What Recessions? It's a Wonderful Life

By Elliott Wave International

Fund managers see no risk of a U.S. recession. Have they over-indulged on the eggnog?
"I don't have your money. It's in Tom's house...and Fred's house." This is a quote from George Bailey, the fictional bank manager in the 1946 classic movie, It's a Wonderful Life. George was replying to customers of the bank who were demanding their money back. Unfortunately, the deposits had been invested, and the bank did not have enough money to pay everyone out. As I have said to my 14-year-old daughter every year over the past decade when we settle down to watch this feel-good Christmas movie, it's probably the simplest, and therefore best, lesson about understanding the complexities of the fixed-fractional banking system. (As you can imagine, this just exacerbates the fact that, in her now-teenage eyes, I am boring, embarrassing dad.)
George Bailey did not expect all his customers to demand their money back at once. It may be a fictional story, but it accurately reflects the complacent psychology of financial institutions as an economic cycle tops out. The latest example of such complacency comes from the most recent Bank of America Merrill Lynch Fund Manager Survey. Expectations that global growth will improve in the next year jumped to a net 29% of respondents in December, the biggest two-month gain on record, and a big turnaround from the middle of the year when there was intense fear of a global recession. The survey shows that fund managers now see the least risk of a recession since the middle of 2009. That was, of course, when the U.S. was already in recession, despite central banks' machinations to inject liquidity into the financial system. The Fed has again begun pumping billions of dollars into the system since September, but the difference is that the U.S. has not experienced a recession as it did in 2008-2009. Are people just blindly accepting that the Fed will be able to keep the stock market propped up? Perhaps.
Indeed, some investors believe that because the yield curve has turned positive again, then all is well and there's no need to worry. On the contrary, the chart below shows that when the yield curve inverts and then turns positive, it is precisely the time to worry that a recession may be dead ahead.
It's a Wonderful Life ends with George Bailey realizing that there are much more important things in life than business. By this time next year, currently cock-a-hoop (adj.: boastfully, if not defiantly, elated) investors might be feeling the same way.

It's a commonly held misconception that a positive yield curve swing is a good sign for the economy, but the evidence proves otherwise. Want to see EWI's President, Bob Prechter, tackle and disprove other commonly held beliefs that could hinder your investing? Good!
Get instant, free access to Prechter's speech to the International Federation of Technical Analysts. It shows you “What Really Moves the Markets.” Watch Now

Investors: Are You in Danger of Emotion-Driven Decisions? You're Not Alone.

Or...Your Defense Against FOMO

By Elliott Wave International

As the winter holidays draw near, many of us will fall victim to the affliction we call "S.N.O.M.O." -- the Sudden Need of More Objects (to own, play with... and eventually, store in the basement).
Lists and budgets are no match for SNOMO once we take our first steps into a big-box store with its flashing signs and blazing blue lights. Within minutes, a powerful urge takes over and suddenly we're leaping in front of an old lady with a cane for the last cat-massage combing kit despite not knowing a single person who owns a cat, self included.
Our friends at Elliott Wave International assert that the same fear and emotion driving holiday shoppers to make irrational purchases ALSO drives the year-round speculation by investors in uber-hyped "it" markets.
To investors and traders, this phenomenon is known as FOMO -- the Fear of Missing Out. And we can't cure shoppers' SNOMO, for investors the ultimate defense against the sudden need of more is Elliott wave analysis.
The Wall Street bestseller and ultimate resource guide on all things Elliott., Elliott Wave Principle -- Key to Market Behavior writes:

"The Wave Principle exists partly because man refuses to learn from history, because he can always be counted upon to be led to believe that two and two can and do make five.

"He can be led to believe that the laws of nature do not exist (or more commonly, 'do not apply in this case') ... and that the fears which reason supports will evaporate if they are ignored or derided."

