattern of progression, it is apparently no exception to the general law of ordered growth in the universe.

The online version of Elliott Wave Principle: Key to Market Behavior is available to you for free when you join Club EWI, an Elliott wave educational community with about 350,000 members. Club EWI membership allows you to freely access a wealth of Elliott wave resources on financial markets, investing and trading without any obligations.

Get started by following this link: Elliott Wave Principle: Key to Market Behavior -- free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Fear Grips Stock Market Short-Sellers -- What to Make of It. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Gold: Why You Should Be Wary of the "Consensus"
Recent sentiment toward the yellow metal matched peak 2011 levels

By Elliott Wave International

You may recall investor optimism that attended gold's then record high of $1921.50 in September 2011.

A Gallup poll from that time period captured the prevailing sentiment. The Sept. 2, 2011 Elliott Wave Financial Forecast said a monthly publication which provides forecasts for major U.S. financial markets, said:

Perhaps the strongest sign of a gold top is a recent Gallup poll showing Americans now consider gold to be the best long-term investment. Gallup parsed the survey by gender, age, income level and political affiliation and in every single subset, gold won out. ... Everyone is onboard gold's uptrend. It is surely a sign of exhaustion.

Indeed, less than a week later, gold hit its then record high.

Well, as you probably know, gold went on to pass that record high here in 2020. The price reached $2072.12 on August 8.

The August 14 Elliott Wave Theorist, a monthly financial and social trends publication written by Elliott Wave International founder Robert Prechter, showed this figure and said:

[The figure] shows a 10-day moving average of Market Vane's Bullish Consensus toward gold. This indicator tracks the daily buy/sell recommendations of market analysts and commodity trading advisors. As you can see, the consensus is strongly bullish.

This strongly bullish was expressed less than two weeks later in this Yahoo! News headline (August 25):

Why $5000 Gold Could Soon Become A Reality

That's possible -- yet, if you've been keeping up with gold's price, you know that it's more than 4% lower (as of Sept. 25) than it was when the August 14 Elliott Wave Theorist discussed Market Vane's Bullish Consensus.

Should investors expect the "bottom to drop out" from here on out, or is there still more upside to go for gold?

Well, besides sentiment measures, it's also a good idea to keep an eye on the Elliott wave structure of gold's price chart.

As Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, states:

The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market's general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.

Would you like to learn more about the Wave Principle?

Well, Elliott Wave International is making the online version of Elliott Wave Principle: Key to Market Behavior available to you free when you join Club EWI, the world's largest Elliott wave educational community. Don't worry -- Club EWI membership is also free and there are no obligations when you join.

Besides free access to the book, members are also granted free access to a wealth of Elliott wave resources on financial markets, investing and trading.

Get started by following this link: Elliott Wave Principle: Key to Market Behavior -- free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline Gold: Why You Should Be Wary of the "Consensus". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Any Liquid Market, Any Timeframe: Know How to Spot New Opportunities Today
Learn simple techniques in this on-demand webinar, free ($129 value)

By Elliott Wave International

One positive development to come out of the 2020 pandemic is a widespread desire for financial independence. It's led everyone from retirees to Generation Z's to consider stock trading as a "cushion" against job uncertainty.

That's the good news! The bad news is, much of this new investment craze is being fueled by emotions and endorphins (hey -- all new traders have them!) rather than objective criteria. One leading economist coined the term "day-trading pandemic" in June to describe the "legions of participants pouring money into stocks without a care for the risks involved." (June 17 MarketWatch)

An August 11 NPR report confirmed the "addictive," "playing-with-fire" nature of this wave of new investing interest, in which first-time traders use free apps to impulsively jump into popular markets -- sometimes, only to meet ruinous ends.

Our friends at Elliott Wave International have been observing and forecasting markets and investor behavior for over 40 years. They believe that in order to succeed in this tough game, one must have a solid understanding of the market's patterned nature -- before safely stepping through that door.

EWI's chief instructor Jeffrey Kennedy is one of the world's leading practitioners and educators of the Elliott Wave Principle. If you are one of those new traders -- or maybe a seasoned veteran with more to learn -- his classic on-demand webinar "Introduction to Spotting Elliott Wave Opportunities" is your first step.

This 2-part, 2+hour course combines the best of Jeffrey's hard-won tips, tools, and techniques for using the Wave Principle to identify high-confidence trading opportunities -- on any market and any time frame.

But if there were only one part his students could take away from this course, it would be this chart described by Jeffrey in Part 1.

And now, let's take that idealized bearish setup and see how it plays out in real world markets.

Here, we turn to this chart of sugar prices in 2015-2016, when an 80% rally earned sugar the title of "best-performer of all commodities that trade on U.S. exchanges." (Oct. 3, 2016 Seeking Alpha)

Said one August 15, 2016 Seeking Alpha:

"The multiyear sugar bear turns bull. The second year of deficit can launch the sweet commodity even higher."

Yet at the same time, Jeffrey Kennedy recognized a long-term bearish Elliott wave setup on sugar's chart:

"I wouldn't be surprised to see this advance continue into September or even October of this year ... to an objective of 22.89.

"I will then look for a significant decline that should last for a number of years and easily push prices well below the low we experienced in 2015 at 10.13."

The next chart captures what happened next: After rallying into Jeffrey's cited target, sugar prices collapsed to become the "worst-performing commodity" of 2018.

The real-world applicability of the Wave Principle is undeniable. Imagine what else you can learn from Jeffrey's webinar.

How about:

3 core rules of Elliott wave analysis
5 core Elliott wave patterns
What is Jeffrey's favorite Elliott wave pattern and why
Easy signs to identify a market's trend
Tricks for setting specific entry points, exit points and protective stops

-- and more!

When it comes to investing or trading, you can either "play with fire" -- or, you can arm yourself with an arsenal of objective tools and techniques to minimize risk and magnify high-confidence setups.

So, take Elliott Wave International's webinar "Introduction to Spotting Elliott Wave Opportunities" now -- a $129 value, it's yours 100% FREE with a fast, free Club EWI setup.

This article was syndicated by Elliott Wave International and was originally published under the headline Any Liquid Market, Any Timeframe: Know How to Spot New Opportunities Today. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Here's Evidence That "the Great Property Bust is Underway"
This anticipated real estate occurrence appears to be "right on schedule"

By Elliott Wave International

It's always good to get ahead of a trend and not wait until it's obvious to everyone.

Consider the subprime mortgage crisis of more than a decade ago. As you'll probably recall, it took most investors by surprise, even seasoned financial and real estate professionals.

Indeed, long before the phrase "mortgage meltdown" was capturing the headlines during the 2007-2009 financial crisis, the monthly Elliott Wave Financial Forecast, a publication which provides forecasts for major U.S. financial markets, warned subscribers about the real estate market. Here's a chart and commentary from the March 2005 issue:

Back in the 1990s, The Elliott Wave Theorist designated Japan's developing deflation as the best available model for the U.S. The figure shows the plunge in commercial, residential and industrial real estate prices since the Japanese stock market peaked in 1990. ... The Japanese real estate experience will be replayed in the U.S.

Of course, we all know what happened regarding the real estate market collapse in the years immediately following that analysis.

Now, the Elliott Wave Financial Forecast is providing another warning. Here's a chart and commentary from the August 2020 issue:

As for the anticipated fall in property values, the Green Street Commercial Property Index shows that it is right on schedule. Home prices are still buoyant, but sales are down from the beginning of the year, and we continue to believe prices will follow.

So, it wasn't surprising to see this Sept. 18 Bloomberg news report headlined "A $700 Million Commercial Mortgage-Backed Securities Portfolio Is On the Brink of Collapse":

Bond investors who wagered on a group of malls ... are starting to take losses.

The commercial-property bond, known as Starwood Retail Property Trust 2014-STAR, is backed by an almost $700 million defaulted loan.

Elliott Wave International's analysts expect that consumers of financial news will be seeing the word "default" a lot more.

As the 2020 edition of Conquer the Crash predicts:

The next wave down in real estate prices will be even deeper and more prolonged than that of 2006-2012.

Elliott Wave International's analysts expect that this next wave down in real estate will be a part of a larger deflationary depression. Your prospects for financially surviving such an episode will increase substantially if you take key steps.

Elliott Wave International has put together a report to help you prepare and it's titled "What You Need to Know Now About Protecting Yourself from Deflation."

You can access it for free when you become a member of Club EWI, the world's largest Elliott wave educational community. Club EWI membership is also free.

You can have this free report on your computer screen in moments by following this link: "What You Need to Know Now About Protecting Yourself from Deflation."

This article was syndicated by Elliott Wave International and was originally published under the headline Here's Evidence That "the Great Property Bust is Underway". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

A Look at the Perilous Psychology of Financial Bubbles
Investors acknowledge a market bubble but optimism prevents them from seeking financial safety

By Elliott Wave International

The months before the 2000 and 2007 stock market peaks saw a measurable rise in news stories that used the phrase "financial bubble."

But instead of selling, many investors kept right on buying.

The logic went something like this: "This bubble could burst one day -- but not just yet."

The March 2008 Elliott Wave Financial Forecast, a monthly publication which provides analysis and forecasts for major U.S. financial markets, showed this chart and said:

The bars on the chart show that the number of financial bubble articles boomed as the bear market began in 2000. When the mania re-ignited, the bubble talk receded briefly, only to re-emerge last year [2007] as the housing crash started to bite and the credit market imploded. The ... bubble of 2003-2007 should be over, because bubble references are once again rising fast.

Indeed, the worst of the 2008-2009 stock market debacle was just ahead.

Fast forward to 2020 and this Sept. 7 news item from CNBC:

'We're certainly in a bubble,' strategist warns -- but don't expect it to pop anytime soon

Is it rational to stay in the market, even after acknowledging something as potentially financially dangerous as a bubble?

