Market Minute - December, 19, 2018

By Elliott Wave International

Good afternoon and welcome to our first installment of the Elliott Wave Market Minute.
The big story of the day is in U.S. Stocks.
The Dow Jones Industrial Average topped out at 24,057 and then plummeted to a new intraday low for the year of 23,162. The index also made a new closing low at 23,323.
The S&P 500 hit a high of 2,585 and a low of 2,488, closing down 39 points at a yearly low of 2,506. The S&P's range of nearly 100 points was the biggest since February 9th. Today was also the first day that the index closed below its 7-year trendline connecting the lows of 2011 and 2016 on log scale.
Nasdaq futures topped at 6,610 and made a low of 6,301, closing at 6,352.
Today is the first day since February that the Dow and S&P made joint new intraday and closing lows.
The stock indexes topped one minute after 2:00, when the Fed announcement began. Buying was so strong that the Emini S&P futures traded briefly at 5 points above fair value, the Nasdaq futures 15 points above fair value.
774 stocks closed up while 2,105 closed down. TRIN was 1.19.
TICK today reached a low of -1,560, the most extreme negative reading since October 29.
The stock market's volatility was nothing compared to Bitcoin Cash, which was up 31% today.
Gold rallied at the market open, hitting a high of 1,262, but dropped into negative territory in the afternoon, bottoming out at 1,245 just before the close.
Silver came within 5 cents of registering a new multi-month high, but fell just short of that achievement and closed down 5 cents at 14.64.5.
Find out what is likely to happen tomorrow. Tune into tonight's Elliott Wave Short Term Update, which will be posted at 5pm Eastern.

This article was syndicated by Elliott Wave International and was originally published under the headline . 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.

If You Aren’t Making Music with Commodities, Try This Song Instead

Cocoa's 2016-7 bear market reversal was in total harmony with one kind of analysis

By Elliott Wave International

If financial markets were styles of music, equities, especially the most stable Big Board stocks, are like great classical compositions: They're made up of consistent, steady tempos you could listen to all day with the occasional booming or crashing note.
Commodities are different. They're the jazz players delivering choppy, frenetic tunes with jolting chord changes.
It's easy to write it off as chaos; to believe these markets open every morning as a blank slate, riffing off each other or external "vibes" in the moment. That's the very basis of fundamental market analysis and its reactive claim that outside news events drive price action.
But that's not the only option. Maybe you've heard of technical market analysis? It's based on a closed system of values, such as momentum, relative strength, bar patterns, Japanese candlesticks, and so on -- that provide an objective way to measure near-, and long-term future price trajectories.
A popular choice for market "techies" is Elliott wave analysis. It's incredibly user-friendly, thanks to the fact that there are only five core Elliott wave patterns to remember. One of them is called an impulse wave, defined as a five-wave move in the direction of the larger trend in which:

• Wave 2 never retraces 100% of wave 1
• Wave 4 does not enter the price territory of wave 1
• Wave 3 is never the shortest among waves 1, 3, and 5

Wave 3 is never the shortest because it's usually the most powerful wave in the sequence. Ralph Nelson Elliott himself described third waves as "wonders to behold." Think of the part in a song that builds and builds and then bursts into crescendo (price surge) or quiets into decrescendo (price selloff). That's a third wave.

Cocoa: From Rockstar to Has-Been

Remember the gut-wrenching crash that occurred in cocoa back in 2016-7 in which prices plummeted 40%-plus to a 10-year low? Turns out, that was an Elliott third wave in action!
Not everyone originally saw it that way, as memory serves.
See, after a record year of gains in 2015, the fundamental backdrop in cocoa going into 2016 was fully-loaded to the bull side, including: a global supply deficit, production shortfall, rocketing demand, and a supply-eroding El Nino in West Africa.
According to the news-following analysts, cocoa prices were set to "riff" off these bullish chords and makes sweet gains, as these news items from the time confirm:

• "Cocoa futures soar as global chocolate demand grows... [Chief market strategist] doesn't see the uptrend slowing down anytime soon." (Nov. 1, 2015 CNBC)
• "Cocoa is a long-term bull" (June 20, 2016 Seeking Alpha)
• "Cocoa Futures Savoring a Tasty Upward Swing... Cocoa could prove to be a delicious landing spot for commodities investors targeting opportunities as far into the future as 2018." (Sept. 1 The Street)

But for Elliott Wave International's chief commodities analyst Jeffrey Kennedy, cocoa prices were singing a very different tune; namely bearish. In his July 2016 Monthly Commodity Junctures' "Featured Market" video update, Jeffrey presented this chart and explained how cocoa prices were ideally positioned for a powerful wave three decline. In Jeffrey's own words:

"We've seen a decisive break of the lower boundary line of the corrective price channel. This price action confirms that the counter-trend [rally] that's been in force since January of this year is finally complete.

"We can now anticipate this larger wave three selloff targeting at the least 2194. This is very, very exciting and opens the door for further selling well into 2017..."

From there, cocoa prices hit the skids, reversing from a near 5-year high to a 10-year low into mid-2017 before pressing the brakes.

(Editor's Note: See and hear Jeffrey Kennedy's analysis of four major commodity markets -- sugar, soybeans, lean hogs and cotton -- for FREE!)
From a fundamental, news-moves-markets perspective, cocoa's bear market crash sounded like chaos; a move with no ties to the clearly bullish "score" laid out before it.
But from the view of technical analysis, specifically Elliott wave analysis, the market's reversal was in complete harmony with the objective, third wave pattern in which prices were developing.
Take part of this all-inclusive event from our friends at Elliott Wave International and get instant access to exclusive video clips from Jeffrey's Commodity Junctures lessons, which reveal his long-term forecasts for sugar, soybeans, lean hogs, and cotton in the months and years ahead.

This article was syndicated by Elliott Wave International and was originally published under the headline . 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.

