This Widely Held Belief About the Trade Deficit Is Wrong

By Elliott Wave International

Every day, forecasters make predictions based on the same old tools: economic fundamentals, valuation models, polls and so on. And every day, many of those predictions miss—sometimes spectacularly. The point isn’t that traditional analysts aren’t well-educated; it’s that just MAYBE what they learned is wrong. When the same methods keep producing “misses,” “unexpecteds,” and “surprises,” it’s fair to wonder whether there’s a better way to understand markets, politics and social trends. Elliott Wave International has spent decades exploring exactly that possibility.

The widespread assumption is that trade deficits are bearish. But what does the evidence show?

This chart, from The Socionomic Theory of Finance, reveals that had economists expressed relief whenever the trade deficit began to expand and concern whenever it began to shrink, they would have quite accurately negotiated the ups and downs of the stock market and the economy for 40 years.

Over the span of these data, there has been a consistently positive—not negative—correlation among the stock market, the economy and the trade deficit.

So, the trade deficit’s widely presumed effect is 100% wrong.

Learn what other assumptions you could be falling for when you read Chapters 1 and 2 of Robert Prechter’s book, The Socionomic Theory of Finance – free.

This article was syndicated by Elliott Wave International and was originally published under the headline This Widely Held Belief About the Trade Deficit Is Wrong. 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.

Craig on Crude — Bullish Near the Low; Bearish Near the High

By Elliott Wave International

Elliott Wave International's energy specialist, Steve Craig, just delivered a textbook example of why Elliott wave analysis can be so valuable: He identified the low in crude before the turn, tracked the advance as it unfolded, and then alerted his readers that crude was peaking.

On July 2, Craig told readers:

“[The] most likely wave count suggests significantly higher prices once the Primary wave 3 advance kicks in gear… RSI and stochastics have registered oversold readings and the DSI reached a bearish extreme… the market is getting ripe for an upward reversal.”

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Five days later, as crude began to turn higher, Craig’s Energy Pro Service recognized the change:

“Crude’s late-session advance offers an aggressive hint that the Primary wave ((2)) low is in place.”

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That was the beginning. Crude subsequently surged from its low near $68 to more than $93.

And then, Craig’s Elliott wave analysis recognized a change. On July 22, he warned:

“[An] interim top should be drawing near.”

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The following day, with crude still advancing, Craig’s analysis became more specific:

“I continue to suspect that Crude is in the latter stages of the Intermediate wave (1) advance.”

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And on July 24, with crude near its high, he said:

“[The] Intermediate wave (1) peak is in place.”

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What happened next?

The charts in the report show the progression clearly: a forecast for “significantly higher prices” while crude was still near its low, recognition that the turn had occurred, then increasingly specific warnings as the rally approached its peak.

That’s why you should read EWI's Elliott wave energy analysis. It doesn’t just explain yesterday’s market in hindsight, like other commentary so often does. It gives you a framework for anticipating what may happen next — and for recognizing when the outlook has changed.

Get more Energy market highlights FREE inside EWI's must-read report >

This article was syndicated by Elliott Wave International and was originally published under the headline Craig on Crude — Bullish Near the Low; Bearish Near the High. 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.