Here's a classic quote from an Elliott Wave Theorist, a monthly publication which offers insights into financial and social trends, and is written by Robert Prechter, the president of Elliott Wave International:

The case for rational bubbles rests on the idea that investors are consciously making risk assessments and deciding that the gamble of buying high -- to sell even higher -- is worth it. But a bubble is fueled by more buying, which is propelled by new buyers and by increased conviction among those already invested, so few bubble investors actually do sell higher. Instead of buying high and selling higher, most of them do only the first half.

You deserve an independent perspective on financial markets, and Elliott wave analysis can bring you just that.

If you're unfamiliar with Elliott wave analysis, read this quote from the book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter:

In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or "waves," that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.

Discover more about the Wave Principle by reading the entirety of the online version of this Wall Street classic for free.

Free access to the book is available when you become a member of Club EWI, the world's largest Elliott wave educational community. Just so you know: There are no obligations whatsoever when you join Club EWI and membership is also free.

Club EWI has around 350,000 members. All members have continual access to a wealth of Elliott wave educational materials on financial markets, trading and investing.

And, now, Club EWI members also have free access to Elliott Wave Principle: Key to Market Behavior -- follow the link to have the online version of the book on your computer screen in just moments.

This article was syndicated by Elliott Wave International and was originally published under the headline A Look at the Perilous Psychology of Financial Bubbles. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

The Connection Between Stocks and the Economy is not What Most Investors Think

By Elliott Wave International

You've probably heard the phrase, "leading economic indicators."

In the U.S., they refer to a core set of data points, including the Consumer Price Index, the Producer Price Index, employment, manufacturing activity, housing starts and consumer confidence.

But, interestingly, the most important economic indicator is usually not referred to as such, and it's none other than the stock market itself.

That's right, despite the widespread belief that the economy drives the stock market, it's the stock market which leads the economy.

This is not a new idea to Elliott wave fans and those familiar with the new science of social prediction called "socionomics." The logic behind this idea is sound: When people are optimistic about the future, many of them buy stocks and can do so almost immediately. But that same optimism takes time to play out in the economy. It might take months to draw up plans to expand a business, hire new employees and so forth. The same applies in reverse when people turn pessimistic about the future. It takes time for business owners to cut back. So that's why the economy lags the stock market. Examples abound: Just think back to the 2009 bottom in stocks, or the bottom in March of this year -- both occurred despite the worst economy in decades, and the economy followed; it didn't lead.

However, as suggested, even seasoned financial observers are puzzled when the stock market does not behave in a way that matches the latest economic news.

For example, consider this August 15 news item from the UK Guardian:

FTSE rises despite economic collapse

Surge in shares contrasts with Covid-related downturn and growing unemployment

Elliott Wave International's September Global Market Perspective, a monthly publication which covers 40-plus worldwide markets, had that news article in mind as it showed this chart and said:

According to the authors, share prices in London are "largely detached from the UK economy. Never has the disconnect between financial trading and economic fundamentals appeared so extreme." The confusion here stems from the fact that pundits have placed the economy's cart before the stock market's horse. ... The connection between stocks and the economy remains rock solid, with a steady parade of dire economic headlines following the FTSE 100's 36% crash from January 17 to March 16.

So, consider any future British economic data a reflection of the stock market's current performance. In other words, any improvements in the UK economy in the weeks and months ahead will come as a result in people's growing optimism about the future today -- which they have already expressed by putting their money in the stock market.

As for the market's future performance -- that hinges on the Elliott wave model, which you can learn about by reading, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter.

This quote from the Wall Street classic provides a broad overview:

In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or "waves," that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.

You can read the online version of Elliott Wave Principle: Key to Market Behavior for free when you join Club EWI, the world's largest Elliott wave educational community. Club EWI membership is also free.

Just follow this link: Elliott Wave Principle: Key to Market Behavior -- free access.

Look at This Big Reminder of "Dot.com Mania"
Here’s when a surge in IPOs tends to occur

By Elliott Wave International

Let's pretend for a second we're trying to explain to an alien how the weather works on planet Earth.

When the sky turns dark and cloudy, we might tell him, this indicates rain -- perhaps even thunderstorms. However, cloudy skies do not necessarily signal when a downpour will start or how long it will last if it does start. After all, the sun could break through before an umbrella is needed. All that said, when the sky turns ominous, it's a good idea to have your umbrella handy -- just in case.

Now let's pretend we're talking to a brand-new investor and apply the same explanation to some less-talked-about stock market indicators. They "indicate" but don't guarantee a particular market development. Nor its timing should it develop. But, it's a good idea for investors to be on alert.

One such stock market indicator is the initial public offerings market. It got red hot around the peak of the dot.com frenzy back in the year 2000 and also near the time of the 2007 stock market top.

With that in mind, the just-published September Elliott Wave Financial Forecast, a monthly publication which provides forecasts for major U.S. financial markets, discusses the IPO market here in 2020. Here's a chart and commentary:

It's official; the market for initial public offerings is as hot as it's been since the dot.com mania. The chart shows the monthly total for IPOs starting in 1999. In terms of deals, the boom of the late 1990s is still of a larger scale, but the 42 offerings in July of this year is the highest total since August 2000. The second highest total since 2000 came in November 2007, when 39 IPOs came to market just as the 2007-2009 bear market started. A surge in IPOs tends to occur around major stock market tops, with a final last-gasp spike taking place after the stock market peaks.

Indeed, here's a Barron's headline from August 31, 2020:

Get Ready for a Crazy Wave of IPOs.

What's more, the September Financial Forecast also points out that, similarly to 1999 and 2000, many IPOs and prospective IPOs today are money losers, or even lack revenues.

As financial history suggests, such unbridled optimism usually does not last indefinitely.

Now, as suggested a moment ago, the IPO market is an indicator -- and a single one at that. It does not say whether the stock market will plummet next week, next month or whenever. It simply suggests that an investor should be prepared.

However, the Elliott wave model does offer high-confidence market turn insights.

Learn about this time-tested method for analyzing and forecasting financial markets by reading the online version of Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, free.

You can acquire the ability to employ the Elliott wave model. It just takes dedication.

Here's a quote from the Wall Street classic:

With a knowledge of the tools in Chapters 1 and 2, any dedicated student can perform expert Elliott wave analysis. Those who neglect to study the subject thoroughly or apply the tools rigorously give up before really trying. The best learning procedure is to keep an hourly chart and try to fit all the wiggles into Elliott wave patterns while keeping an open mind for all the possibilities. Slowly the scales should drop from your eyes, and you will be continually amazed at what you see.

It is important to remember that while investment tactics always must go with the most valid wave count, knowledge of alternative interpretations can be extremely helpful in adjusting to unexpected events, putting them immediately into perspective, and adapting to the changing market framework. The rigid rules of wave formation are of great value in narrowing the infinite possibilities to a relatively small list, while flexibility within the patterns eliminates cries that whatever the market is doing now is "impossible."

All that's required for free access to the entirety of Elliott Wave Principle: Key to Market Behavior is a Club EWI membership. You can join Club EWI for free. What's more -- besides gaining free access to Elliott Wave Principle: Key to Market Behavior, a wealth of other Elliott wave resources will become instantly available to you.

The first step is to follow this link: Elliott Wave Principle: Key to Market Behavior -- free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Look at This Big Reminder of "Dot.com Mania". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Does the Stock Market Really "See" the Future?
Addressing the notion that the market "discounts" future events

By Elliott Wave International

Let's start off with an August 26 quote from Marketwatch:

[F]rothy financial markets ... currently are discounting the nirvana of an uninterrupted V-shaped recovery. ...

Of course, that statement means that the reason investors have been bidding stock prices higher is that they collectively anticipate a strong economic recovery.

But is that the real reason that stock prices are in record-high territory again?

Well, financial history seems to suggest otherwise.

Here's a classic statement from the founder of Elliott Wave International, Robert Prechter:

The idea that the mass of investors possess near-omniscience about the economic future is difficult to defend. It does not explain why in 1928 the market foresaw nothing but blue sky, in 1929 very suddenly foresaw depression, and in early 1930 anticipated a recovery that never happened.

Because markets are patterned, the concept of near-perfect collective forecasting must be false.

The market also saw "blue sky" when the Dow reached its then all-time high in 2007, right before the market collapse and the economy fell into the "Great Recession." And, the same applies to early 2020, before the stock market fell 38%.

No, the real reason why the stock market has risen since the March low is contained in that phrase from the Robert Prechter quote: "Markets are patterned."

And, it's investor psychology that creates the price pattern of the market -- not "near omniscience" about future events.

These Elliott wave patterns show up time and again in market charts -- at all sizes of trend.

Here's a look at a simple, idealized Elliott wave at increasing degrees of detail:

The bottom line is that the market follows the Wave Principle. It is not governed by the anticipation of future events, or for that matter, current events or anything external to the market.

Further, because Elliott wave patterns are repetitive, they are predictable!

Let's shift focus now to wave categorization. This is from the book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter:

All waves may be categorized by relative size, or degree. The degree of a wave is determined by its size and position relative to component, adjacent and encompassing waves. [Ralph N.] Elliott named nine degrees of waves, from the smallest discernible on an hourly chart to the largest wave he could assume existed from the data then available. He chose the following terms for these degrees, from largest to smallest: Grand Supercycle, Supercycle, Cycle, Primary, Intermediate, Minor, Minute, Minuette, Subminuette. Cycle waves subdivide into Primary waves that subdivide into Intermediate waves that in turn subdivide into Minor waves, and so on. The specific terminology is not critical to the identification of degrees, although out of habit, today's practitioners have become comfortable with Elliott's nomenclature.

Get more insights into the Wave Principle by reading the online version of the Wall Street classic, Elliott Wave Principle: Key to Market Behavior.

Just sign up for a free membership into Club EWI, the world's largest Elliott wave educational community, and free access to Elliott Wave Principle: Key to Market Behavior becomes instantly available to you.

Learn how the Elliott wave model can help you forecast widely-traded financial markets by following this link: Elliott Wave Principle: Key to Market Behavior -- free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Does the Stock Market Really "See" the Future?. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

This Group of Wealthy Investors Hoard Cash at Unprecedented Levels

By Elliott Wave International

Yes, stocks have been in rally mode.