There is evidence that deflationary forces are already taking hold in America

By Murray Gunn

When I was writing technical analysis reports for the customers of a major global bank, I received some interesting feedback from one of the bank's relationship managers. The customers liked the reports, she said, but it would be good if I made them less "technical." Making technical analysis reports less technical, hmmm. (To be fair, it is actually good advice because striking a balance between technical details and readability is an art.) Sometimes, though, an explanation of a concept cannot help but delve into some detail. So please bear with me on this one.
Evidence is emerging that banks in the U.S. are struggling to find the money required to fund their operations. The "Fed Funds Rate" that gets the headlines when it is changed by the Open Market Committee of the Federal Reserve is not the whole story when we are looking at the technicalities of the money market. That rate is actually the Fed Funds Target Rate (Upper Bound). You see, the Fed sets an interest rate range, currently between 2% and 2.25%. Every day, banks in America lend and borrow the reserves they hold at the Fed at a rate which fluctuates in between that range. That rate is called the Fed Funds Effective rate. If there is increasing demand for money from banks, the Effective Fed Funds rate will drift higher. Contrary to popular belief, therefore, the Fed does not control the Fed Funds rate.
But wait, there's yet another interest rate to consider. The Fed uses a rate called the Interest on Excess Reserves (IOER) as a tool to manipulate (sorry, influence) how close the Effective Fed Funds rate comes to the Target Rate (Upper Bound). If the Fed thinks that the Effective Rate is drifting too high, it will lower the IOER to encourage the Effective Rate back down (if the Effective Rate was above the IOER, banks would remove their excess reserves from the Fed to make more money by lending at the higher rate). I do hope you are still with me!
The Fed Funds Effective rate has been steadily rising in the range this year. In June, the Fed raised its Target Rate by 25 basis points but only raised the IOER by 20 basis points, a sign that it was concerned about the rising Effective Rate. However, the Fed Funds Effective rate has continued to rise. The chart below shows that the Effective Rate is now the same as the IOER and this indicates that there is still increasing demand for funds from banks.
The question is, why?
There are a number of explanations but one getting attention at the moment is whether banks are, essentially, running out of money. Since the Fed started taking away the liquidity punchbowl via its policy of Quantitative Tightening (QT) there has been increasing pressure on bank reserves, especially given that a lot of those reserves now have to be allocated to comply with new regulations. The relentless squeeze higher in the Fed Funds Effective rate could be a signal that banks are scrambling for funds.
The Fed itself does not buy that theory but, if there is an element of truth to it, here's the stunning conclusion. If banks are already scrambling for funding after QT has barely begun, imagine what it is going to look like in the future as the Fed seems hell-bent on continuing to reduce the size of its balance sheet. There may be a dawning realization that when you scratch the surface of the liquidity mask that the Fed created by Quantitative Easing, what lies beneath is still very ugly.

Murray Gunn has worked for several firms as a fund manager in global bonds, currencies and stocks, including long posts at Standard Life Investments, the Abu Dhabi Investment Authority and HSBC Bank as Head of Technical Analysis. He has served on the board of the Society of Technical Analysts (UK) and is editor of Elliott Wave International's European Financial Forecast Short Term Update.

This article was syndicated by Elliott Wave International and was originally published under the headline Deflation Alert: Money Already Scarce. 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 NOT to Be Among the MANY Investors Fooled by This Market Myth

By Elliott Wave International

October included a market phenomenon that left many economists and commentators scratching their heads.
US stocks and oil prices both dropped simultaneously. In fact, it was the worst month for oil in 2 years and the worst month for S&P 500 in over 7 years.
What was the "phenomenon"? Well, conventional wisdom says that rising oil prices are bearish for stocks. So, how could falling oil prices also be bearish for stocks?
In Chapter 2 of his seminal book, The Socionomic Theory of Finance, Robert Prechter covers 13 erroneous market correlations that most investor believe, but in fact are bogus. Armed with dozens of historical studies, Prechter scrutinizes the evidence regarding each claim. Here's what he writes about the supposed correlation between oil and stock prices.

(Note: If you haven't read The Socionomic Theory of Finance, you should. You'd be shocked how much of what you are fed is bogus. Learn more about the book, including how you can get it for free here.)

---
Excerpted from The Socionomic Theory of Finance by Robert Prechter
Claim #2: "rising oil prices are bearish for stocks."
It would take months to collect all the statements that economists have made to the press over the past forty years to the effect that rising oil prices are "a concern" or that an unexpected (they're always unexpected) "oil price shock" would force them to adjust or rescind their bullish outlook for stocks and the economy. Academic papers supporting this claim are legion.
For many economists, the underlying assumption about causality in this case stems from the experience of 1973-1974 after the Arab Oil Embargo, when stock prices went down as oil prices went up. That juxtaposition appeared to fit a sensible story of causation regarding oil prices and stock prices, to wit: Rising oil prices increase the cost of energy and therefore reduce corporate profits and consumers' spending power, thus putting drags on stock prices and the economy.
These headlines are compatible with this claim:

Earnings, Lower Oil Prices Rally Stocks—USA Today, April 8, 2006
Surging Oil Prices Pull Stocks Lower—ABC News, July 14, 2006

Is the claim valid?

 

In response to these very headlines, the July 25, 2006 issue of The Elliott Wave Theorist offered Figure 6, showing the preceding three-year market environment. Examine it and see if you can discern any indication whatsoever that lower oil prices make stocks rise or vice versa. As I said at the time, "Oil and stocks have trended mostly in the same direction for more than three years, so these headlines are backwards." Switching to forecasting mode, that issue added, "A falling oil price probably won't be bullish for stocks, either. When deflation takes hold, they will probably both go down together." That's exactly what happened two years later, as you can see on the left-hand side of Figure 7.

One of the most revealing headlines of this period occurred a month into oil's crash:
It's hard to lose betting on stocks as oil falls
—USA Today,
August 12, 2008
The accompanying article offered a 20-year study that predicted how much each stock sector would rise during a bear market in oil. An economist and chief portfolio manager explained, "If oil prices are falling, a key cost for both consumers and businesses is also falling. It acts as a benefit for the stock market overall." A fellow money manager agreed, saying, "Nothing bad happens if oil prices keep falling. But if oil prices turn up, uh oh."¹ The causal case could hardly have been clearer. As it turns out, the very next trading day capped a three-week stock market rally, after which the Dow began to accelerate downward in its biggest bear market in three generations, all while plunging oil prices were providing their supposed benefit to consumers, businesses and the stock market.
On February 21, 2011, the price of oil rose for a day (ostensibly on unrest in the Middle East), and U.S. stocks fell. The media once again quoted many economists warning that an "oil-price shock" would be bearish for stocks and the economy. At least three world-class news publications ² ran lead editorials detailing the financial and economic damage said oil price shock might cause. Those assertions prompted our publication of Figure 7. Observe that as oil prices crashed 78% in five months, stock prices were cut in half; and then, as oil tripled, stocks doubled. These are not minor moves that one could dismiss as being anomalous. They include the biggest, fastest decline in oil prices ever along with the deepest stock market decline in 76 years, and the fastest oil-price-tripling on record along with the fastest two-year stock market rise in 72 years. Consider also that during most of the decline in both markets a recession was in progress, and during most of the rise in both markets an economic recovery was in progress. These are palpable refutations of economists' causal hypothesis.
No one looking at these histories could wrest from them the idea that rising oil prices "shock" the stock market into a decline and the economy into a contraction and vice versa. Only those not looking at data who are married to their causal explanation and who routinely ignore evidence could tell reporters in February 2011 that a one-day rise in the oil price was bearish for stocks and that further rises in its price would wreak havoc on the stock market and the economy. Yet dozens of experts did just that, in dozens of articles.
As with our interest-rates example, an economist could account for the evidence in Figure 7 and stay true to his exogenous-cause model by reversing the direction of his exogenous-cause argument—as we did earlier with respect to the stock market and interest rates—to postulate that an expanding economy makes stock prices and oil prices rise and fall together. He could offer the following logic: As the economy expands, business picks up, so stock prices rise; and as businesses operate at higher capacity, demand for energy rises, pushing up the price of oil. That's why prices for stocks and oil go up together. That makes sense, too, doesn't it?
An economist who made that case, however, would have to tell the media that the one-day rise in the oil price was bullish and that a falling oil price would jeopardize the stock market and the economy. Would economists ever say such a thing?
---
In the rest of this chapter, Prechter investigates the correlations between stock prices and interest rates, corporate earnings, employment … and much, much more. It's an essential read for serious investors. Learn more here.

