For Stocks, the Line in the Sand Has been Drawn

See illustrations of complete bull and bear market cycles

By Elliott Wave International

You may have heard pundits on financial television say something like, "I see support for the Dow at this price level," or "This stock should experience some resistance at that price level."
So, what do these analysts mean by support and resistance?
Well, according to Technical Analysis of Stock Trends, the classic book by Robert Edwards and John Magee, support means buying in sufficient volume to prevent any further downward movement in prices for an appreciable period. Resistance is just the opposite. It means selling in enough volume to satisfy all bids, thereby preventing prices from going any higher for a while.
On a chart, after a support line is meaningfully broken, prices tend to move more freely downward. The opposite applies when lines of resistance are broken.
When support and resistance have long held, or have been touched several times, the price moves after a breakthrough can be quite dramatic.
With that in mind, here's a chart and commentary from our June 22 U.S. Short Term Update (wave labels available to subscribers):

The Global Dow comprises 150 global blue-chip stocks, including all 30 components of the DJIA. Unlike the DJIA, which is a price-weighted index, the Global Dow is equal-weighted so that price moves in large stocks hold no disproportionate sway over the index. The Global Dow peaked on January 29, the day after the DJIA, and traced out [an Elliott wave pattern downward] to February 9, along with the U.S. blue-chip stock indexes.

But notice how each successive rally thereafter has topped at a lower high despite the hefty representation of U.S. blue chips...

Heavy is an understatement, because:

"...the U.S. accounts for more than 42% of the total index's valuation."

Needless to say, if the Global Dow's support shelf gives way, it could have profound implications for U.S. stocks, as well.
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.

This article was syndicated by Elliott Wave International and was originally published under the headline For Stocks, the Line in the Sand Has been Drawn. 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.

Trouble Spotting Market Trends? This Can Help

Learn How You can Spot a Market Trend – Before it Starts

By Elliott Wave International

Let it be stated upfront that there is no perfect way to analyze and forecast financial markets. No crystal balls.
Yet, let's be just as quick to add that in Elliott Wave International's review of market analysis methods, none approach the utility of the Elliott wave model.
The reason for the Elliott wave model's usefulness is easily explained: Elliott waves are reflections of the repetitive patterns of investor psychology, which is the real driver of prices, not news or events.
And, what could be more useful to an investor than a method which helps to identify a financial market's trend -- especially before it gets underway? Well, mastering the Elliott wave model helps you to do just that.
The Wall Street classic book, Elliott Wave Principle: Key to Market Behavior by Frost & Prechter, says:

...action in the same direction as the one larger trend develops in five waves.

Here are illustrations:

Let's now learn how the Elliott wave model identifies countertrend moves within the main trend by returning to Elliiott Wave Principle and additional illustrations:

... reaction against the one larger trend develops in three waves.

Lastly, let's learn how Elliott wave analysis signals the resumption of the main trend.
Elliott Wave International analyst Jeffrey Kennedy says:

A complete Elliott wave cycle consists of eight waves. Upon its completion, a similar cycle ensues....

Again, here are illustrations of the point:

The reason that a market's basic form is five waves followed by three waves is that this is the most efficient method of achieving both fluctuation and progress in linear movement.
Think of it as a variation of nature's "two steps forward, one step back" model of achieving progress.
After all, humans are a part of the natural world, so it only follows that the financial markets, a product of human interaction, would carry the same imprint.
As you might imagine, there are many more details in applying the Elliott Wave Principle to financial markets, and it took an entire book to lay them all out.
The purpose of this article is to simply show you that the price patterns of financial markets unfold according to a repetitive, predictable structure. Familiarity with that structure can help you determine what's next.
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.

This article was syndicated by Elliott Wave International and was originally published under the headline Trouble Spotting Market Trends? This Can Help. 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.

EURUSD: Why the "Next Day or Two" are Critical

An Open House insight from our Currency Pro Service editor

By Elliott Wave International

Every week, our Currency Pro Service editor, Jim Martens, records a new video focusing on EURUSD, USDJPY and other markets. Learn why "the next day or two" should determine the next move in the euro in this clip from Jim's June 17 video.

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This article was syndicated by Elliott Wave International and was originally published under the headline EURUSD: Why the "Next Day or Two" are Critical. 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.

Is This a Big Sign of a Big Stock Market Turn?

Financial legislation might mean something different than most investors believes it means

By Elliott Wave International

A stock market warning has just developed for those who are bullish.
Here's what I'm talking about (CNBC, May 22):

The House voted May 22 to pass the biggest rollback of financial regulations since the global financial crisis.