Essentially, the Wave Principle acts as a mood-stabilizer to man's innate fears of missing out on the next big thing. It provides a defined forecasting method for looking at markets, including a clear set of rules and guidelines, which govern the extent and direction of trends.
One of the starkest examples of Elliott waves combatting investor emotion comes via the recent history in bitcoin. In late 2017, the cryptocurrency had gone from a "fake," "fringe" novelty to the new darling of Wall Street -- after rocketing in 2017 alone from below $1000 per coin to above $20,000 by December of that year.
Every major company from Apple Store to Zappos to Playboy began accepting Bitcoin as a payment medium. Average citizens were literally mortgaging their homes to buy the "hottest new investment trend" (Dec. 12 Forbes). And mainstream analysts were re-upping their bullish bitcoin forecasts for the year ahead, as these headlines from December 2017 reveal:

• "Bitcoin could easily reach $40,000 by the end of 2018." (CNBC)
• "Bitcoin: Mystery Investor Bets a million it hits $50,000." (Forbes)
• "Bitcoin Will Surge Above $100,000 in 2018" (CNBC)

As one Wall Street bitcoin strategist summarized in a December 22, 2017 article: "Make no mistake - the long-term bull market is firmly intact." (The Street)
The pressure to get in on Bitcoin before the next thousandth-percent price surge could be felt the world over. Investors collective emotion was at an all-time high, and most speculators espoused the sentiment alluded to in Wave Principle -- Key to Market Behavior -- namely; that the rules of nature and gravity didn't apply to bitcoin.
By stark contract, Elliott Wave International’s December 2017 Elliott Wave Financial Forecast took an objective stance based on bitcoin’s completed bullish Elliott wave pattern and identified the hallmarks of a late-stage bubble, issuing this warning to crypto-crazed investors:

"A rising sea of euphoria, ever-higher price projections and the capitulation of financial sophisticates only reinforce our stance:

"We are more convinced than ever that bitcoin will disappoint its late-coming enthusiasts."

Result: From its December 2017 peak of near $20,0000 Bitcoin plummeted 70%-plus to below $6000 per coin in just two months! (By the end of 2017, bitcoin was trading near $3000, an 80% crash.)
In fact, the first quarter of 2018 was the worst period for cryptocurrencies in history. Here again, Elliott Wave Principle -- Key to Market Behavior offers singular insight into the psychological machinations of this type of market's reversal:

"Panics are sudden emotional mass realizations of reality, as are the initial upswings from the bottoms of those panics. At these points, reason suddenly impresses itself upon the mass psyche, saying, 'Things have gone too far. The current levels are not justified by reality.'

"To the extent that reason is disregarded, then, will be the extent of the extremes of mass emotional swings and their mirror, the market."

For any investor, fomo begets disappointment and regret. Yet, nobody is immune. In October 2017, JP Morgan Chase's CEO called bitcoin a "fraud" and said, "If you're stupid enough to buy it, you'll pay the price." Two months later, amidst the crypto hype and glitz, the bank started prepping its clients for investing in bitcoin futures on the Chicago Mercantile Exchange.
A new bitcoin-like "it" market is born every day. Whether you approach those markets led by emotion, or by a clear Elliott wave discipline, is your choice. All free Club EWI members get instant, no-cost access to the complete Elliott Wave Principle -- Key to Market Behavior the minute they sign up. Join them today and learn to keep your emotions in check with Elliott wave analysis!

Want to Identify Market Trends? Watch Elliott Wave Analysis at Work

How it anticipated a multi-year crash in one of the world's biggest commodity markets

By Elliott Wave International

The large fowl we call "Turkeys" were given that name by the British, who thought the bird came from the country of Turkey. Truth is, turkeys are native to North America. And yet, the question no one will ever hear around the dinner table on Thanksgiving is, "Who wants gravy on their North America?"
This story recalls another fallacy -- or fowl-acy! -- that likewise persists in the face of facts to the contrary; namely, the mainstream financial theory known as "fundamental market analysis." The notions behind this widely held belief go like this:

Financial market prices are driven by external events, or "fundamentals," which can include crop-destroying weather patterns, political unrest, earnings reports, crop data, supply and demand numbers and so on.

This theory is as old as the name "turkey," and as commonly accepted!
Yet, our friends at Elliott Wave International have a birds-eye view into a very different way of interpreting market behavior. The "bible" on all things Elliott is Frost and Prechter's classic Elliott Wave Principle -- Key to Market Behavior (EWP, for short), which provides this ground-breaking counterclaim:

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

"The path of prices is not a product of news."