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!

This article was syndicated by Elliott Wave International and was originally published under the headline Watch This Indicator if You Want to Get Tipped Off to Approaching Volatility. 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 NOT to Be Among the MANY Investors Fooled by This Market Myth

By Elliott Wave International

October included a market phenomenon that left many economists and commentators scratching their heads.
US stocks and oil prices both dropped simultaneously. In fact, it was the worst month for oil in 2 years and the worst month for S&P 500 in over 7 years.
What was the "phenomenon"? Well, conventional wisdom says that rising oil prices are bearish for stocks. So, how could falling oil prices also be bearish for stocks?
In Chapter 2 of his seminal book, The Socionomic Theory of Finance, Robert Prechter covers 13 erroneous market correlations that most investor believe, but in fact are bogus. Armed with dozens of historical studies, Prechter scrutinizes the evidence regarding each claim. Here's what he writes about the supposed correlation between oil and stock prices.

(Note: If you haven't read The Socionomic Theory of Finance, you should. You'd be shocked how much of what you are fed is bogus. Learn more about the book, including how you can get it for free here.)

---
Excerpted from The Socionomic Theory of Finance by Robert Prechter
Claim #2: "rising oil prices are bearish for stocks."
It would take months to collect all the statements that economists have made to the press over the past forty years to the effect that rising oil prices are "a concern" or that an unexpected (they're always unexpected) "oil price shock" would force them to adjust or rescind their bullish outlook for stocks and the economy. Academic papers supporting this claim are legion.
For many economists, the underlying assumption about causality in this case stems from the experience of 1973-1974 after the Arab Oil Embargo, when stock prices went down as oil prices went up. That juxtaposition appeared to fit a sensible story of causation regarding oil prices and stock prices, to wit: Rising oil prices increase the cost of energy and therefore reduce corporate profits and consumers' spending power, thus putting drags on stock prices and the economy.
These headlines are compatible with this claim:

Earnings, Lower Oil Prices Rally Stocks—USA Today, April 8, 2006
Surging Oil Prices Pull Stocks Lower—ABC News, July 14, 2006

Is the claim valid?

 

In response to these very headlines, the July 25, 2006 issue of The Elliott Wave Theorist offered Figure 6, showing the preceding three-year market environment. Examine it and see if you can discern any indication whatsoever that lower oil prices make stocks rise or vice versa. As I said at the time, "Oil and stocks have trended mostly in the same direction for more than three years, so these headlines are backwards." Switching to forecasting mode, that issue added, "A falling oil price probably won't be bullish for stocks, either. When deflation takes hold, they will probably both go down together." That's exactly what happened two years later, as you can see on the left-hand side of Figure 7.

One of the most revealing headlines of this period occurred a month into oil's crash:
It's hard to lose betting on stocks as oil falls
—USA Today,
August 12, 2008
The accompanying article offered a 20-year study that predicted how much each stock sector would rise during a bear market in oil. An economist and chief portfolio manager explained, "If oil prices are falling, a key cost for both consumers and businesses is also falling. It acts as a benefit for the stock market overall." A fellow money manager agreed, saying, "Nothing bad happens if oil prices keep falling. But if oil prices turn up, uh oh."¹ The causal case could hardly have been clearer. As it turns out, the very next trading day capped a three-week stock market rally, after which the Dow began to accelerate downward in its biggest bear market in three generations, all while plunging oil prices were providing their supposed benefit to consumers, businesses and the stock market.
On February 21, 2011, the price of oil rose for a day (ostensibly on unrest in the Middle East), and U.S. stocks fell. The media once again quoted many economists warning that an "oil-price shock" would be bearish for stocks and the economy. At least three world-class news publications ² ran lead editorials detailing the financial and economic damage said oil price shock might cause. Those assertions prompted our publication of Figure 7. Observe that as oil prices crashed 78% in five months, stock prices were cut in half; and then, as oil tripled, stocks doubled. These are not minor moves that one could dismiss as being anomalous. They include the biggest, fastest decline in oil prices ever along with the deepest stock market decline in 76 years, and the fastest oil-price-tripling on record along with the fastest two-year stock market rise in 72 years. Consider also that during most of the decline in both markets a recession was in progress, and during most of the rise in both markets an economic recovery was in progress. These are palpable refutations of economists' causal hypothesis.
No one looking at these histories could wrest from them the idea that rising oil prices "shock" the stock market into a decline and the economy into a contraction and vice versa. Only those not looking at data who are married to their causal explanation and who routinely ignore evidence could tell reporters in February 2011 that a one-day rise in the oil price was bearish for stocks and that further rises in its price would wreak havoc on the stock market and the economy. Yet dozens of experts did just that, in dozens of articles.
As with our interest-rates example, an economist could account for the evidence in Figure 7 and stay true to his exogenous-cause model by reversing the direction of his exogenous-cause argument—as we did earlier with respect to the stock market and interest rates—to postulate that an expanding economy makes stock prices and oil prices rise and fall together. He could offer the following logic: As the economy expands, business picks up, so stock prices rise; and as businesses operate at higher capacity, demand for energy rises, pushing up the price of oil. That's why prices for stocks and oil go up together. That makes sense, too, doesn't it?
An economist who made that case, however, would have to tell the media that the one-day rise in the oil price was bullish and that a falling oil price would jeopardize the stock market and the economy. Would economists ever say such a thing?
---
In the rest of this chapter, Prechter investigates the correlations between stock prices and interest rates, corporate earnings, employment … and much, much more. It's an essential read for serious investors. Learn more here.