In a nutshell, lawmakers want to get rid of onerous rules that have been placed on small and medium banks as part of Dodd-Frank, the law that was passed in 2010 to prevent another financial meltdown.
One might ask, "Why should bullish investors see this as a red flag? Isn't the loosening of financial regulations a positive for the stock market?"
Well, EWI has, indeed, observed a correlation between financial legislation and the stock market, but it's probably not what most investors expect.
Financial history shows that financial legislation tends to follow the stock market, not the other way around. Put another way, financial regulators implement reforms after busts and later turn optimistic and repeal or relax financial regulations after booms.
Besides Dodd-Frank, a historic example is Glass-Steagall, the first major federal legislation to separate commercial and investment banking. This law was enacted after the bottom of the 1929-1932 stock market crash.
The December 2013 issue of the monthly publication, The Socionomist, showed this chart and said:

In 1933, Congress passed laws designed to prevent the crash that had already happened. In 1999, Congress passed laws designed to encourage the rally that had already happened.

Notably, the stock market rallied after Glass-Steagall passed, and then some 66-years later, plummeted shortly after the law was repealed.
Yes, the government is usually the last group to act on a trend. If technical indicators are also pointing to a reversal, investors would do well to position their portfolios accordingly.
So happens, EWI's analysts are saying that many of the market's technical indicators are suggesting a major acceleration in the DJIA's current Elliott wave price pattern.
We just released this new, free report, 5 'Tells' that the Markets Are About to Reverse, that reveals many false indicators – a.k.a. "head fakes" -- investors see every day. The report helps readers separate themselves from the herd and survive (and thrive) in volatile markets. Read the free report now.

We just released this new, free report, 5 'Tells' that the Markets Are About to Reverse, that reveals many false indicators – a.k.a. "head fakes" -- investors see every day. The report helps readers separate themselves from the herd and survive (and thrive) in volatile markets. Read the free report now.

This article was syndicated by Elliott Wave International and was originally published under the headline Is This a Big Sign of a Big 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.

Why You Should Brace Yourself for Big Financial Changes

Extrapolating current trends into the future leave many people unprepared for major societal shifts

By Elliott Wave International

The one thing you can count on in financial markets, and society at large, is change.
I was reminded of this when I read this May 18 New York Times' headline and subheadline:

The Last Days of Time Inc.

... how the pre-eminent media organization of the 20th century ended up on the scrap heap.

Time Inc. has been purchased by the Meredith Corporation, which plans to spin off Time magazine, Sports Illustrated, Fortune and Money. All four magazines have suffered from declining ad revenue and declining circulation. There are other details, but the bottom line is that an established media empire, which had a long history of reporting on change, has now been swept up by change.
A generation ago, many observers would not have imagined that a company as iconic as Time Inc. would find itself "on the scrap heap."
But linear trend extrapolation has always had its pitfalls, and on changes that have been on a much bigger scale than one media company, which brings to mind what the 2017 book, The Socionomic Theory of Finance, said:

(1) It is 1975. Project the future of China.

(2) It is 1963. Project the cost of medical care in the U.S.

(3) It is 100 A.D. Project the future of Roman civilization.

In 1975, the Communist party was entrenched in China. ... Would anyone have imagined that China's economic production, in just over a single generation, would rival that of the United States?

In 1963, medical care was cheap and accessible. ... Would anyone have guessed that [today] pills would sell for $2, $20, $200 and even $1,000 apiece?

In 100 A.D., would you have predicted that the most powerful state in the world--the Roman Empire--would be reduced to rubble in a bit over three centuries? Few people of the day imagined that outcome.

Let me add: It's June 13, 2005 -- what were many people projecting for home prices?
Well, here's a Time magazine cover which published on that date:

If that cover was an indicator, most people expected home prices to keep rising. But, we know what happened: Housing stocks topped that very year and the "subprime mortgage crisis" hit about two years later. Eventually, home prices plummeted by more than 50% in some of the nation's high-flying real estate markets. Moreover, the Dow topped in 2007 and then suffered its worst decline in 75 years:

Yes, this dramatic trend change in the Dow also took many observers by surprise.
The reason you should brace yourself for more big financial and economic changes is that EWI's analysis suggests that the next financial change will again surprise the unprepared.
We just released this new, free report, 5 'Tells' that the Markets Are About to Reverse, that reveals many false indicators – a.k.a. "head fakes" -- investors see every day. The report helps readers separate themselves from the herd and survive (and thrive) in volatile markets. Read the free report now.

This article was syndicated by Elliott Wave International and was originally published under the headline Why You Should Brace Yourself for Big Financial Changes. 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.