What "law of its own" does the market follow? EWP continues:

"The market's progression unfolds in waves. Waves are patterns of directional movement. Each pattern has identifiable requirements as well as tendencies. The Wave Principle is the only method of analysis that also provides rules and guidelines for forecasting."

To understand Elliott wave analysis at work in actual world markets, let's review the recent history in an often-volatile commodity markets: sugar.
This chart captures the huge rally in sugar prices during 2015-2016, an 80% increase which earned sugar the title of "best-performer of all commodities that trade on U.S. exchanges." (Oct. 3, 2016 Seeking Alpha)

At its peak in mid-September 2016, sugar prices orbited a four-year high. And, thanks to a raft of bullish "fundamentals" -- such as rising demand, falling supplies, and a drought in Brazil -- all mainstream signs pointed to sweeter gains for the sweet soft.

• "The multiyear [sugar] bear turns bull. The second year of deficit can launch the sweet commodity even higher." Aug. 15 Seeking Alpha

• "Sugar prices hit four-year high on supply concerns. Prices have started rising in full swing." Oct. 4 Nikkei Asian Review

• "A sweet market for sugar bulls. The fundamentals that drove the rise in prices earlier this year have remained largely unchanged." Sept. 16 Financial Times

Yet -- instead of the trend heading even higher, sugar prices collapsed in a two-year long bear market that pushed prices to the lowest lows in a decade, before pausing in late September 2018.
Notably, sugar's selloff went entirely against its fundamental script.
It did, however, follow its Elliott wave script to a T.
See, in the July 21, 2016 Monthly Commodity Junctures, Elliott Wave International's chief commodity analyst Jeffrey Kennedy outlined a long-term bearish path for sugar that would unfold in two main phases. Jeffrey explained:

"We're currently working wave b. I wouldn't be surprised to see this advance continue into September or even October of this year ... to an objective of 22.89.

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

The next chart captures the aftermath. Sugar rallied above Jeff's cited target into mid-September, before succumbing to the two-year long bear market that saw prices do a complete 180-degree reversal into the "worst-performing commodity" of 2018.

Most of the time, a market's price action unfolds in one of the five core Elliott wave patterns. For the first time since its 1978 release, Elliott Wave International is giving away Elliott Wave Principle -- Key to Market Behavior, so investors can keep the path toward market forecasts clear of news-related obstacles.
The early turkey catches the worm! Get instant access to Elliott Wave Principle -- Key to Market Behavior, the timeless bestseller and ultimate resource guide today!
Get your free copy now

How Do YOU Know the Direction of a Market's Larger Trend?

Fundamental analysis versus Elliott wave analysis: the winner for predicting the 9-year long commodity bear market is clear.

By Elliott Wave International

95% of traders fail. It's a day-drinking, country-music kind of statistic. Think: "Friends in Sell-Low, Buy-High Places."
One article attempts to quantify the reasons, citing: "SCIENTIST DISCOVERED WHY MOST TRADERS LOSE MONEY -- 24 SURPRISING STATISTICS." See number 14:

"Investors tend to sell winning investments while holding on to their losing investments."

In other words, their timing is off key. And when it comes to seizing market opportunities, nothing is as important as timing. Our friends at Elliott Wave International said it best in the pages of their educational reference guide, Elliott Wave Principle -- Key to Market Behavior:

"To be a winner in the stock market, either as a trader or as an investor, one must know the direction of the primary trend and proceed to invest with it, not against it."