Ripple (XRP) Makes Huge Waves: Did You See Them Coming?

By Elliott Wave International

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This article was syndicated by Elliott Wave International and was originally published under the headline Ripple (XRP) Makes Huge Waves: Did You See Them Coming?. 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.

Successful Traders "Learn to Do Something That Almost No One Else Can Do"

Why successful financial speculators are so rare

By Elliott Wave International

Most market speculators dream about trading their way to wealth.
But, also, most discover very quickly that their list of trading "dos" and "don'ts" are just not sufficient.
The hard, cold truth is that most will fail. According to brokers' statistics, up to 90% of all traders will end up losing money. It's a steep hill to climb.
But, there is a way. As you keep reading, you'll discover how to get important insights into what makes traders successful.
In the meantime, let's start off with some words of warning from professional trader Peter Brandt, who contributed this to the April 1991 Elliott Wave Theorist (Brandt's insights are timeless):

I believe that it takes a minimum of 3 to 5 years for a person to learn enough about speculative markets and the speculative process to become a successful trader. I also believe that every successful trader has his or her unique approach to trading. I have not known two successful traders that operate in the same exact fashion. Each has found a special niche that seems to fit his personality.

The major problem is that the vast majority of individuals (80-90%) either burn out their pocketbooks or their emotional will to continue trading before they figure out the rules of the game. This is a cold and harsh reality, but a reality it is.

Robert Prechter explained why successful traders are few and far between in the June 2004 Theorist:

This discussion about the natural tendency of people to apply physics to finance explains why successful traders are so rare and why they are so immensely rewarded for their skills.

There is no such thing as a "born trader" because people are born -- or learn very early -- to respect the laws of physics. This respect is so strong that they apply these laws even in inappropriate situations. Most people who follow the market closely act as if the market is a physical force aimed at their heads. Buying during rallies and selling during declines is akin to ducking when a rock is hurtling toward you. Successful traders learn to do something that almost no one else can do. They sell near the emotional extreme of a rally and buy near the emotional extreme of a decline.

The mental discipline that a successful trader shows in buying low and selling high is akin to that of a person who sees a rock thrown at his head and refuses to duck. He thinks, I'm betting that the rock will veer away at the last moment, of its own accord. In this endeavor, he must ignore the laws of physics to which his mind naturally defaults. In the physical world, this would be insane behavior; in finance, it makes him rich.

Unfortunately, sometimes the rock does not veer. It hits the trader in the head. All he has to rely upon is percentages. He knows from long study that most of the time, the rock coming at him will veer away, but he also must take the consequences when it doesn't. The emotional fortitude required to stand in the way of a hurtling stone when you might get hurt is immense, and few people possess it. It is, of course, a great paradox that people who can't perform this feat get hurt over and over in financial markets and endure a serious stoning, sometimes to death. Many great truths about life are paradoxical, and so is this one.

Prechter won the United States Trading Championship in 1984. He made approximately 200 short-term trades as he followed hourly market data over a four-month period.
After reflecting on his trading experiences, Prechter decided to write down the guidelines you really need to trade the financial markets successfully.
Get the free report, "What Every Trader Really Needs to be Successful."

What You and Every Other Trader REALLY Need to Be Successful

Trading isn't easy. You know as well as we do how confusing and frustrating it can be.
So frustrating, in fact, that it can lead you to veer off course – and give up trading entirely.
There is a better way. Often, all a trader like you needs are a few simple tips to right the ship and set it back on course.
You can get tips from a U.S. Trading Champion.
In 1984, in a monitored account, Robert Prechter won the U.S. Trading Championship with a then-record 444% return. He later earned the title of "The Guru of the Decade" from the network today called CNBC.
Bob knows a thing or two about trading – and you can learn from him. Free.
This free special report gives you Bob's 5 tips every trader must know to win in the markets.
Read the report now, free – and put Bob's tips to good use today.

This article was syndicated by Elliott Wave International and was originally published under the headline Successful Traders "Learn to Do Something That Almost No One Else Can Do". 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.

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.

This article was syndicated by Elliott Wave International and was originally published under the headline Will the Fed’s Rate Hikes Choke the Stock Market Rally?. 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 "Strong Jobs" Don't Mean "Higher Stocks"

The stock market leads the economy, not the other way around

By Elliott Wave International

It's a wonderful thing when jobs are added to the U.S. economy.
But, as far as investing goes, history shows that you should not bet your stock market portfolio on it. Conversely, even a series of weak jobs reports doesn't mean you should bet against stocks.
This is worth mentioning because many pundits believe big economic factors like jobs determine the stock market's trend.
Consider this from CNN Money:

Solid corporate earnings coupled with continued demand for new technology bode well for the major U.S. stock indexes. So do expectations of a buoyant economy at home and a recovering one overseas. [emphasis added]

When do you think this article was published?
Well, it's hard to tell because the narrative could fit different timeframes in recent history. Plus, correlating strong earnings and the economy with gains in stocks is all too common.
That article was published on Dec. 31, 1999 -- just two weeks before the DJIA hit a milestone high and then went on to shed nearly 40% of its value through October 2002.
We saw a similar narrative near the 2007 peak. By the time June 2007 rolled around, the Elliott Wave Financial Forecast noted:

Just as advocacy of the New Economy blossomed in early 2000, a wide array of rosy long-term scenarios are now proclaiming "a special time in market history." "This group of extreme optimists believes that global economic strength will keep shares rising for much longer than has been common in previous eras." [emphasis added]

Again, the DJIA topped soon after and went into the worse bear market since the Great Depression.
Now, let's look at what happened when job numbers were weak. On Feb. 6, 2009, a headline said (Center for American Progress):

Job Losses Continue at Accelerated Pace

Wouldn't you know it -- just a month later, the stock market bottomed and went on to quadruple through January 2018. So much for the shrinking U.S. economy in 2009 and the unemployment that hit 10% in October of that year.
Even this brief overview of recent market tops and bottoms makes clear that jobs and the economy FOLLOW the stock market, not lead it.
The belief that jobs reports lead the market is just one myth.
Learn about others in our special, 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.

This article was syndicated by Elliott Wave International and was originally published under the headline Here’s Why "Strong Jobs" Don't Mean "Higher 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.