Even so, a group of multimillionaires appears to be shifting from an optimistic mindset to one of pessimism about the financial future.

Their solution is hard, cold cash.

Here's an excerpt from an August 27 Bloomberg article:

A group of multimillionaire investors in the U.S. are hoarding cash at unprecedented levels.

Tiger 21, a club of more than 800 investors, reported Thursday that its members have raised their cash holdings to 19% of their total assets on concerns over the economic consequences of the covid pandemic in the U.S. That's up from about 12% since the start of the pandemic. About a quarter now expect the crisis to continue until the end of next June, the group said.

"This rise in cash is an extraordinary change -- statistically, this is the largest, fastest change in asset allocation Tiger 21 has seen," said [the] chairman of the club, whose participants typically have more than $100 million in assets. "In trying to build resources prudently, members have gained liquidity and will not immediately reinvest in those areas in order to keep and build cash to weather this storm."

The raising of cash by this group of wealthy individuals may turn out to be a very wise move.

You see, if a historic deflation develops, as Elliott Wave International's analysts anticipate, cash will be king.

Robert Prechter's 2020 edition of Conquer the Crash explains with these two charts and commentary:

Now let's dispose of the idea that the return on cash is always "low." How would you like to own a safe asset that goes up over five times in value in nineteen years? Figure 15-1 is a picture of the soaring value of cash in Japan from 1990 through 2008. Cash appreciated over 400% in terms of how many shares of Japanese stocks it couldbuy. Figure 15-2 is one picture of the rising value of cash in the United States, which appreciated 287% from March 2000 to October 2002 in terms of how many shares of the NASDAQ index it could buy. Wouldn't you like to enjoy this kind of performance, too? You can, if you move into cash before a major deflation. Then when the stock market reaches bottom, you can buy incredibly cheap shares that almost no one else can afford because they lost it all when their stocks collapsed.

Prepare for what Elliott Wave International's analysts expect just around the corner by reading the free report, What You Need to Know Now About Protecting Yourself from Deflation.

All that's required to access this free report is a Club EWI membership. Don't worry -- joining Club EWI, the world's largest Elliott wave educational community, is also 100% free. There are no obligations once you join.

Follow this link to start reading the free report: What You Need to Know Now About Protecting Yourself from Deflation.

Options Traders Keep "Opting" for Even Higher Stock Market Prices
And this continued bullish behavior speaks volumes about the trend

By Elliott Wave International

What a rally!

After a swift and scary ride downward, the DJIA has climbed from a low of 18,213 on March 23 to near-record high territory.

Even so, many investors are still bullish, and they're backing up their conviction with a great enthusiasm for call options, which are bets on higher prices. (By contrast, as you probably know, put options are placed when market participants expect lower prices.)

This enthusiasm for call options has been on display for at least a couple of months now.

Let's go back to these two charts and commentary from our July Elliott Wave Financial Forecast, a monthly publication which provides analysis and forecasts for major U.S. financial markets:

[Looking at the chart on the left], the Dow declined over 38% to March 23, the fastest decline from an all-time high on record. The week of June 12, small trader call buying surged. ... At 52% of volume, the percentage of small trader call buying equaled the record of April 2000, which was the forefront of a 2½-year bear market. In dollar terms, the speculation this year is far higher than it was in 2000. The chart on the right shows that the total number of small trader purchases of opening call options surged to 14.6 million contracts the week of June 12, more than nine times that of March 2000.

Small traders were not the only ones feverishly purchasing call options. During the same time frame, at just over 40%, the percentage of large-trader call-buying was the highest since March 2000.

Fast forward to an August 29 Marketwatch article headlined "Options bets that the stock market will continue to soar have exploded to dot-com bubble levels." Here's a quote:

Wall Street bets for further gains are around their highest levels since the dot-com bubble.

[The] appetite for calls, particularly among individual investors, has boomed.

So, it's notable that the big bets on call options have been remarkably persistent. It's what you could easily call "an extreme."

Yes, there's a chance that this "extreme" could become more extreme.

Yet, you are encouraged to learn what our analysts are saying about the stock market's price pattern.

You see, chart patterns repeat at all degrees of trend, hence, these patterns offer predictive value.

Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, offers further insights:

Until a few years ago, the idea that market movements are self-similarly patterned was highly controversial, but recent scientific discoveries have established that self-similar pattern formation is a fundamental characteristic of complex systems, which include financial markets. Some such systems undergo "punctuated growth," that is, periods of growth alternating with phases of non-growth or decline, building into similar patterns of increasing size. Nature is replete with such "fractals."

Learn more about these Elliott wave patterns by reading the entirety of the online version of Elliott Wave Principle: Key to Market Behavior -- free.

The only requirement for free access to this Wall Street classic book is a Club EWI membership, which is also free and allows you access to a wealth of Elliott wave educational materials. Around 350,000 of your fellow traders and investors are already members.

Just follow this link: Elliott Wave Principle: Key to Market Behavior -- quick, unlimited and free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Options Traders Keep "Opting" for Even Higher Stock Market Prices. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

"Powerful Deflationary Winds" Include a "Bust in Commodity Prices"

By Elliott Wave International

Elliott Wave International's analysts have posited that the next big global monetary event will be deflation, not inflation.

The writer of an August 18 Telegraph article also sees "powerful deflationary winds."

Here's an excerpt:

Talk of resurgent global inflation is mostly noise. Powerful deflationary winds continue to blow through the world economy. ...

The great inflation hypothesis now in fashion rests on mechanical monetarism. It assumes that the fastest peacetime growth of the "broad" M3 money supply since the American Revolution lays a bed of inflammatory tinder that will catch fire once a match is lit: that is to say, when the velocity of money reverts to mean and collides with the enlarged stock of money.

Liquidity creation has been less extreme elsewhere (the Federal Reserve front-loaded $3 trillion in March and April) but there has still been an eye-watering jump in "narrow" M1 money across the OECD bloc -- ie, a surge in bank deposits due to hoarding of saved money through the lockdowns.

Monetarists say inflation did not take off when QE was first launched a decade ago because the western banking system was crippled. The stimulus offset the destruction of money by banks as they slashed lending in order to beef up capital buffers. This time banks are in better shape (in Europe, really?) and the transmission channel is intact. That at least is the argument.

The monetarist school has claimed victory already, quick to suggest that a V-shaped recovery in asset prices implies a V-shaped recovery in the real economy as well.

The Federal Reserve does not believe a word of it. Nor does the International Monetary Fund, nor the OECD, nor the global professoriate, nor the prophets of modern economic orthodoxy, loosely known as the New Neo-classical Synthesis. Their collective view is that central banks are low on usable ammo and will struggle to create any inflation, unless they escalate to the next stage of Weimar fiscal dominance.

It is now a pitched battle between two incompatible economic models. One side or the other is going to emerge looking bruised, and I suspect that it will be the monetarists. The velocity of money will indeed recover in the long-run but in the long-run -- pace Keynes -- we are all dead.

One thing that is not happening right now is a pre-inflationary surge in raw material prices, let alone an oil shock, though you might think otherwise after the wild moves in gold and silver. The Bloomberg all commodity index has recouped just half of its losses since the pandemic began and remains at near depression levels.

Speaking of raw material prices, Elliott Wave International's monthly publications have been keeping subscribers ahead of the trend.

Here's a chart and commentary from the March 2020 Elliott Wave Financial Forecast:

This chart shows the Thomson Reuters/CoreCommodity Index; the high on the chart is the end of a bear market rally in May 2018. In February 2018, EWFF called for a "substantial decline" in the CRB, and The Elliott Wave Theorist reiterated with a forecast for a resumption of the "Bust in commodity prices" on October 1, 2018. Two days later, the CRB index made the countertrend high shown by the arrow on the chart.

Get more important insights by reading the free report: What You Need to Know Now About Protecting Yourself from Deflation.

Gold: See What This Fibonacci Ratio Says About Trend
A Fibonacci .618 retracement is a common reversal point in the markets

By Elliott Wave International

Fibonacci numbers follow a sequence that begins with 0 and 1, and each subsequent number is the sum of the previous two (0, 1, 1, 2, 3, 5, 8, 13, 21, 34, and so on).

After the first several numbers in the sequence, the ratio of any number to the next higher is approximately .618 to 1; its ratio to the next lower number is approximately 1.618 to 1.

Fibonacci ratios appear throughout nature, from the shape of galaxies and seashells to molecules and even the human body.

The Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, explains why these ratios should be of keen interest to investors:

The Fibonacci sequence governs the numbers of waves that form in the movement of aggregate stock prices. ...

The fact that waves produce the Fibonacci sequence of numbers reveals that man's collectively expressed emotions are keyed to this mathematical law of nature.

Here's what you need to know: Price turns often occur when Fibonacci ratios between market moves -- or waves, as we call them -- have been reached.

Besides the stock market, Fibonacci ratios also show up in the price charts of other financial markets, like gold.

Here's a 15-minute chart and commentary from the August 10 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which provides near-term analysis and forecasts for major U.S. markets:

Gold's high at $2072.12 led to [an Elliott] wave decline to $2015.34 last Friday, as shown on the chart. Since Friday's low, prices traced out an [Elliott] wave rally where [one] wave took the form of a triangle. At today's $2050.36 high, gold retraced a Fibonacci .618 of the decline from $2072.12.

Gold, as you know, fell almost 6% on August 11, the very next day after the U.S. Short Term Update showed subscribers this analysis.

But the August 10 U.S. Short Term Update didn't stop there. It went on to mention specific price targets for gold.

That's the beauty of the Elliott wave model -- it helps investors to anticipate what's next.

Let's once again quote from Elliott Wave Principle: Key to Market Behavior:

Without Elliott, there appear to be an infinite number of possibilities for market action. What the Wave Principle provides is a means of first limiting the possibilities and then ordering the relative probabilities of possible future market paths. Elliott's highly specific rules reduce the number of valid alternatives to a minimum.