Which brings us to the next part: How do you know the direction of the primary trend?
The contribution of mainstream market wisdom abounds -- the best gauge of a market's trend is news events surrounding that market. These news events, called fundamentals, can vary from weather patterns, political events, supply/demand data, trade wars, earnings reports, and on. The way it works is:

A. Positive news supports price and fuels a rising trend
B. Negative news deflates price and ignites a falling trend

This supposedly applies to all markets, especially commodities where supply is physical and finite. Reality, however, is a horse of a different color.
Take the broad commodity sector in 2010-2011. At the time, commodities were enjoying a strong rebound, with the CRB Index orbiting a three-year high. Mainstream financial experts used a barrage of bullish news events -- from soaring energy costs, growing economic uncertainty, mounting inflation fears, and an accommodative Fed -- to identify a healthy, rising trend. Here, these 2010-2011 news items provide a screenshot of the bullish consensus:

• "Commodities on Fire! Investors want assets to protect themselves against rising inflation and possible shortages in the future, so the surge in commodities looks set to continue." (April 11, 2011 Financial Post)
• "The world is in the middle of a commodity boom cycle" (June 8, 2011 Wall Street Journal)
• "Traders are shrugging-off the frightening nightmare of 2008, but instead, are riding high on the magic carpet buoyed by 'Quantitative Easing.'" (January 6, 2011 Bullionvault)

Wrote one January 2011 CNN Money:

"Commodities of all types have been running like scalded monkeys. Hard and soft commodities, and shiny and not so shiny metals are on a tear...it appears that we are in the midst of a commodity super cycle."

The fundamental markers were positive. The CRB Index's trend was up. The road ahead was higher.
Except, it wasn't. The exact opposite scenario unfolded. Between 2011 and 2016, the CRB Index plummeted more than 50% in an unrelenting bear market that has seen prices slog sideways since. It goes without saying, fundamental analysis failed at its most important job -- enabling traders to know the direction of the primary trend and "proceed to invest with it, not against it."
Alternatively, there was Elliott Wave International's chief commodity analyst and co-author of Elliott Wave Principle -- Key to Market Behavior Jeffrey Kennedy. In his September 2011 Monthly Commodity Junctures, Jeffrey identified a textbook, five-wave move coming into a top on the price chart of the Continuous Commodity Index (CCI), referred to as the "old CRB."
Chapter 2 of Elliott Wave Principle -- Key to Market Behavior (EWP) shows the basis for Jeffrey's bearish forecast -- five-wave moves up are followed by three-wave corrections -- AND his ability to identify a likely downside target for that decline: From EWP:

"No market approach other than the Wave Principle gives a satisfactory answer to the question, 'How far down can a bear market be expected to go?' The primary guideline is that corrections, especially when they themselves are fourth waves, tend to register their maximum retracement within the span of travel of the previous fourth wave of one lesser degree, most commonly near the level of its terminus."

Armed with this guideline, Jeffrey's warned the next move for commodities would be a historic trend change that would slash prices in half. His September 2011 Monthly Commodity Junctures wrote:

A BEAR MARKET IN COMMODITIES: THE TRAIN IS COMING

The monthly price chart of the CCI clearly displays another five-wave advance (chart 2). This impulse wave, which began in 1999, ended this year.

This argues that a decline in the CCI should actually target the December 2008 low of 322.53, the terminus of the previous fourth wave.

From there, prices embarked on a 50%-plus crash to 351, near the 2008 low of 322.53 area Jeffrey identified five years earlier!

Accurately identifying a market's trend is pivotal to success. Period. The odds of doing so require the right tools. Right now, our friends at Elliott Wave International have added the ultimate resource guide Elliott Wave Principle -- Key to Market Behavior to their FREE, online Club EWI library. This best-selling "bible" of all things Elliott is a mainstay for market newbies and veterans alike.
In the end, failure is not a result of "bad timing;" but rather, applying bad tools to perform market-timing. Elliott waves give you an alternative.
Get your free copy now

The Elliott Wave Principle: A "Marvel" of Technical Analysis

Our FREE webinar "How to Spot Reliable Trade Setups in Any Market and Any Time Frame" is back by popular demand