Trading Cryptocurrencies: To Win, You Must Know Where You're Wrong

See how Elliott wave analysis helped traders reduce risk in Litecoin's recent price action

By Elliott Wave International

Dear readers, if a story about the get-rich-quick promises of cryptocurrency trading is what you seek, keep on moving.
Rest assured, that story exists. It's all over the interwebs, in one form or another: jazzy headlines about average Joe So-and-So turning $1k into $1 million overnight in the crypto markets.
We're not saying it couldn't happen. People do get lucky now and again. It's just that, we're not in the business of luck. We're in the business of using objective analysis to identify high-confidence trade setups in the world's leading financial markets, inscrutable as they may be.
Sure, it doesn't have the same ring to it. But it's honest. And that's invaluable in a hyper-speculative market filled with unscrupulous coin-makers looking to take advantage of unsuspecting traders.
For more, we turn open the pages of our newly minted report Crypto Trading Guide: 5 simple Strategies to Catch the Next Opportunity
, where our Cryptocurrency Pro Service analyst, Jim Martens, extols the singular benefit of Elliott wave analysis -- its ability to limit your trading risk:

"When considering a trade, you always want to answer this question first: 'Where will I be wrong?'

"I want to know that risk. For example, a market has been falling and you're expecting a low. All of a sudden, we see what looks like a five-wave advance on a 60-minute chart. At this point, should you take action?

"No, you should wait for a three-wave decline, which would be the correction of that advance."

"Based on one rule of the Wave Principle, I know where this count becomes wrong. [Remember from Chapter 1:] Wave (2) cannot retrace more than 100% of wave (1).

"So, I draw a line at the start of wave 1. If the decline surpasses that level, I know that my count is incorrect.

"Elliott wave analysis is one of few methodologies that give us an absolute number for our protective stop."

In other words, Elliott waves allow you to identify specific points of ruin for every trade before you even start. To see how this plays out in a real-world market, we turn our attention to the August 1 Cryptocurrency Pro Service coverage of Litecoin.
There, our analysis outlined a bullish, 3rd-wave rally -- noting, however, that any upside move was contingent on wave 2 not retracing more than 100% of wave 1, just as Jim explained in the excerpt above.
From the August 1 Cryptocurrency Pro Service intraday forecasts:

"74.50 should therefore be considered the line in the sand for the bullish count. If breached, we'll have to adopt a bearish Alternate as we did for Ethereum to allow for lower before wave C of (Y) finds its bottom."

A few days later, Litecoin prices did, in fact, fall below the 74.50 handle, signaling a resumption of the downtrend. On August 5, our Cryptocurrency Pro Service made the necessary, bearish adjustment:

"74.50 hung in there tenaciously for a while, but was ultimately violated in the weekend's trading. As discussed Friday, that has called up the incomplete wave C Alternate count. "

The next chart captures the rapid descent that followed, bringing Litecoin to an eight-month low in early August before stopping.

We understand the pressure to leap headlong into the blockchain breach is intense. If you subtract the numbers "inflated through fake and deceptive activities," the average daily trading volume of crypto exchange markets is around $6 billion (Aug. 28 CNN).
But we believe there's a way to be smart and discerning about where to leap. With 1600 cryptocurrencies and counting, that starts with choosing only the most reputable markets with proven track records and transparency. Chances are, it won't be named after a comic book character or piece of fruit. Our Cryptocurrency Pro Service tracks the top three cryptos: Bitcoin, Ethereum and Litecoin.
The second requirement of a high-confidence cryptocurrency trade is knowing when your trade is wrong. This is where Elliott wave analysis is in a league unto its own.
Our free report "Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity" explains more. Each chapter shows you the power of the Elliott Wave Principle to explain some of the biggest recent moves in Bitcoin, Litecoin and Ethereum -- and how you can apply this method in your own trading, going forward. Get instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Trading Cryptocurrencies: To Win, You Must Know Where You're 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.

What's So "Cryptic" About Trading Cryptocurrencies?

Lots and lots. Trading is not easy, period. But a few things can help.

By Elliott Wave International

Here's a cool parlor trick: If you want to bring a loud, rowdy room to a screeching silence, ask if anyone can explain how cryptocurrencies work.
Cue crickets chirping.

Turns out, the "crypto" part of the name originally signified the encrypted nature of digital assets and their anonymous owners. But it's proven foretelling, as cryptocurrencies have become synonymous with a cryptic impenetrability the likes of which no modern mainstream financial market -- especially not one so fervently embraced -- has known.

Even the experts are stumped by the exact logistics involved in cryptocurrencies, as these recent opinions suggest:

• "[Cryptocurrencies] are volatile by nature and thus don't follow traditional rules and conventions." (May 22 Coindiary.net)
• "The public's fascination with cryptocurrencies is tied to a sort of mystery, like the mystery of the value of money itself, consisting in the new money's connection to advanced science. (May 21 The Guardian)

That's the bad news.
But we're happy to bring you the good news; namely: You don't have to understand how cryptocurrencies work in order to forecast them.
For Elliotticians, the ultimate skeleton key to unlocking the mystery price moves of cryptocurrencies is Elliott wave analysis. After all, cryptos, like any other market, are traded in the open marketplace, where big groups of buyers and sellers try to outsmart each other, bidding prices up or down. Whenever large groups of people engage in collective activities, group psychology emerges. And few other market-forecasting tools are as good at predicting changes in market psychology as Elliott waves.
Our new, in-depth report titled "Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity" tells you more.
Here's an excerpt from chapter one:

Strategy #1: Stand Apart from the Crowd's "Madness"

The 2013 Amazon Finance bestseller, Visual Guide to Elliott Wave Trading, states,

"If you aim to be a consistently successful trader, then you must have a defined forecasting methodology -- a simple, clear, and concise way of looking at markets to predict what's coming. Guessing or going on gut instinct won't work over the long run.

"If you don't have a defined methodology, then you don't have a way to know what constitutes a buy or sell signal."

For thousands professional and individual traders around the world, that methodology is the Elliott Wave Principle. If you're new to it, you can summarize its basic tenets as follows:

• Group psychology swings from excessive optimism to pessimism, and back again
• In the markets, group psychology forms repeating patterns in price charts
• Because these price patterns repeat, they are also predictable

Once you know which of the 13 known Elliott wave patterns your market is in, you can make a probability-based forecasts as to what's next."

But what about using this methodology on actual cryptocurrency price charts?
Well, let's pick the world's largest and first-established market, Bitcoin. On July 12, Bitcoin was eight days into a pernicious losing streak with no obvious relief in sight. Wrote one July 12 news source:
"Bitcoin is spiraling downwards, and this time the downside seems unstoppable." (FX Street)
But for our Cryptocurrency Pro Service team, a very telling price pattern emerged front and center on Bitcoin's chart: an Elliott third wave. On July 12, Cryptocurrency Pro Service prepped the bullish stage and wrote:

"A swift move up through 6390.04 will add confidence to the idea wave (ii) has bottomed and Bitcoin is headed higher. A third-wave advance, wave (iii) should eventually see Bitcoin trade well above 7000.00."