Are you ready to "dig in" and absorb all that the Elliott Wave Principle has to offer?

If so, be aware that you can now access the online version of Elliott Wave Principle: Key to Market Behavior -- free (no credit card information required -- 100% free).

The only step required is to become a Club EWI member, and this is also free with no obligations whatsoever.

Besides free access to Elliott Wave Principle: Key to Market Behavior, members are also granted free reign to review other Elliott wave educational resources on trading, investing and financial markets.

You'll be in good company when you join. Club EWI has 350,000 online members -- and its ranks continue to expand.

Follow this link for free online access to Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Gold: See What This Fibonacci Ratio Says About Trend. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

NASDAQ vs. DJIA: Does the Recent Divergence Matter?

By Elliott Wave International

"The NASDAQ nearly doubled in the last 100 days of its rally."

This quote sounds like it's from 2020, doesn't it?

After all, since its March bottom near 6600, the NASDAQ has rallied to a new record high. Low to high, it has indeed "nearly doubled."

And yet, the quote above is not new. It's from the year 2000.

It appeared in Financial Forecast, a monthly publication by our friends at Elliott Wave International covering stocks, bonds, the dollar, gold, the economy and more.

Yes, the divergence between the NASDAQ and DJIA -- one makes a record high, the other one doesn't -- is something EWI’s analysts have seen before.

And today, the same divergence tells you a lot about the next move in stocks.

This excerpt from EWI’s August 2020 Financial Forecast explains:

Special Section
ANOTHER ICARUS MOMENT FOR THE NASDAQ

In December 1999, just weeks before the Dow Jones Industrial Average made its Primary wave 3 peak on January 14, 2000, the NASDAQ Composite was surging higher to ever more ecstatic reviews. "Ignore any forecast of the Dow," cried the pundits. The Elliott Wave Financial Forecast saw it differently: "When the NASDAQ (and predecessor the OTC Index) pushes into record territory against a lagging Dow, the overall market is late in a long-term uptrend. It is only after years of ascent that investors can work up the courage to jump into these relatively young names despite a weakening trend." In the January 2000 issue, when the Dow was days from its top, EWFF called the "languishing Dow and the ebullient NASDAQ a classic sign of long-term vulnerability for the market." The NASDAQ nearly doubled in the last 100 days of its rally. With the index just days from its peak, the March 2000 issue of EWFF issued the following forecast:

The NASDAQ's strength is derived from rotation among a thinning list of high-tech stocks. "The mentality is, 'Let's trim the generals [the Dow stocks] and put some of that money to work among the soldiers [the Nasdaq issues].'" Investors are so bullish that they will defy their own social nature to back a leaderless army. Such transgressions generally happen only late in long-term uptrends. The resulting carnage resembles what happens in a real war when the generals abandon the fight.

Similarly, after the Dow Industrials topped in December 1968, the OTC index rallied to a new high in November 1969, unconfirmed by the Dow. Overall, neither stock index made any material gains for another 13 years.

The chart above captures the latest divergence between the two indexes, which dates back to February 12 when the DJIA rallied to 29,551.42, its [so far] all-time closing high. The NASDAQ's closing high then occurred at 9817.10 on February 19. After declining in conjunction with the Dow to March 23, the ensuing rally carried the NASDAQ to new highs.

As in 2000, a "thinning list of high-tech stocks" accounts for much of the stock market's strength. The figure below shows that in June, just five technology stocks, Facebook, Alphabet (Google), Microsoft, Apple and Amazon, accounted for 5.7% of the S&P 500's year-over-year increase in total market capitalization, a new record. The prior extreme came at the major top in March 2000.

In July, the advance narrowed further to three main stocks, as approximately 23% of the S&P's gain came from Amazon, Apple and Alphabet (Google).

The next chart shows another area in which the NASDAQ recently surpassed a post-peak extreme from 2000. In early July, NASDAQ volume surged to 1.6 times S&P volume, the highest on record.

The prior record ratio of 1.35 occurred on September 5-6, 2000, when the NASDAQ and S&P 500 completed second-wave rallies in their respective bear markets.

There is an important difference between the peaks in 2000 and 2020. In 2000, financial stocks performed well, holding up for the balance of the year as the major stock averages declined.

The next chart reveals that's not the case now. On a short- and long-term basis, the MSCI World Financials Index is far weaker than the main stock indexes.

In this respect, current market behavior is more like 1968-1969. That is when financial entities struggled in the midst of an ongoing speculative orgy. Brokerage firms were privately held at that time, but in his book The Go-Go Years

In September 1969, two months before the peak in the OTC Index, NYSE member firm Gregory and Sons went under.

In December, only one month after the OTC top, Brooks wrote, "Depression had come to Wall Street. A cheerless pall of doom hung over the financial district through the 1969 holiday season."

A slew of failures in marginal firms followed. Even "conservative, well-established giants were in bad trouble. Bache and Company reported that for fiscal 1969, it had recorded the largest annual operating loss in the annals of American brokerage. Shock waves followed."

Back in 2014, market expert Ned Davis said, "If there are systemic risks, financials generally will ferret them out."

That observation remains as pertinent as ever.

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This article was syndicated by Elliott Wave International and was originally published under the headline NASDAQ vs. DJIA: Does the Recent Divergence Matter?. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

"Junk" Is Hot Again -- Despite Warning Signs
Default rates of low-grade corporate debt are rising

By Elliott Wave International

The demand for junk bonds is running high among global investors -- again.

As the Wall Street Journal noted on June 9:

Europe's riskiest corporate debt has rallied to pre-crisis levels.

Elliott Wave International's July Global Market Perspective, a monthly publication which covers 40-plus market worldwide, showed this chart and said:

The Bloomberg-Barclays Pan-Europe High Yield Total Return Index has retraced nearly 80% of its prior drop. Accordingly, the spread between European junk bonds and government debt narrowed to its lowest level since March 6, 2020. "When deals have come in the high-yield market in Europe, they have been well received," notes one credit strategist with JP Morgan Chase.

Yet, here's what's noteworthy: Global investors are swooping up risky corporate debt despite the fact that they've been warned of possible impending hazards.

As the July Global Market Perspective goes on to say:

[A] symptom of pervasive complacency is that investors are snapping up junk bonds despite a widespread understanding that default rates will skyrocket. According to estimates by S&P Global, the default rate for European speculative-grade corporates will hit 8.5% by March 2021, a three-fold increase from today's rate. In the United States, Moody's Investors Service expects the trailing 12-month default rate to hit 11.1% by March 2021. Goldman Sachs puts the percentage higher still -- at 13% before the end of 2020. More important, default rates are rising despite the concerted attempt by worldwide central banks to backstop the market. In April, the U.S. Fed began to purchase the debt of so-called fallen angels, which are companies that lost their investment-grade rating during the pandemic. The European Central Bank is about to follow suit. In June, ECB official Olli Rehn told reporters that he was keeping an open mind about implementing the same policy.

Junk bonds are issued by companies with the weakest balance sheets. Investors' claim on assets in the case of bankruptcy is usually next to the bottom rung, one notch above equity holders.

But, because the trend in junk bonds often aligns with the trend in equities, when stocks rise, indicating increasing appetite in "risk assets," so do the prices of junk bonds.

Of course, this also suggests that junk bond investors everywhere should be highly interested in the trend of global stock markets.

Elliott Wave International's analysts also cover other financial markets and economies worldwide.

Indeed, EWI has put together a free resource titled "5 Global Insights You Need to Watch."

Specifically, EWI's top 5 global experts share their latest forecasts for cryptocurrencies, crude oil, interest rates, deflation, and the future of the European Union.

It's all in a short, 5-video series (plus, two quick reads). In just 13 minutes, you get insights into markets and factors that can have a major impact on your investments.

These are the kind of insights only Elliott wave analysis can give you.

And -- you get it free with a fast Club EWI signup. Club EWI is the world's largest Elliott wave educational community and membership is also free.

Get started by following this link: "5 Global Insights You Need to Watch."

This article was syndicated by Elliott Wave International and was originally published under the headline "Junk" Is Hot Again -- Despite Warning Signs. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Why Commercial Real Estate is Set to Get Slammed

By Elliott Wave International

Commercial real estate investors are in an especially precarious position should another financial crisis unfold.

A July 18 Marketwatch article titled "The open secret in commercial real estate is that owners regularly take cash out of properties ..." says:

Borrowers, ahead of this [year's] downturn, pulled more equity out of U.S. commercial buildings than ever before. ...

Debt relief conversations already started in April ... between the hardest-hit commercial property borrowers and their lenders.

Since then, delinquent commercial mortgage-backed securities loans have climbed to nearly 10%, rivaling the worst levels of the global financial crisis [in 2007-2009].

The National Association of Real Estate Investment Trusts estimates that the value of U.S. commercial real estate is around $16 trillion (2018).

Indeed, as this April 2020 chart from Forbes shows, U.S commercial property prices have more than doubled since their 2009 low:

Moreover, commercial real estate loans at U.S. banks surged by $863 billion or 62% since 2012.

So, if commercial mortgage-backed securities loans delinquencies already exceed the levels of more than a decade ago, imagine the scenario if "another shoe drops."

Relatedly, trouble is also brewing in the residential real estate market.

In June, ABC News reported:

Existing home sales plunge 9.7% in 3rd straight monthly drop

Elliott Wave International's analysts have been discussing what this likely means for U.S. housing prices.

And, getting back to the phrase about "another shoe dropping" in the financial system, Robert Prechter's 2018 edition of Conquer the Crash discusses what happens when debt levels become unsustainable:

The ability of the financial system to sustain increasing levels of credit rests upon a vibrant economy. At some point, a rising debt level requires so much energy to sustain -- in terms of meeting interest payments, monitoring credit ratings, chasing delinquent borrowers and writing off bad loans -- that it slows overall economic performance. A high-debt situation becomes unsustainable when the rate of economic growth falls beneath the prevailing rate of interest on money owed and creditors refuse to underwrite the interest payments with more credit.