By Elliott Wave International

Just when you thought there'd been every possible adaptation of the Marvel comics movie franchise, we've thought of one more: A Marvel installment based on financial market analysis.
At one end of this Marvel market universe is Technipede: Like the insect he's named for, Technipede uses hundreds of technical disciplines to stand on for evaluating a market's strength or weakness. Bollinger bands, candlesticks, pivot points, TRIX, harmonics, advance/decline, and on -- a different technical "leg" for each market and each time frame.
On the other end is bulging muscled Fundamentalist: Hero of the mainstream, Fundamentalist mines the news for every story that may affect future price action -- supply/demand data, earnings, scandals, profits, political disruptions, weather patterns, and so on.
But neither one of these figures is any match for the most powerful character in this Marvel market universe -- Jeffrey Kennedy, editor of our Trader's Classroom and Commodity Junctures Service. Jeffrey's strength comes from 25-plus years of mastering the Wave Principle and its ability to identify high-confidence trade setups in any market, across any time frame.
Every trading day, Jeffrey delivers the benefits of Elliott analysis to subscribers, via price charts in a wide variety of real-world markets. Take, for example, the retail king Amazon Inc. In the fall of 2018, Amazon was falling hard amidst a broader "meltdown" in FAANG stocks. Wrote one October 29 Bloomberg:

"How long can they go? That's the key question for traders looking at some of Wall Street's largest technology and internet stocks. People keep calling bottoms and getting hurt; they're trying to catch falling knives."

But in his October 30 Trader's Classroom video lesson, Jeffrey showcased one of the five principle benefits of Elliott wave analysis; namely, its ability to determine the maturity of a trend. There, Jeffrey identified Amazon's 2018 selloff as a fourth -wave correction.
Using the Elliott guideline of the depth of corrective waves, Jeffrey pinpointed a probable end to Amazon's selloff "at or near the prior fourth wave extreme," namely the lows seen in February and March of 2018. That meant Amazon had "another $100 or $200 bucks to the downside" before bottoming. (Jeffrey's chart reprinted below)

From there, Amazon continued its selloff into late December before settling 177 bucks lower, just as Jeffrey anticipated, a beautiful opportunity for traders.
What about a smaller time frame? Here, we go to the August 15 Trader's Classroom where Jeffrey used one of the three cardinal Elliott wave rules to manage near-term risk in Dollar General (DG). He identified a wave 4 pullback, which, if correct, meant prices could not enter the price territory of wave 1 -- 126.55. This established a clear, make-or-break level to place a protective stop. (Jeffrey's chart reprinted below)

If prices stayed above that level, then DG would present a strong "buying opportunity" in a fifth wave rally to the "150-155 area." And that's exactly what happened via a powerful gap up and weeks long rally into Jeffrey's upside target window.

What about an even smaller time frame for one of the most volatile commodity markets -- crude oil? In the Sept 13 Daily Commodity Junctures, Jeffrey showed a core Elliott wave pattern on crude's price chart -- a contracting triangle. This pattern lingers sideways for a frustratingly long time, only to resolve in a powerful thrust. Armed with this knowledge, Jeffrey set the stage higher and said, "I won't be surprised to see it pop up into the 60's." (Jeffrey's chart reprinted below)

The next trading day, crude gapped up in its largest single-day rally since the 1991 Gulf War.
Okay, there's obviously no such thing as a Marvel market universe. Elliott wave analysis is not akin to Iron Man's shield of invincibility. But as these examples from Jeffrey Kennedy show, having Elliott in your trading arsenal makes it very possible to identify high-confidence opportunities in actual markets.
Which is why we've decided to bring you one of our most popular resources of Elliott education -- "Discover 5 Reliable Setups in Just 26 Minutes," taught by -- you guessed it -- Jeffrey Kennedy.
In this 26-minute long lesson, Jeffrey shows you how to quickly spot 5 price patterns. When you see one of these setups, you'll know that prices are very likely to break hard, and soon.
The best part is, this 26-minute lesson is FREE to Club EWI members! You may not walk away a superhero; but you will have a supreme understanding of all things Elliott and its ability to identify trade setups in any market, on any time frame.
Learn More and Sign Up Now.

