5 “Tells” that a Market May Be About to Reverse

Watch This Indicator if You Want to Get Tipped Off to Approaching Volatility

By Elliott Wave International

---

You're hearing a lot of explanations as to what's going on with the stock market. Here's an explanation you won't find in the mainstream – and it's one of the most useful of all.

---

The stock market's volatility from late July through early October was extraordinarily low. For 50 straight days the S&P 500 had not closed more than 0.8% in either direction, the longest such streak since 1968.
Yet, on October 3, all that changed. The markets dropped hard… and the VIX suddenly spiked even harder.
The sudden explosion in volatility blindsided almost everyone – investors, media talking heads, economists and market watchers alike. Volatility is a great disruptor, but not in a Silicon Valley sense. Instead, think: bull in a China shop.
Could anything have foreseen this sudden reversal?
Most investors, and even pros, don't realize it: YES!
Several indicators reliably predict volatility. You just have to know about them. (For a good overview of the best ones, check out 5 Tells a Market May Be About to Reverse.)
Here's one: Watch the "bets" made by so-called Large Speculators, hedge funds and the like. As explained below, this is a contrary indicator. Here's what one market analyst, Steven Hochberg, told his subscribers about the indicator on October 8th, just before volatility spiked and stocks plunged:

Large Speculators are making their largest bet in nearly a year that market volatility will remain subdued. Last week, this cohort of speculators increased their net-short position in VIX futures to 140,444 contracts, the largest bet on a low VIX since November 2017. … Large Specs often make their biggest bets near trend reversals, catching them in wrong-way bets at the wrong time.

Large Specs and other "big boys" tend to make "wrong-way bets at the wrong time." That propensity was again on display just two days after the forecast you see above -- on Oct. 10, when the DJIA closed more than 800 points lower. That was the index's worst day in eight months, and the worst whipping for technology shares in seven years. Moreover, the volatility continued the very next day, with the DJIA closing down another 545 points.
Of course, volatility implies moves in both directions. By Oct. 16, the DJIA closed up more than 500 points, only to surrender more than 300 points on Oct. 18. Then came other triple-digit declines on Oct. 22-23.
The bottom line is that watching large speculators (and other sentiment metrics) can prepare you to take advantage of volatility rather than being blindsided by it.
If you are an investor who wants to be ready for volatility, download the 5 Tells a Market May Be About to Reverse report here, instantly. It's 100% free!

FANG vs. BANG Stocks: Which is the Better Bet?

A recent MarketWatch article encouraged traders to "Forget Facebook and Apple and buy cheap BANG stocks." You may be wondering if that's really a good strategy.
Our friends at Elliott Wave International asked their Senior Metals Analyst, Tom Denham, for his take.
Tom was happy to provide an outlook for BANG stocks (Barrick Gold, Agnico Eagle, Newmont Mining and Goldcorp) vs. technology FANG stocks (Facebook, Apple, Netflix and Google) in a new, free video.
Get free answers now.

Will the Fed’s Rate Hikes Choke the Stock Market Rally?

Fact: The direction of interest rates does not determine the stock market's trend

By Elliott Wave International

Investing is hard. You, like many others, probably watch financial TV networks, read analysis, listen to talk shows and talk to fellow investors, trying to understand what's next.
One popular stock market "indicator" is interest rates. Analysts parse every word from the Fed, hoping they hear a clue about interest rates. They assume that falling rates means higher stock prices, while rising rates means lower stocks.
But does the conventional wisdom about interest rates and stocks square with reality? Let's do a brief historical review.
From October 1974 to December 1976, the stock market rose as the Fed funds rates trended lower. This occurred again from July 1984 to August 1987. Conversely, stock prices faltered as interest rates climbed from January 1973 to October 1974 and again from December 1976 to February 1978. So far, so good: rates up/stocks down, or vice versa.
But stock prices have also fallen as interest rates declined -- more than once. Take a look at the chart below. The commentary is from the February 2010 Elliott Wave Theorist:

[The chart] shows a history of the four biggest stock market declines of the past hundred years. They display routs of 54% to 89%. In all these cases, interest rates fell, and in two of those cases they went all the way to zero!

The next chart shows you when stocks and interest rates trended higher together. You can see the Dow rise from March 2003 to October 2007 as rates climb from around 1% to over 5%.

Here's the point: There is no consistent relationship between interest rates and the stock market.
That doesn't mean volatility will be absent around the time of a Fed meeting. But, if that ever turns out to be the case, keep this in mind from a classic Elliott Wave Theorist:

The Fed's decision will not cause any such volatility; it just may (or may not) coincide with it. Whether volatility continues around the Fed's meeting is up to the markets, not the Fed... [The] Fed's meeting, therefore, is not crucial, pivotal, historic or momentous. It is mostly irrelevant.