The next chart moves forward in time and shows how Bitcoin's prices rose, in-line with the Elliott wave rally scenario:

The truth is, cryptocurrencies are cryptic. Heck, when's the last time a secret person with a fake alias created an untraceable currency for people to trade on an unregulated platform? Try NEVER!
Cryptocurrencies are also volatile, and thus risky as powder kegs. Every day, a new alt ICO coin debuts, named after some science fiction character or comic book hero (see: DASH, RIPPLE, NEO, TRON, and so on). Maybe one day, one of them will become another Bitcoin.
For those investors willing to commit to only the most reputable and proven crypto markets, and to choosing price charts that only exhibit clear and definable Elliott wave patterns -- there is a way to probe the mysterious nature of crypto markets and identify high-probability setups.
Our free report "Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity" explains more. Each chapter demonstrates the power of the Elliott Wave Principle to explain some of the most unforgettable recent moves in the world's top three cryptocurrencies: Bitcoin, Litecoin and Ethereum.
The free report gives you real-world charts and commentary from our top analysts as they navigate near- and long-term trend changes few others saw coming.
For example, remember back in 2012, when Bitcoin's reputation and value was being bludgeoned to a pulp? One coin was barely worth $10. And yet, our president and Elliott Wave Theorist editor, Robert Prechter, saw a sea change in the currency's future.
Here again, "Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity" writes:

Consider this quote from the August 2012 issue of The Elliott Wave Theorist:

"Presuming Bitcoin succeeds as the world's best currency -- and I believe it will -- it should rise many more multiples in value over the years.

"Be prepared to ignore the bad news, which will give other investors reasons to justify selling at the bottom."

Result: Bitcoin went from $15 per coin in 2013 to $20,000 at its height in December 2017 -- a gargantuan 133,233% gain.

The key to success in cryptos is to approach this wild market in a way that insulates you from the hype, frenzy and rumors -- and helps you act when others flounder. Our free crypto trading guide helps you do exactly that. Read the complete "Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity" now to better understand this fascinating market and all the potential opportunities it can offer.

This article was syndicated by Elliott Wave International and was originally published under the headline What's So "Cryptic" About Trading Cryptocurrencies?. 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 Oil Prices Fell -- Stockpiles or Price Pattern?

You be the judge...

By Elliott Wave International

Let's cut right to the chart below. The shaded triangle highlights the dramatic price action in crude oil prices on August 15, when crude plummeted 3% to its lowest level in over nine weeks.

Now, according to the mainstream experts, the number one catalyst for crude's collapse was a shockingly bearish same-day Energy Information Administration (EIA) weekly inventory report, marked with the orange arrow in the bottom right of the chart.
What made the report so bearish was the fact that analysts forecast a 2.5 million decrease in oil stockpiles in the week ending August 10, while the EIA data showed a 6.8 million-barrel increase! Wrote one August 15 news source: "Crude Oil Prices Slammed by Surprise U.S. Inventories Build." (Seeking Alpha)
It's a perfect fit -- in the popular, news-moves-markets model, that is. The market was expecting one thing and got the complete opposite. Cue brutal selloff.
The problem with that model, however, is that it does investors and traders no favors. At best, it offers convenient explanations for price moves -- after they've already occurred.
Let's go back to the chart and consider the other arrow, the blue one labeled EWP, for the Elliott Wave Principle.
On August 14 -- one day before the bearish EIA report was released -- our Energy Pro Service identified a bearish Elliott wave setup on crude oil's price chart. There, Energy Pro Service editor Steve Craig outlined the most probable course for crude oil in the days ahead:

"Crude should be in the final leg of a countertrend advance, be it wave ii, or the larger-degree wave ((ii)). Resistance above the 68.37 intraday high is around 68.48 and then 69.11. On the downside, trade below 67.38 would offer an aggressive hint that a downward reversal is underway... the key point is that the larger trend is down."

What happened next?
The chart below sums it up best: Crude oil finished its wave ii and hit the skids in the 3% selloff on August 15.

Elliott wave analysis posits that the main driver of market trends is investor psychology, which unfolds as Elliott wave patterns directly on price charts.
These patterns are measurable and predictable, so they enable Elliotticians to anticipate future price moves -- before they arise.
If you are prepared to take the next step in educating yourself about the basics of the Wave Principle -- access the FREE Online Tutorial from Elliott Wave International.
The Elliott Wave Basic Tutorial is a 10-lesson comprehensive online course with the same content you'd receive in a formal training class -- but you can learn at your own pace and review the material as many times as you like!
Get 10 FREE Lessons on The Elliott Wave Principle that Will Change the Way You Invest Forever.

This article was syndicated by Elliott Wave International and was originally published under the headline Why Oil Prices Fell -- Stockpiles or Price Pattern?. 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.

Moving Averages Help You Define Trend – Here’s How

This simple moving average "works equally well in commodities, currencies, and stocksquot;

By Elliott Wave International

The "moving average" is a technical indicator of market strength which has stood the test of time.
Over 30 years ago, Robert Prechter described this indicator in his essay, "What a Trader Really Needs to be Successful." What he said then remains true today:

...a simple 10-day moving average of the daily advance-decline net, probably the first indicator a stock market technician learns, can be used as a trading tool, if objectively defined rules are created for its use.

So, what is a moving average?

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Learn How You Can Find High-Confidence Trading Opportunities Using Moving Averages
Moving averages are one of the most widely-used methods of technical analysis because they are simple to use, and they work. Learn how to apply them to your trading and investing with this free 10-page eBook from Trader's Classroom editor Jeffrey Kennedy.
Begin to improve your trading and investing with Moving Averages today! Download Your Free eBook Now.

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Elliott Wave International's Jeffrey Kennedy, a 25-year veteran of technical analysis, provides an answer:

A moving average is simply the average value of data over a specified time period, and it is used to figure out whether the price of a stock or commodity is trending up or down.

One way to think of a moving average is that it's an automated trend line.