Thomas Cook's Fall from Grace

A Cautionary Tale for the Entire Global Economy

By Elliott Wave International

Since its very first 11-mile train tour on July 5, 1841, the Thomas Cook travel company has been taking adventure-seekers around the world, from river cruises down the Nile (a.k.a. "Cook's Canal"), railcars up to the mouth of Mount Vesuvius, and spaceships to the surface of the moon! (Between 1950 to 1996, Cook's "Moon Registry" had a 100,000-flight manifest).
But on September 23, 2019, Thomas Cook filed for one of the most dismantling bankruptcies in recent history, shuddering the world's oldest travel firm and leaving hundreds of thousands of travelers high and dry. The stranding prompted the UK's largest-ever peace time repatriation effort, a 10-day long, 60 million-pound rescue effort coined Operation Matterhorn.
So how did Thomas Cook's fall from grace happen? Well, there's one easy target: "Why did Thomas Cook Go Bust? ... One factor towers above all others: the huge pile of debt." (Source: September 23, 2019 Guardian). Essentially, after decades of tamping down unpaid loans, the company's $2 billion debt burden erupted (as the volcano Vesuvius in 1944, which destroyed Cook's funicular railcar the "Vesuvio"), burning the business into a bankrupt crisp. But that isn't the whole story. Cook's massive debt didn't cause its collapse. Not finding someone to bail it out of said debt -- did.
To understand the distinction, late 2017/early 2018 becomes pivotal. At the time, Thomas Cook was flying high with renewed growth, the birth of a new tourism market in Turkey and Egypt, a revival of an old 1980's ad campaign "Don't Just Book It, Thomas Cook It!," its first-ever foray into commercial TV, and a soaring stock price which had increased five-fold since the dark days of the 2011 financial crisis. All of this, even though the firm was heavily indebted to its shareholders and strapped by credit-funded buyouts.
But the "D" word wasn't seen as a deterrent to future growth. You gotta spend money to make money: "Few in London's tourism industry have publicly suggested the capital will suffer" (Source: July 2017 Bloomberg). Specific to Thomas Cook, a February 8, 2018 news source cheered:

"We believe that Thomas Cook has reported a robust set of Q1 results which show that it has continued to grow booking volumes strongly, despite passing through material cost inflation to customers."

As late as April, analysts upwardly revised their ratings from "neutral" to "buy," prompting this April 30, 2018 The Times headline: "Sunny Outlook for Thomas Cook." The bullishness was predicated, however, on the idea that markets are driven into the future by present data, such as strong earnings, when in fact, they are driven by human behavior. An exclusive report from Elliott Wave International, "What You Need to Know Now About Protecting Yourself from Deflation",explains:

"When the social mood trend changes from optimism to pessimism, creditors, debtors, producers and consumers change their primary orientation from expansion to conservation. As creditors become more conservative, they slow their lending.

These behaviors reduce the "velocity" of money, i.e., the speed with which it circulates to make purchases, thus putting downside pressure on prices. These forces reverse the former trend."

From an Elliott wave perspective, the shift in mood unfolds in the form of technical patterns on a company's stock chart. In July 2017, an important tourism bellwether, the FTSE 350 Travel & Leisure Index, displayed five waves up since 2009, thereby signaling an impending change of direction. The index bobbled along for 10 months, but, in May 2018, prices finally broke, and a mere 20% decline was apparently all it took to take down Britain's overindebted travel giant Thomas Cook. In just the past 12 months, Cook's investors have suffered through three profit warnings and watched the value of their stock plummet to 10 pence, a 93% decline. Some analysts argue that the shares are worth less than that.
From the June 2019 European Financial Forecast

Ultimately, highly indebted companies are fine so long as social mood is rising, which supports a willingness to assume risk and lend. The speed and extent of Thomas Cook's fall from grace shows what can happen when that mood reverses. The question now isn't if, but who will be the next industry icon left stranded with no one willing to come to the rescue?
Club EWI's exclusive report, What You Need to Know Now About Protecting Yourself from Deflation, pivots off the idea that the signs of major sea change in the global economy are underway and writes: "If you miss that, you miss the warning. Meaning: you won't see the beast in time. " Fortunately, the entire report is available for FREE to all Club EWI members. Get instant access.

How to Spot High-Confidence Trading Opportunities in a "Pinch"!