When the burden becomes too great for the economy to support and the trend reverses, reductions in lending, borrowing, investing, producing and spending cause debtors to earn less money with which to pay off their debts, so defaults rise. Default and fear of default prompt creditors to reduce lending further. The resulting cascade of debt liquidation is a deflationary crash. Debts are retired by paying them off, "restructuring" or default. In the first case, no value is lost; in the second, some value; in the third, all value. In desperately trying to raise cash to pay off loans, borrowers bring all kinds of assets to market, including stocks, bonds, commodities and real estate, causing their prices to plummet. The process ends only after the supply of credit falls to a level at which it is collateralized acceptably to the surviving creditors.

Indeed, deflation is one of the topics discussed in Elliott Wave International's free resource: 5 Global Insights You Need to Watch.

You see, we asked our top 5 global experts to share their latest forecasts for cryptocurrencies, crude oil, interest rates, deflation, and the future of the European Union.

The result is this short, 5-video series (plus, two quick reads). In just 13 minutes, you get insights into markets and factors that can have a major impact on your investments.

And -- you get it free with a fast Club EWI signup. Club EWI is the world's largest Elliott wave educational community and membership is also free.

Just follow this link for free access to 5 Global Insights You Need to Watch.

Gold and Oil: Be Aware of the "Spike"
"Hope and fear look different on a chart"

By Elliott Wave International

Recently in these pages, we noted that bull markets in stocks tend to end with "a subtly slowing ascent" rather than with a final "spike" higher, as many investors believe. Historical examples were provided.

It was also pointed out that, by contrast, commodities do tend to end major uptrends with a price spike.

The Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter explains why (keep in mind regarding the quote from the book that fifth waves are the final wave in the main trend of a financial market):

Fifth wave advances in the stock market are propelled by hope, while fifth wave advances in commodities are propelled by a comparatively dramatic emotion, fear; fear of inflation, fear of drought, fear of war. Hope and fear look different on a chart, which is one of the reasons that commodity market tops often look like stock market bottoms.

Crude oil offers a prime historical example. This chart shows the big spike higher going into the July 2008 high. A dramatic 78% plunge in just five months followed:

Of course, precious metals are also commodities. Thus, the price history of gold offers another historical example of a price spike going into a peak.

This chart and commentary are from the Sept. 2, 2011 Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets:

Commodity fifth waves in major rallies often end in a final spike higher. ...

Gold's wave structure is consistent with a terminating rise.

Four days after that chart published, on Sept. 6, 2011, a headline in the British newspaper, The Guardian, said:

Gold hits new high as fear stalks financial markets

There we have that word "fear" again.

On that date, the yellow metal hit a high of $1921.50 and a big decline followed. By December 2015, gold was trading at $1046.20.

Now, let's return to the topic of crude oil -- a market that's seen extraordinarily dramatic moves in 2020, as you probably know.

This chart from the April 2020 Elliott Wave Financial Forecast shows when Elliott Wave International's analysts made key calls on the crude oil market in recent history:

You can see the junctures at which the Elliott Wave Financial Forecast and the U.S. Short Term Update prepared Elliott Wave International's subscribers for declines.

As the April Elliott Wave Financial Forecast noted:

The chart shows crude oil's recent plunge. When we've felt the time was right to make comments on oil's prospects, we've done so, as shown on the chart. Our last comment was in December 2019. Since January of this year, oil futures have crashed 71%.

Of course, the volatility in the crude oil market continued thereafter.

How would you like to get insights into the "forecasting tool" which EWI's analysts employ?

You can do so -- 100% free -- via a valuable resource titled "The Forecasting Tool That Called Every Major Turn in Crude Oil Since 1993."

Simply join Club EWI (membership is also free) and this video becomes instantly available to you. Club EWI is the world largest Elliott wave educational community.

Get started by following this link: "The Forecasting Tool That Called Every Major Turn in Crude Oil Since 1993."

This article was syndicated by Elliott Wave International and was originally published under the headline Gold and Oil: Be Aware of the "Spike". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Here's Why You Can Forecast Markets Just by Looking at Chart Patterns
Here are two illustrations of the fractal form of financial markets

By Elliott Wave International

Nature is full of fractals.

Fractals are self-similar forms that show up repeatedly. Consider branching fractals such as blood vessels or trees: a small tree branch looks like an approximate replica of a big branch, and the big branch looks similar in form to the entire tree.

Fractals also form in the price charts of financial markets, at all degrees of trend, in both up- and downtrends. In fact, without knowing the time or price labels, you can't tell if you're looking at a 2-minute chart, a daily chart -- or a yearly one.

Fans of Elliott wave analysis have been using this information to their advantage for decades. Our March 2020 Elliott Wave Theorist gave subscribers two important real-time examples of fractals at work. Here's the first one along with the commentary:

This figure offers a good illustration of the fractal nature of markets. It shows the correction in T-bond futures of 2016-2018 on a weekly chart against the correction in the last four months of 2019 on a daily chart. They look quite similar, and each one led to a run to new highs.

And here's the next example, along with commentary from the March Theorist:

This figure shows another example of the market's adherence to forms. The top graph shows the 10-minute range for the S&P futures contract on March 4, and the bottom graph shows the same for March 5. Don't they look similar?

In fact, however, the trend of the market in the top graph was up, and the trend shown beneath it was down. We simply inverted the bottom graph for our illustration. Prices rose on March 4, and they fell on March 5, in the same pattern.

Here's what this means for investors and traders: The fact that price charts unfold in repetitive and recognizable patterns makes financial markets predictable.

As Elliott Wave Principle: Key to Market Behavior by Frost & Prechter noted:

Scientific discoveries have established that self-similar pattern formation is a fundamental characteristic of complex systems, which include financial markets. Some such systems undergo "punctuated growth," that is, periods of growth alternating with phases of non-growth or decline, building into similar patterns of increasing size.

Learn more about these self-similar pattern formations and how they can help you to anticipate turns in widely traded financial markets, including the stock market.

You can do so by reading the online version of Elliott Wave Principle: Key to Market Behavior, 100% free.

All that's required is a Club EWI signup. Club EWI is the world's largest Elliott wave community and allows you access to a wealth of Elliott Wave International's resources on investing and trading. Club EWI membership is also free.

Just follow the link to start reading the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Here's Why You Can Forecast Markets Just by Looking at Chart Patterns. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Stock Market: "Relevant Waves Vs. Irrelevant News"
Let's (again) delve into the connection between the stock market and news

By Elliott Wave International

The stock market is a fractal -- i.e., a self-repeating form at all degrees of trend. Meaning, without the time or price labels, you can't tell if you're looking at a 2-minute chart or at a monthly one.

What's more, stock market trends unfold in repetitive and recognizable price patterns.

What's more, these patterns -- Elliott wave pattens -- emerge regardless of the news.

Yes, there may be very brief reactions to news, but then the main trend continues. That's because the larger stock market trends aren't driven by the news, they are driven by market participants' bias, bullish or bearish. What we call, market psychology.

That's why you often see headlines with the word "despite" in them -- like, "Stocks rally despite U.S. unemployment at the highest level since the Great Depression," or "Stocks fall despite stronger-than-expected consumer confidence report." That word, "despite," tells you everything you need to know.

Review Part I and Figures 1 through 5 in Chapter 12 of Robert Prechter's 2017 book, The Socionomic Theory of Finance, and you'll see evidence that the market is not priced according to external conditions.

And, here's what the book says about those brief reactions:

Evidence for even temporary emotional reactions in markets is surprisingly suspect. All market observers have seen futures prices gyrate more intensely for a few seconds or minutes before and/or after an announcement perceived as major news. However, ensuing market movement may be totally opposite to the tenor of such news, even when it is a total surprise.

This quote came to mind when, on June 29, this sobering news appeared on a major financial website (CNBC):

Nearly half the U.S. population is without a job, showing how far the labor recovery has to go

The employment-population ratio -- the number of employed people as a percentage of the U.S. adult population -- plunged to 52.8% in May, meaning 47.2% of Americans are jobless.

Interestingly, on that very day, the DJIA closed up 580 points.

Plus, as you know, the stock market has bounced back substantially since the March lows, despite a historic slew of negative news.

Indeed, the June Elliott Wave Theorist, a monthly publication which has offered subscribers analysis of financial markets and cultural trends since 1979, showed this chart and said:

The first reports of economic contraction came out in March and continued through May. ... Stock prices not only rose for seven weeks but also jumped higher on nearly every report of a rise in unemployment claims. A particularly big up day occurred when statistics suggested an increase in employment, but analysts quickly recognized that the numbers were untrustworthy due to restrictions in data collection deriving from the pandemic. No matter; stocks went up the next day, too.

In fact, you can also see that the stock market rose more than it fell when Covid-19 dominated the headlines! It also rose on the day of the first protests -- and continued to climb for two weeks, despite the vandalism, looting and clashes between protestors and police not seen in decades.

The real driver of the stock market's trend is investor psychology, which Elliott waves reflect.

As the book, Elliott Wave Principle: Key to Market Behavior, notes:

The Wave Principle is governed by man's social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value.

Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are causal conditions. The reason is that the market has a law of its own.

Learn about this "law" of the market.

You can do so by reading the online version of Elliott Wave Principle: Key to Market Behavior, which is available to you free when you join Club EWI. Membership is also free.

Club EWI is the world's largest Elliott wave educational community and members get free access to a wealth of resources on investing and trading.

Click on this link to get started: Elliott Wave Principle: Key to Market Behavior -- read it for free.

This article was syndicated by Elliott Wave International and was originally published under the headline Stock Market: "Relevant Waves Vs. Irrelevant News". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Stocks, Oil: See How Elliott Waves Help You Avoid "Getting Married to the Trend"

By Elliott Wave International

Most investors make the mistake of linearly extrapolating a financial trend into the future, especially at junctures when that trend is near a turn.