Investing is hard, but believing in the myth that interest rates have a big influence on the stock market makes it even harder. And, we have several more popular myths to dispel for you in our free report, Market Myths Exposed.
Did you know that the vast majority of portfolios are built on false assumptions? These false assumptions -- or Market Myths -- have been passed down across generations. They are so baked into investor psyche that no one ever thinks to challenge them... but we do. Do earnings really drive stock prices? Can the FDIC actually protect you? Is portfolio diversification a smart move? Download Market Myths Exposed now and find out whether your portfolio is built on flawed foundations. We guarantee you'll be shocked to find the truth.
Sign up now and get FREE access to The Market Myths Exposed eBook.

7 Days of Free Forecasts

11 Top FX Markets + Bitcoin, Ethereum & Litecoin

Forex FreeWeek | October 3-10, 2018

Forex FreeWeek

It might not feel like it, but you only have a couple of months left to hit your 2018 trading goals.
Our friends at Elliott Wave International (EWI) can help you get there. Free.
In fact, their Forex FreeWeek event is worth your time even if you’re not actively trading forex.
On October 3-10, EWI opens the doors to their premium-grade Currency Pro Service. For the first time, you get more than their FX forecasts – you also get their crypto predictions.
Bitcoin, Ethereum, Litecoin, EURUSD, USDJPY, GBPUSD and more -- you get intraday and long-term projections for the 14 most-traded FX pairs and cryptos, yours free for a week.
You also get to test-drive EWI's brand-new Pro Services portal -- easy to navigate, mobile-friendly, audio-alert enabled, and more.
Bitcoin, EURUSD and others will likely surprise many traders in the weeks ahead. You get a front-row seat to these new FX opportunities, free.
EWI's promise to you: At the end of FreeWeek, you’ll see more clarity and predictability in FX markets than ever before.
Yes! I want free FX + crypto forecasts for 7 days now!

Will the Fed’s Rate Hikes Choke the Stock Market Rally?

Fact: The direction of interest rates does not determine the stock market's trend

By Elliott Wave International

Investing is hard. You, like many others, probably watch financial TV networks, read analysis, listen to talk shows and talk to fellow investors, trying to understand what's next.
One popular stock market "indicator" is interest rates. Analysts parse every word from the Fed, hoping they hear a clue about interest rates. They assume that falling rates means higher stock prices, while rising rates means lower stocks.
But does the conventional wisdom about interest rates and stocks square with reality? Let's do a brief historical review.
From October 1974 to December 1976, the stock market rose as the Fed funds rates trended lower. This occurred again from July 1984 to August 1987. Conversely, stock prices faltered as interest rates climbed from January 1973 to October 1974 and again from December 1976 to February 1978. So far, so good: rates up/stocks down, or vice versa.
But stock prices have also fallen as interest rates declined -- more than once. Take a look at the chart below. The commentary is from the February 2010 Elliott Wave Theorist:

[The chart] shows a history of the four biggest stock market declines of the past hundred years. They display routs of 54% to 89%. In all these cases, interest rates fell, and in two of those cases they went all the way to zero!

The next chart shows you when stocks and interest rates trended higher together. You can see the Dow rise from March 2003 to October 2007 as rates climb from around 1% to over 5%.

Here's the point: There is no consistent relationship between interest rates and the stock market.
That doesn't mean volatility will be absent around the time of a Fed meeting. But, if that ever turns out to be the case, keep this in mind from a classic Elliott Wave Theorist:

The Fed's decision will not cause any such volatility; it just may (or may not) coincide with it. Whether volatility continues around the Fed's meeting is up to the markets, not the Fed... [The] Fed's meeting, therefore, is not crucial, pivotal, historic or momentous. It is mostly irrelevant.

Investing is hard, but believing in the myth that interest rates have a big influence on the stock market makes it even harder. And, we have several more popular myths to dispel for you in our free report, Market Myths Exposed.
Did you know that the vast majority of portfolios are built on false assumptions? These false assumptions -- or Market Myths -- have been passed down across generations. They are so baked into investor psyche that no one ever thinks to challenge them... but we do. Do earnings really drive stock prices? Can the FDIC actually protect you? Is portfolio diversification a smart move? Download Market Myths Exposed now and find out whether your portfolio is built on flawed foundations. We guarantee you'll be shocked to find the truth.
Sign up now and get FREE access to The Market Myths Exposed eBook.