Kennedy offers an array of examples and insights about moving averages in the instructive guide, "How to Find High-Confidence Trading Opportunities Using Moving Averages." Below, you see some of Kennedy's charts.
Let's begin with the most commonly-used moving averages among market technicians: the 50- and 200-day simple moving averages. These two trend lines often serve as areas of resistance or support, levels the market needs to "respect" in order for the trend to continue.
For example, the circled areas in the chart below show you where the 200-period SMA provided resistance in the DJIA's rally back in April-May (top circle), and the 50-period SMA provided support (lower circle):

Let's look at another widely used simple moving average which "works equally well in commodities, currencies, and stocks," according to Kennedy: the 13-period SMA.
In the sugar chart below, prices first crossed above the red SMA line, which led to a substantial rally. The circled area shows you the first time the price crossed below the SMA, which came to indicate a change in trend from bullish to bearish:

Kennedy's "How to Find High-Confidence Trading Opportunities Using Moving Averages" also informs you about a useful tool to help you avoid "whipsaws."
Indeed, the first two chapters reveal:

• The Dual Moving Average Cross-Over System
• Moving Average Price Channel System
• Combining the Crossover and Price Channel Techniques

Jeffrey Kennedy's insights are all about making you a better trader.
Learn How You Can Find High-Confidence Trading Opportunities Using Moving Averages
Moving averages are one of the most widely-used methods of technical analysis because they are simple to use, and they work. Learn how to apply them to your trading and investing with this free 10-page eBook from Trader's Classroom editor Jeffrey Kennedy.
Begin to improve your trading and investing with Moving Averages today! Download Your Free eBook Now.

This article was syndicated by Elliott Wave International and was originally published under the headline Moving Averages Help You Define Trend – Here’s How. 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.

Dreaming of a "Comfortable Retirement" on a Public Pension?

A 9-year bull market fails to close the pension gap

By Elliott Wave International

Did you realize that many U.S. pension funds are in trouble even though stocks have been rising since 2009?
Even so, many retirees expect a comfortable retirement.

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Jump on once-in-a-lifetime opportunities and avoid dangerous pitfalls that no one else sees coming. We can help you prepare for opportunities and side step risks that will surprise most investors. You can get deeper insights in Elliott Wave International's new free report: 5 "Tells" that the Markets Are About to Reverse. The insights that you'll gain are especially applicable to the price patterns of key financial markets, including the stock market, now. Read the free report now.

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Our March 2018 Elliott Wave Financial Forecast showed this chart and said:

Over the last 20 years, [a University of Michigan] poll asked the following question every month: "Compared to five years ago, do you think the chances that you will have a comfortable retirement have gone up, gone down or remained about the same?" Considering that the line between a better and worse retirement is a reading of 100, consumers have been mostly glum about their retirement prospects since the record optimistic extreme of 123 in November 2000.... After stocks had been rising for five years... the survey's results pushed to a high of 105 in February 2007.... The chart shows retirees' negative responses as stocks crashed in 2008 and early 2009....

In March of 2017, retirees finally capitulated once again to the uptrend in share prices by registering a response of 104.... Last month, the survey even pushed to a 17-year extreme of 109.

A big reason why the hopes of retirees may be sorely misplaced is that the shortfall in local and state pensions is a staggering $4 trillion, according to Moody's Investors Service.
On July 30, the Wall Street Journal put that figure into perspective:

The Pension Hole for U.S. Cities and States Is the Size of Germany's Economy

Many retirement funds could face insolvency...

As the article notes, a fund covering Chicago municipal employees had less than 30% of what it needed in fiscal year 2017. New Jersey's pension system for state workers is so underfunded that it could go broke in 12 years, according to a Pew Charitable Trusts study.
But, in EWI's view, many public pension systems may become insolvent long before then.
In fact, this is already happening with retirement-age individuals.
On Aug. 5, The New York Times reported:

The rate of people 65 and older filing for bankruptcy is three times what it was in 1991.

With pension funds heavily invested in risk-assets like stocks, imagine the scenario during the next financial downturn.
Our analysts' comments about the stock market's technical picture should be of high interest to every market participant, including those expecting a comfortable retirement.
Regarding the details of EWI's technical analysis at the time, we encourage you to see them for yourself in a new free report that remains relevant now (see below).
Read the free report now -- just look for the quick-access details below.
Learn how to spot once-in-a-lifetime opportunities and avoid dangerous pitfalls that no one else sees coming.
We can help you learn how to spot opportunities and side step risks that will surprise most investors.
You can get deeper insights in Elliott Wave International's new free report: 5 "Tells" that the Markets Are About to Reverse.
The insights that you'll gain are especially applicable to the price patterns of key financial markets, including the stock market, now.
Read the free report now.

This article was syndicated by Elliott Wave International and was originally published under the headline Dreaming of a "Comfortable Retirement" on a Public Pension?. 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: When "Sentiment is Strikingly Suited" for a Major Stock Market Event

What an extreme use of leverage tells you about the trend

By Elliott Wave International

Stock market history shows that when the Elliott wave model of stock market patterns and market bullish/bearish sentiment indicators are aligned, you have the basis for a high-confidence forecast.
That was the exact situation back in January, right before the stock market's jarring sell-off, from which stocks still haven't quite recovered.
Let's start with a brief review of Elliott Wave International's analysis of the DJIA's Elliott wave chart pattern. On Jan. 5, the Elliott Wave Financial Forecast noted:

The wave structure of the advance looks mature ....

Mature, as in -- we could clearly see a 5-wave price pattern on DJIA charts. When a fifth wave ends, a move in the opposite direction begins.
Indeed, just three weeks later, the DJIA hit a peak of 26,617. As you'll recall, a period of wild volatility shortly followed.

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Jump on once-in-a-lifetime opportunities and avoid dangerous pitfalls that no one else sees coming. We can help you prepare for opportunities and side step risks that will surprise most investors. You can get deeper insights in Elliott Wave International's new free report: 5 "Tells" that the Markets Are About to Reverse. The insights that you'll gain are especially applicable to the price patterns of key financial markets, including the stock market, now. Read the free report now.

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What also helped the Elliott Wave Financial Forecast make the call was the extreme bullish reading in the stock market's sentiment measures, which supported the view that the DJIA's "advance looks mature":

Sentiment is strikingly suited for the end of an advance.

Realize that sentiment is "suited for the end of an advance" when it reaches an extreme bullish reading. In a nutshell, when everyone is bullish, everyone has already bought, so the price cannot move any higher. The opposite is true at the end of a prolonged downturn.
Now, let's proceed with the details of key sentiment measures from around the start of 2018.
This chart and commentary is also from the January Financial Forecast (Elliott wave labels available to subscribers):

The chart shows the National Association of Active Investment Managers' Equity Exposure index. NAAIM's index hit a record high of 109.4 the week of December 11. Since 100 equates to a 100% invested position, this means that NAAIM portfolios were leveraged long to a record degree. As noted above, the extreme use of leverage represents a heightened state of expectation, as it means that buyers of stock are so confident in an advance that they are willing to borrow money to bet on rising share prices. [Emphasis added.]