In everyday terms, it's called "getting married to the trend."

Here's what Elliott Wave International President Robert Prechter said in his book, Prechter's Perspective:

Most published forecasts are at best descriptions of what has already happened. I never give any forecast a second thought unless it addresses the question of the point at which a change in trend may occur. ...

Read forecasts carefully. If they are unsophisticated, linear extrapolations of a recent trend, it's probably the best policy to toss them aside and go search for something potentially useful.

Employing the Elliott wave model helps a market participant to avoid the error of assuming that today's trend will carry into tomorrow. Why, even a 3^rd-grader can learn a tell-tale sign of when a trend is about to change. More on that in a bit.

First, let's look at a prime historical example of how trend extrapolation manifests.

A little background: the price of crude oil hit a low of $49.90 in January 2007 and then climbed dramatically in the following year and a half, reaching a high of $147.50 in July 2008.

Many energy market observers expected even higher prices.

Here are just a few of the headlines as crude oil was skyrocketing:

Oil price 'may hit $200 a barrel' (May 7, 2008, BBC)
An Oracle of Oil Predicts $200-a-Barrel Crude (May 21, 2008, The New York Times)
WHAT IF OIL HITS $200? (June 28, 2008, Los Angeles Times)

In the same time frame, one chief executive of an energy firm had predicted $250 a barrel.

Yet, around the time these headlines were published, the Elliott wave model was suggesting a different price path for oil.

The June 8, 2008 Elliott Wave Theorist, a monthly publication which has provided analysis and forecasts for financial markets and cultural trends since 1979, said:

The Top of Wave 5 in Crude Oil Is Fast Approaching

Now, what is the significance of the completion of a fifth wave?

That means that a trend, whether up or down, is on the cusp of a turn. In this case, the trend had been up. So, the "top of Wave 5" meant that the next significant price move would be down. Well, as mentioned a moment ago, just a month later, crude oil's price hit that $147.50 top.

Here's what followed:

As Robert Prechter noted in his 2017 book, The Socionomic Theory of Finance:

Only someone extrapolating an Elliott wave could see that "one of the greatest commodity tops of all time" lay dead ahead. Those using supply-demand arguments and linear extrapolation ... were in the wrong place at the wrong time.

So, if you can count to five, you can anticipate trend turns, even when the majority are expecting the trend to continue.

Let's go a bit further back in history and see how "counting to five" helped our analysts call a top in the price of General Electric's stock.

In late October 2000, this chart was published in the Elliott Wave Financial Forecast, a monthly publication that covers major U.S. financial markets:

The completion of a quarter-century five-wave pattern portended a major reversal in GE's stock.

At the time, the Elliott Wave Financial Forecast made a straightforward forecast:

GE is going to go way down ... .

Here's what happened thereafter:

But, getting back to that 3^rd-grader who was mentioned earlier, you can see him discern a five-wave pattern in a market chart yourself and perhaps learn in the process.

Also, see how a college student picked right up on an even more detailed Elliott wave pattern -- in no time! Then, hear from one of Elliott Wave International's own wave experts who has more to say about the error of assuming a current trend will persist, well, merely because it's already in place.

It's all in a video titled "Anyone Can Learn the Wave Principle." Watch it for free -- compliments of Elliott Wave International.

Just follow this link to watch this fun little video now: "Anyone Can Learn the Wave Principle."

This article was syndicated by Elliott Wave International and was originally published under the headline Stocks, Oil: See How Elliott Waves Help You Avoid "Getting Married to the Trend". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures

By Elliott Wave International

Extreme investor sentiment, whether bullish or bearish, is often a sign that a financial market is on the cusp of a turn.

Here's the reason: When almost everyone is bullish (or bearish), there's almost no one left to push the market higher (or lower).

Having said that, an extreme market sentiment can become even more extreme before a trend change occurs. So, an investor should not rely solely on sentiment measures when making portfolio decisions. In other words, sentiment measures should be put into context with technical indicators, the Elliott wave model and other factors which an Elliott wave expert may consider important.

Indeed, Elliott Wave International's Chief Market Analyst recently discussed the elevated optimism since the March stock market lows and also noted an important caveat.

Here's a chart and commentary from EWI's June 24 U.S. Short Term Update (a thrice weekly publication which provides near-term forecasts for major U.S. financial markets):

This week's release of the Investors Intelligence Advisors' survey shows another measure where optimism is now higher than it was at the February 12-19 stock market peak in the blue-chip indexes. The percentage of bullish advisors is up to 57.3%, the highest total since January 21, as denoted by the red arrows on the chart. By the end of March, the Dow was 38% lower. Extreme sentiment can remain extreme, so it's not an automatic reason to be bearish the market. But the fact that advisor optimism is increasing while nearly every stock index is declining, save the NASDAQ, is a reason to be extra-attentive. ...

Yes, there are even more measures of extreme elevated sentiment that investors need to know about.

That issue of the June 24 U.S. Short Term Update also referred to record levels of investor optimism in Small Trader call buying, the total number of DARTs at the two largest U.S. discount brokerage firms, and the off-the-chart exuberance by institutional investors in the amount raised for blank-check IPOs.

Plus, here are two recent headlines:

Wall Street rally wins more fans as economy hints at recovery (Reuters, June 17)
What's Next? Probing The Data For Clues As Market Sentiment Remains Bullish (Forbes, June 17)

Well, the stock market's Elliott wave pattern, plus the extreme bullish sentiment, provide a high-confidence answer to the question of "What's next?"

Learn more about the Elliott wave model by reading the online version of the book, Elliott Wave Principle: Key to Market Behavior.

You can enjoy free access to this Wall Street classic when you join Club EWI, the world's largest Elliott wave educational community. Club membership is also free.

Follow this link to get started: Elliott Wave Principle: Key to Market Behavior -- free.

U.S. Dollar: When Almost Everyone Is Bearish...

By Elliott Wave International

June started off with speculators decidedly negative toward the U.S. dollar.

On the second day of the month, the Financial Times said:

Wall Street strategists say dollar could be set for "dramatic" falls

Elliott Wave International's June 10 U.S. Short Term Update, a three-times-a-week publication which provides near-term forecasts for major U.S. financial markets, took note of the bearish sentiment when it showed this chart and said:

The decline from 100.556, the May 14 high, is progressing as an impulse. … Once [the currently unfolding] wave is complete, the U.S. dollar will rally. … Sentiment is rapidly becoming bearish to the extreme. The U.S. dollar DSI (trade-futures.com) is at 22%, nearly matching the 20% that coincided with the March 9 low.

As it turned out, June 10 marked the most recent low in the greenback at 95.716.

Even so, two days later, a June 12 Reuters headline read:

Speculators' bearish bets on U.S. dollar rise: CFTC, Reuters data

And, talk about bearish – three days after that, a CNBC headline said (June 15):

A dollar crash is virtually inevitable, Asia expert … warns

The article says:

One of the world's leading authorities on Asia … is worried a changing global landscape paired with a massive U.S. budget deficit will spark a dollar crash.

His forecast calls for a 35% drop against other major currencies.

Yes, it's true that the U.S. is running a big budget deficit. It's true that there are still riots in the streets, in parts of the country. It's true that COVID-19 cases are on the rise, the economy is on the ropes and the unemployment is the highest it's been since the Great Depression.

But, from Elliott Wave International's 40-year experience observing and forecasting the markets, our analysts know it's better to pay attention to the greenback's Elliott wave structure and other supporting factors rather than "bearish fundamentals."

Here's just one example as to why. On April 30, 2011, a Wall Street Journal article cited fundamentals as a reason for the then dollar's downward slide:

The main drivers of the dollar's weakness, say economists, are the twin pillars of economic intervention: monetary and fiscal policy. "The market is concerned about the deficit and the Fed," says [a] fixed-income and foreign-exchange analyst. …

Well, five days after that article published, the buck hit a major bottom and went on to rally for several years!

Getting back to 2020, as of this writing on June 22, the U.S. Dollar Index remains above its June 10 low. Despite all the "bearish fundamentals."

The June 22 U.S. Short Term Update noted:

The U.S. Dollar Index [has been] rising in a well-defined channel since February of 2018. This channel should remain intact as the index advances.

Speaking of channels, here's what the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, says about the topic:

[Ralph N. Elliott, the founder of the Wave Principle,] noted that a parallel trend channel marks the upper and lower boundaries of an impulse wave, often with dramatic precision. You should draw one as early as possible to assist in determining wave targets and provide clues to the future development of trends.

You can learn more about "channeling" by reading the online version of Elliott Wave Principle: Key to Market Behavior for yourself. You can do so – free!

All that's required is a free Club EWI signup. If you've never heard of Club EWI, it's the largest educational Elliott wave community in the world. Members get free access to a wealth of Elliott wave resources.

Follow the link and you'll be on your way to expanding your knowledge of the Wave Principle -- free: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline U.S. Dollar: When Almost Everyone Is Bearish.... EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Europe's Banking Sector: When (and Why) the Rout Really Began

By Elliott Wave International

The financial sector has been one of the global stock market's bedrocks for decades. That's why its performance is so critical to the overall stock market health.

Well, here's a chart of the European Stoxx 600 Banks Index over the past four years.

Not pretty, we know.

Now let's zoom in on the price action since January of this year.

This is where the mainstream's story about Europe's beaten down banking sector starts. It's a story of being "hit hard," of credit losses which exceed those in the 2008 financial crisis -- and finally, the onset of "more pain" in the future. All "thanks" to the coronavirus.

Except, it's a mistake to blame Europe's banking sector sell-off on the coronavirus.

Yes, the sector fell 43% since the start of 2020, but that's not when the "beat down" started!

It began in 2018 -- many months before the first reported case of coronavirus on December 31, 2019.

Back in 2018, the EuroStoxx 600 was a top-performer and stood at a two and a half-year high.

At the time, there was no bearish "fundamental" backdrop like the coronavirus, and few things suggested to mainstream analysts any weakness ahead.

BUT -- on April 6, 2018, Elliott Wave International's Monday-Wednesday-Friday publication European Short Term Update showed subscribers this red line down for emphasis and said,

April 6, 2018 forecast: "...banks have a long way further to fall. Stay immediately bearish this sector."

From there September 2019, the sector plunged 40%. A rally into the end of 2019 was met with renewed optimism that "Europe's bank stocks poised for best start to a year since 2013." (Bloomberg)

But to Elliott Wave International's analysts, further bearish potential was clear.

As you may know, Elliott wave analysis doesn't look at the so-called fundamentals. Factors like unemployment, GDP, etc., don't lead the stock market -- they follow it.

In other words, to know the stock market's next move, you must skip "fundamentals" and instead look at market psychology, the true driver of trends.

That's exactly what Elliott wave patterns in market charts show you.

Which brings us to this year's continued sell-off in Europe's banking sector.

On January 13, 2020, well before coronavirus really got going, Elliott Wave International's European Short Term Update identified a completed countertrend advance on the Banks Sector index.

January 13, 2020 forecast: Europe's bank stocks "should decline directly."

From there, the sector indeed hit the skids in a sell-off to levels not seen in more than a decade -- that 43% slide we mentioned earlier.

And please note this: Elliott Wave International's analysis didn't mention coronavirus even once when making that bearish January 13 forecast. The bearish outlook was based on the fact that the price pattern called for a 3rd wave down directly ahead.

Third waves are fastest and strongest parts of the Elliott wave patterns. That helps explain the speed and ferocity of this year's decline in Europe's banking sector.

This is just one example (of MANY!) where Elliott Wave International's European Financial Forecast Service put subscribers on the right side of the trend.

What are we saying now? What's next for Europe, its markets and economies?

See for yourself right now, 100% free.

Through July 1, read Elliott Wave International's Europe-focused publications free during the ongoing FreeWeek: Europe event.

"Free" means free. There is no catch. There is no credit card required. You can see where Europe's key markets and economies are headed next, according to Elliott waves. Just click the link below for instant access to the latest forecasts.

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This article was syndicated by Elliott Wave International and was originally published under the headline Europe's Banking Sector: When (and Why) the Rout Really Began. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

U.S. Long Bond: Let's Review the "Upward Point of Exhaustion"
Here's an update on the trend of 30-year U.S. Treasuries since the historic early March price moves

By Elliott Wave International

Back in early March, the behavior of the bond market was reminiscent of what unfolded during the depths of the 2007-2009 financial crisis.

Prices and yields were making major moves in a short period of time.

On March 5, the U.S. Treasury long bond closed at 173^30.0. The very next day, on March 6, the long bond rallied to 180^19.0, a whopping 6+point move, reaching a new all-time high.

But the rally had more to go.

On March 9, Elliott Wave International's U.S Short Term Update, a publication which provides near-term forecasts for major U.S. financial markets three times a week, showed this chart and said:

The moves in bond prices and yields are historic. The yield on 30-year US T-bonds dropped to 0.6987% intraday. At the close, 30-year yields barely had a 1% handle. The [U.S. Treasury long bond] spiked to 191^22.0 and the DSI Indicator (trade-futures.com) is at 98% bond bulls. Prices surged through the ... trendline but then pulled back to close right on it. Might this be the point of upward exhaustion? In just two days, prices have rallied 21 points. Junk-to-U.S. treasury spreads have surged to 550 basis points, the widest since July 2016.

As it turned out, on that very day, U.S. long bond prices did reach "the point of upward exhaustion."

Here's what's happened since. This chart is from the June 5 U.S. Short Term Update, which noted that March 9 high and said:

[U.S. Treasury long bond futures] are working their way down. ... Market moves are never a straight line, but the decline is developing impulsively.

Many investors "diversify" into bonds to shield themselves from the volatility of the stock market.

However, market participants can lose just as big in the bond market.

The U.S. Short Term Update identifies price targets, which are in accordance with the long bond's Elliott wave structure.

As Frost & Prechter's Elliott Wave Principle: Key to Market Behavior notes:

It is our practice to try to determine in advance where the next move will likely take the market. One advantage of setting a target is that it gives a sort of backdrop against which to monitor the market's actual path.

The Wave Principle can be applied to bonds, as well as stocks, gold, currencies and other widely traded markets.

If you'd like to learn more about the Wave Principle, you can access the online version of Elliott Wave Principle: Key to Market Behavior, free.

All that's required is a free Club EWI membership. Club EWI is the largest Elliott wave educational community in the world.

Follow this link to get started: Elliott Wave Principle: Key to Market Behavior, free access.

This article was syndicated by Elliott Wave International and was originally published under the headline U.S. Long Bond: Let's Review the "Upward Point of Exhaustion". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

NASDAQ: Some Historical Insights into Techno-Mania

By Elliott Wave International

No doubt, you've heard: The tech-heavy Nasdaq Composite just passed the 10-thousand mark for the first-time ever, even as the DJIA remains below its February high.

This infatuation with technology is nothing new.

Indeed, EWI's publications have long noted that the most important peaks of the past 200 years have been associated with periods of intense technological advance.

As far back as the 1835 peak, market participants were enamored with electricity, photography, blast furnaces for the mass production of iron and indoor plumbing. In 1929, investors placed their hopes on commercial air flight and radio. In 1966, futurists were envisioning colonies on the Moon. And, in the year 2000, the shares of internet companies were skyrocketing.

At the time, our January 2000 Elliott Wave Financial Forecast, a monthly publication which provides analysis and forecasts for major U.S. financial markets, offered the following assessment of the technology sector:

In a bear market, reason, technology and science do not get the same respect. The prominence of its recent veneration suggests that a flight from them may be just around the corner.

As the chart shows, the NASDAQ topped in March 2000 -- two months after the January 2000 peak in the DJIA -- and declined 78% over the next 31 months.

The same topping sequence happened at the October 2007 peak on a shorter-term time basis. The Dow peaked on October 11, 2007 and the NASDAQ held up for several more weeks, topping on October 31, 2007. The market then declined more than 55% until March 2009.

How about here in mid-2020? Are investors facing another top in the technology sector?

After all, the DJIA peaked in February while the Nasdaq Composite just hit an all-time high.

Of course, it remains to be seen whether the current juncture unfolds in the same way.

Yet, Elliott Wave International's June 8 U.S. Short Term Update, a thrice weekly publication which provides near-term forecasts for key U.S. financial markets, provided this insight:

History shows the NASDAQ topping last at the end of strong rallies.

Right now, EWI's analysts are discussing an Elliott wave formation in the NASDAQ's price chart.

If you're new to Elliott wave analysis or need to brush up on your Elliott wave knowledge, you can read the online version of the "must read" book, Elliott Wave Principle: Key to Market Behavior, 100% free.

As this Wall Street classic notes:

The primary value of the Wave Principle is that it provides context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market's general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.

All that's required to enjoy free access to Elliott Wave Principle: Key to Market Behavior is a Club EWI signup. Club EWI is the world's largest Elliott wave educational community and membership is also free.

Simply follow this link to get started: Elliott Wave Principle: Key to Market Behavior, free access.

This article was syndicated by Elliott Wave International and was originally published under the headline NASDAQ: Some Historical Insights into Techno-Mania. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Silver: How to Gauge the Crowd's Mindset
Watching out for sentiment extremes helps you avoid getting "caught up with the crowd"

By Elliott Wave International

Simply put, a market sentiment extreme is a situation when most everyone has already taken a bullish or bearish position in a financial asset, leaving almost no one left to buy or sell.

Silver provides an excellent case study.

Let's briefly go back to April 18, 2011, when Elliott Wave International's U.S. Short Term Update, which provides near-term forecasts for major U.S. financial markets thrice weekly, showed this chart and said:

The 10-day average of Market Vane's Bullish Consensus has now risen to 93.3%, reflecting a broad consensus among advisors that silver will continue even higher. The Daily Sentiment Index of traders pushed to 97% bulls as of Friday's close. ... Extremes are extremes and have to be recognized as such otherwise one gets caught up with the crowd and fails to extricate themselves at a reversal.

Just a week later, silver hit a high of $49.91 and in less than three weeks, the price had plummeted 35%.

Now, sentiment measures are not always precise timing indicators. Markets can stay overbought or oversold for a long time. Still, extremes can be quite valuable when used along with the Elliott wave model, which was also signaling a turn in silver's price trend in April 2011.

In the past nine years, silver prices have traded well below their 2011 high, but there have been rallies.

This brings us to 2020.

On May 11, a well-known precious metals website sported this headline:

Silver prices to soar by 40%+, here's the case ...

They proceeded to outline a bullish case that supported their views of even higher silver prices to come.

They may end up being right, however, the May 20 U.S. Short Term Update showed this chart and said:

[Silver]'s rally has coincided with a surge in the Daily Sentiment Index to 91%. Traders are more optimistic toward silver's future prospects than at any time since the peak at $19.69 on September 4, 2019 (95%). The only other comparable reading was on February 21 of this year, when the DSI rose to 87%. The prior sentiment extremes corresponded with price highs. Silver declined 41% from September 2019 to March 18, at which time the DSI dropped to just 8% bulls. The environment has now come full circle. Today's new intraday extreme was not confirmed by gold.

Just like back in 2011, today silver's Elliott wave pattern provides even more insight into what to expect next for the precious metal.

If you'd like to learn more about Elliott wave patterns, Elliott Wave International has made the online version of the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior available for free.

All that's required to access the wealth of information in the book is a free Club EWI signup. Club EWI is the world's largest Elliott wave educational community. When you join, you get free access to resources, reports and videos which provide you with Elliott wave insights on investing and trading, the economy and social trends that you will not find anywhere else.

Follow this link for your fast and free Club EWI signup: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Silver: How to Gauge the Crowd's Mindset. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Fibonacci Reveals the Stock Market's Next Big Move
Scientists speculate that Elliott waves are the stock market's "critical structure"

By Elliott Wave International

The stock market's recent triple-digit swings might have many investors wondering if the path of prices is completely random.