Another January Financial Forecast chart with accompanying commentary sheds more light on the prevailing sentiment just before the DJIA's January 26 peak:

Last month we showed a chart of the Rydex Total Leveraged Bull/Bear Ratio through November. With leveraged-long Rydex assets more than 14.4 times as great as leveraged-short assets, the ratio tied the prior record extreme registered in late 2014. In December, the ratio shattered that record with a surge to 18.6, a boost of 29% from the November high, as shown by the lower graph on the chart. The middle line on the graph shows an even more breathtaking spike in Rydex's Bull/Bear Ratio (unleveraged). The ratio jumped to 22 on December 29, easily the most extreme reading in the 16-year history of the data. [Emphaisis added.]

So, as you might imagine, our Elliott Wave Financial Forecast editors were not surprised by the DJIA's peak (26,617) just three weeks later.
Regarding the details of EWI's technical analysis at the time, we encourage you to see them for yourself in a new free report that remains relevant now (see below).
The January setup will repeat itself, and having the knowledge of what to look for can help you avoid getting caught unprepared -- as well as capturing opportunities that every market reversal presents.
Read the free report now -- just look for the quick-access details below.
Learn how to spot once-in-a-lifetime opportunities and avoid dangerous pitfalls that no one else sees coming
We can help you learn how to spot opportunities and side step risks that will surprise most investors.
You can get deeper insights in Elliott Wave International's new free report: 5 "Tells" that the Markets Are About to Reverse.
The insights that you'll gain are especially applicable to the price patterns of key financial markets, including the stock market, now.
Read the free report now.

This article was syndicated by Elliott Wave International and was originally published under the headline Stocks: When "Sentiment is Strikingly Suited" for a Major Stock Market Event. 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.

Trader Case Study: What Happens When You Use Corporate Earnings to Pick Trades

See which data set helped traders stay in front of REGN’s late 2017-early 2018 crash

By Elliott Wave International

According to a June 26 Fortune Magazine article, New York-based bio tech company Regeneron Pharmaceuticals is one of the "100 Best Places for Millennials to Work" in the world. Shares one of Regeneron's employees:
"The thing I love about working at Regeneron is that when they say data is king, they mean it. Our work and projects are always changing based on what the data shows us."
We hear the same expression bandied about Wall Street; data is king to determining a market's price trend, with the long-reigning monarch of that data being earnings reports.
All hail earnings reports? Not so fast!
Our very own senior analyst and long-reigning Trader's Classroom instructor Jeffrey Kennedy admits to the "seductive nature" of earnings data, tempting investors into a false sense of confidence regarding future price action. But there's a danger in such logic, as Jeffrey explains:
"My own experience trading earnings reports has been hit or miss. At the very least, it's been frustrating because there have been times when the earnings report will be positive, and the stock price will decline -- or vice a versa."

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Get immediate access to Jeffrey Kennedy's free 20-minute video, "4 Keys to Crafting Rock-Solid Trades." In this video, Jeffrey reveals his time-proven tricks to ID top trade set-ups in the markets you follow. Learn more now.

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You've seen this happen too, I'm sure. So, why does it happen?
Because it's not the hard data inside the earnings report that drives prices. It's how the market participants interpret that data. And their interpretation depends on the current trend in market psychology. But hold on, let's let Jeffrey explain more.
Over the course of his career as a technical market analyst and trading instructor, Jeffrey has relied on another form of data to determine the most "watch-worthy" issues: Elliott wave analysis. For Jeffrey, there are three main requirements for a high-confidence trade set-up:

• A Clear Trend: Jeffrey explains: "The first thing I want to identify on a market's price chart is the trend." Higher highs and higher lows indicate an uptrend, whereas lower highs and lower lows suggest a downtrend at play.
• A Recognizable Wave Pattern: Jeffrey is emphatic: "If you can't count [the Elliott wave subdivisions inside a price move], don't trade it." He sticks to the five core Elliott wave patterns: impulse wave, ending diagonal, zigzag, flat, and triangle.
• A Clue to Price Personality: Slow and choppy price action contained within parallel lines indicates countertrend action -- i.e., a correction. Conversely, when prices move far and fast, and especially if you see a price gap on the chart, this indicates the so-called impulse waves -- i.e., the direction of the larger trend.

Now let's see how Jeffrey uses this Elliott wave data to interpret real-world price charts. One market that's fresh on the brain is Regeneron Pharmaceuticals (NASDAQ: REGN).
Our first mention of REGN comes from Jeffrey's October 19, 2017 Trader's Classroom video lesson. See why Elliott waves called for REGN to step off a sharp bearish cliff to new lows. Simply press "play" and enjoy:

Here's a close-up of Jeffrey's chart of REGN along with a recap of his overall forecast:

"The weight of evidence... would argue for a move to the downside."

The next chart shows you how closely REGN's prices followed Jeffrey's October 19 Trader's Classroom Elliott wave script: They collapsed 35% to a four-year low.
And yes – prices fell DESPITE one of the most glowing earnings reports in the biotech company's history.
You read that right! On November 8, 2017, Regeneron published its Q3 2017 earnings, which showed "street-topping revenue" that "crushed" expectations with a 27.5% increase in adjusted income per share and a 23% increase in sales versus year ago period. (Investor's Business Journal)

The failure of a positive earnings report to stem the market's decline and fuel a rally is exactly the "hit or miss" nature of the earnings beast Jeffrey spoke about.
By contrast, Elliott wave analysis steered a clear, objective course that proved invaluable to traders and investors.
And while Elliott wave data enabled Jeffrey to anticipate the larger trend unfolding on Regeneron's weekly price chart, it also facilitated a strong assessment of the market's near-term prospects in his more recent, June 26, 2018 Trader's Classroom video lesson.
There, Jeffrey "moved down to a smaller, 60-minute time frame to examine the smaller Elliott wave substructure." The chart, pictured below showed that a large move up was on tap.

And here's what happened next:

In the same June 26 Trader's Classroom video lesson, Jeffrey also revisits REGN's larger trend, to answer the question:
"Is there sufficient evidence in place that the selloff from the 2017 high is complete?"
In the video, Jeffrey examines the data at hand and comes up with a strong case for one kind of move in the weeks and months ahead.
While not every Elliott wave forecast works out, the value of Elliott wave analysis is clear from this real-world example -- and from every Trader's Classroom lesson Jeffrey records for his subscribers.

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This article was syndicated by Elliott Wave International and was originally published under the headline Trader Case Study: What Happens When You Use Corporate Earnings to Pick Trades. 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.