But, as random as prices may appear, EWI's analysts can assure you that a recognizable Elliott wave pattern is unfolding. In other words, we've been here before, and we have a good idea of how it's going to turn out.

No, the stock market is not random. In fact, Elliott waves are the clearest when volatility is the wildest! You see, volatility is driven by investors' emotions, and Elliott wave price patterns in market charts are nothing more than a reflection of this investor psychology.

What's more: investor psychology unfolds in those recognizable and repetitive patterns that I just mentioned, whether on an intraday basis, day-to-day or across longer time frames.

Even independent scientists say so.

Consider this 1996 quotation from "Stock Market Crashes, Precursors and Replicas" in France's Journal of Physics:

We speculate that the 'Elliott waves' . . . could be a signature of an underlying critical structure of the stock market.

EWI founder Robert Prechter put it this way:

Scientific discoveries have established that pattern formation is a fundamental characteristic of complex systems, which include financial markets. Some such systems undergo "punctuated growth," [or] building fractally into similar patterns of increasing size.

Nature is full of fractals.

Consider branching fractals such as blood vessels or trees: A small tree branch looks like an approximate replica of a big branch, and the big branch looks similar in form to the entire tree.

Now consider that most of nature's fractals are governed by the Fibonacci sequence. It begins with 0 and 1, and each subsequent number is the sum of the previous two:0,1, 1, 2,3,5,8,13,21,34,55 and so on. The Fibonacci sequence also governs the number of waves that form in the movement of aggregate stock prices.

Take a look at this figure from the Wall Street classic book, Elliott Wave Principle:

The book notes:

The essential structure of the market generates the complete Fibonacci sequence. The simplest expression of a correction is a straight-line decline. The simplest expression of an impulse is a straight-line advance. A complete cycle is two lines. In the next degree of complexity, the corresponding numbers are 3, 5 and 8. This sequence can be taken to infinity. The fact that waves produce the Fibonacci sequence of numbers reveals that man's collectively expressed emotions are keyed to this mathematical law of nature.

Learn How You Can Use Fibonacci to Improve Your Trading

If you'd like to learn more about Fibonacci and how to apply it to your trading strategy, download the free 14-page eBook, How You Can Use Fibonacci to Improve Your Trading.

EWI Senior Tutorial Instructor Wayne Gorman explains:

The Golden Spiral, the Golden Ratio, and the Golden Section
How to use Fibonacci ratios/multiples in forecasting
How to identify targets and turning points in the markets you trade
And more!

See how easy it is to use Fibonacci in your trading.

This article was syndicated by Elliott Wave International and was originally published under the headline Fibonacci Reveals the Stock Market's Next Big Move. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

How a Simple Line Can Improve Your Trading Success
Elliott Wave International's Jeffrey Kennedy explains many ways to use this basic chart tool

By Elliott Wave International

The following trading lesson has been adapted from Jeffrey Kennedy's eBook, "Trading the Line -- 5 Ways You Can Use Trendlines to Improve Your Trading Decisions."

"How to draw a trendline" is one of the first things traders and investors learn when they study technical analysis. Typically, they quickly move on to more advanced topics and too often discard this simplest of all technical tools.

Yet you'd be amazed at the value a simple line can offer when you analyze a market. As Jeffrey Kennedy, editor of Elliott Wave International's Trader's Classroom service, puts it:

"A trendline represents the psychology of the market, specifically, the psychology between the bulls and the bears. If the trendline slopes upward, the bulls are in control. If the trendline slopes downward, the bears are in control. Moreover, the actual angle or slope of a trendline can determine whether or not the market is extremely optimistic or extremely pessimistic."

In other words, a trendline can help you identify the market's trend. And, "the trend is your friend," remember? Consider this example in the price chart of Google.

That one trendline -- drawn between the lows in 2004 and the lows in 2005 -- provided price support for several corrective retracements over the next two years. Each time prices would touch that line, they would rebound higher and higher.

That's pretty basic. But there are many more ways to draw trendlines. For example, when a market is in a correction you can draw a trendline -- and then draw a parallel line to create a channel. You'll find that it often "contains" the corrective price action. When price breaks out of this channel, there's a good chance the correction is over and the main trend has resumed. Here's an example of a trend channel in a chart of Soybeans. Notice how the upper trendline provided support for the subsequent rally.

Bottom line is, if you've been considering adding technical analysis to your arsenal, know that it doesn't have to be complicated. As Jeffrey Kennedy likes to tell his students, "A kid with a ruler can make a million bucks in the stock market if he/she knows how to draw a trendline."

5 Ways You Can Use Trendlines to Improve Your Trading Decisions

Learn five ways to draw trendlines that will help you to identify support and resistance, the end of a move, and changes in trend -- critical information for your trading success.

Learn how to get free, instant access to this resource.

This article was syndicated by Elliott Wave International and was originally published under the headline How a Simple Line Can Improve Your Trading Success. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

A Timely Lesson for Today’s Stock Market Investors
"The names may change, but the psychology remains the same."

By Elliott Wave International

Have you ever compared chart patterns from history with financial markets today? Elliott Wave International can show you the unique value of doing exactly that.

Why?

Because patterns on market charts repeat themselves. It happens across the globe, regardless of time period. When a still-unfolding pattern in the present looks a lot like a chart from the past, the price action to come may well remain on that earlier path.

Which means you can anticipate what's next. [Ed. note: this video link shows you an example]

As the book The Mania Chronicles (2009) by Peter Kendall and Robert Prechter says:

The names may change, but the psychology remains the same.

The Mania Chronicles is an account of the financial bubble between 1995 and 2008, and it illustrates the point with this September 2000 chart and commentary:

Since January [2000], the Elliott Wave Financial Forecast has been tracking the NASDAQ's uncanny resemblance to the Japanese Nikkei-225 in 1989 and 1990. Now that it has fallen and bounced, it has acquired a look that is also very similar to the post-peak performance of the 1929 DJIA, the 1987 DJIA and the 1997 Hong Kong Hang Seng index.

In all cases, the manic final run to all-time highs was followed by an initial leg down that led to a three-wave countertrend rebound, the classic Elliott wave signature of a correction. Look closely, and you will notice that these rebounds usually start with a big up day (sometimes on a gap) that fools the bulls into thinking that a major bottom has been recorded. The rallies last mere days, though, and then prices turn down in a crash. The NASDAQ gapped higher off its May low at 3043 and then traced a three-wave move to the September 1 high of 4260. The decline since then has violated the trendline support that contained the entire countertrend rally.

…The clock is ticking for the start of the "cascading phase" of the pattern. Prices may rally briefly, but a severe decline is likely.

As we now know, the NASDAQ did cascade downward into 2002, with the entire 2000-2002 bear market consuming 78% of the index's value.

Lately, Elliott Wave International has also been reviewing other chart formations with similarities to the present.

In July 2017, the Elliott Wave Financial Forecast showed this chart and said:

The chart shows [a] succession of tops. The bottom four panels show peaks in real estate, commodities and bonds since 2006, and an impending high in stocks. The topping sequence is similar to that which occurred during the last peak of Supercycle degree, wave (III) in 1929. The current top is a Grand Supercycle degree peak ….

Since we showed that chart in July 2017, yet another chart pattern surfaced in the stock market -- and it's eerily similar to 1929. EWI's Robert Folsom reveals that pattern, in his Chart of the Day video titled "Believe Your Own Eyes: Ghost of a Stock Market Past in the Present." Follow this link to watch the video.

The Loonie Takes Flight -- BUT a "Labor Miracle" is NOT the Reason Why
One day before the jobs numbers went viral, Elliott wave analysis already called for a USDCAD decline

By Elliott Wave International

Friday December 1 was a lucky break for loonie bulls. That day, the government agency Statistics Canada revealed the nation's economy added 79,500 new jobs in November, "blowing past" the 10,000 that economists expected. As one major news source described it:

"Canadian dollar posted its biggest gain in nearly three months against its U.S. counterpart on Friday after a stronger-than-expected domestic jobs data fueled expectations for further Bank of Canada interest rate hikes early next year..."

"The labor miracle in Canada continues." (Dec. 1 Reuters)

Absolutely, a jobs number that's EIGHT times bigger than expected is a significant event for economists; some would even call it "miraculous." But here's the part we have trouble with: The spike was NOT the cause for the Canadian dollar's surge.

The reason we know that is because Elliott wave analysis foresaw a loonie rally before the jobs "miracle" was released.

On November 30, a day before the surprise numbers went viral and stirred up a media frenzy, our Currency Pro Service editor Jim Martens set the stage for a decline in the USDCAD: (a falling U.S. dollar/rising Canadian dollar)

Here is Jim's analysis from his November 30 Currency Pro Service intraday update:

November 30 2:30 PM:

"USDCAD pushed to a new high on the day. Despite the new high the rally from 1.2672 might still represent wave b of a larger flat correction. A double top with 1.2915 would best serve the flat scenario. It would lead to a wave c decline that reaches below 1.2666. -- Jim"

Jim also referenced the upcoming jobs data report:

"Unemployment Claims is the next high impact economic release due out in the U.S. at 8:30 AM ET [Friday morning]."

Obviously, Jim had no way of knowing that the jobs claims would outperform expectations eight-fold. His analysis wasn't based on the "fundamental" data, but rather on the Elliott wave pattern unfolding on the USDCAD's price chart.

The next chart shows you how the currency pair followed its Elliott wave script to a T, with the greenback plunging and the loonie rising.

What makes forecasts like these possible is the fact that Elliott wave analysis tracks and forecasts market psychology. It's the collective psychology of market players that create trends.

The loonie was poised to strengthen against the dollar regardless of what the labor report had said; there didn't have to be any CAD-bullish news, period.

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This article was syndicated by Elliott Wave International and was originally published under the headline The Loonie Takes Flight -- BUT a "Labor Miracle" is NOT the Reason Why. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

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