Why this single moving average chart pattern belongs in your technical toolbox today

By Elliott Wave International

When it comes to the world of technical market analysis, the biggest obstacle isn't a lack of quality, but rather, an abundance of choice. There are literally hundreds of technical tools out there, with digital libraries and chat boards devoted to the many variations of individual components.
If you used them all, your technical pages would look like the motherboard of the Starship Enterprise. And you'd need Spock himself to interpret the massive influx of data.
So, where on planet Earth do you start? How do you curate the right technical tools to support your trading style and maximize your ability to spot high-confidence setups in real-world markets?
Well, that's where our Trader's Classroom editor Jeffrey Kennedy comes in. In his August 9 video lesson titled "Pinch Me! How to Build Your Ideal, Custom Technical Indicator Page," Jeffrey shares one of his top three favorite technical chart patterns: the moving average "pinch.”
Right away, Jeffrey stresses the two main functions of any technical indicator page:

1. Identify the trend
2. Identify areas of oversold and overbought conditions

The moving average (MA) "pinch" accomplishes both, and here's how: First, the pinch occurs when all three MA lines -- green, red and grey -- come together and appear to form one single line. Then ... well, you'll just have to watch this free video to find out.
Jeffrey shows you several real-world examples of MA pinches, including this one in late 2018 price action of Big Board listee Chipotle Mexican Grill (ticker symbol CMG).

In the free video, Jeffrey highlights the area of compression where the pinch occurred and describes it as a "beautiful little bullish set-up," confirmed by the powerful advance that followed.
In fact, during the time of the pinch's formation in Chipotle, Jeffrey featured the market in his January 10, 2019 Trader's Classroom. There, Jeffrey homed in on the narrow and choppy price action in CMG, a six-month long sideways move that barely retraced 50% of the preceding rally, magnified here:

The same period of compression identified as a MA "pinch" was confirmed by all the characteristics of counter-trend price action -- the latter of which led Jeffrey to include Chipotle in his "I Like It!" market list for a strong move higher.
The next chart captures the volatile upside explosion that has seen a doubling in value of CMG prices to new record highs:

The first step to identifying a moving average "pinch" is to understand the mechanisms of the moving average indicator. In his August 9 Trader's Classroom video "Pinch Me!" Jeffrey lays the groundwork with a user-friendly lesson covering all the need-to-know basics.
Jeffrey also shows you how an MA pinch preceded three major buying opportunities in 2013, 2016 and 2019 in the tech-giant Apple.
Plus, you'll see how an MA pinch underway right now in the Healthcare Select Sector SPDR fund (XLV) suggests an "exciting" period of volatility may be ahead.
Free, watch Jeffrey Kennedy's Trader's Classroom “Pinch me!” video lesson now -- and see why the MA pinch is the first step to building a custom technical indicator page.
No, this isn't a dream; the power of the pinch is very real!

Summer of Love for Gold Bulls: How "Quandary" Became Clarity

By Elliott Wave International

As mainstream experts struggled to see the direction in gold, Elliott wave analysis saw a clear, bullish triangle. Then, gold prices rocketed to six-year highs!
A common misconception of trading is that the best opportunities come near market highs and lows, when a change-in-trend is on the launchpad with 10 seconds to liftoff.
The problem is, these rapid-fire moves are incredibly formidable. Anticipating them correctly comes with high degrees of difficulty and failure.
The truth is, the most confident market opportunities take longer to develop. Rather than shoot up or crash down, the price trend during these intervals is sideways, slow and rangebound.
Many traditional styles of market analysis are unable to navigate these "holding" periods. No one fundamental event stands out as either bullish or bearish, ultimately leading to a lack of clarity for the market's future.
One of the benefits of the technical market discipline known as Elliott wave analysis is its ability to recognize this seemingly directionless price action for what it really is: the triangle pattern. These long, drawn out corrective structures are well-known to analysts and traders, because they give meaning to the time before the resumption of the next strong move.
The "Bible" on all things Elliott is Frost and Prechter's classic Elliott Wave Principle -- Key to Market Behavior. The book's first chapter offers an extensive overview:
"Triangles appear to reflect a balance of forces, causing a sideways movement that is usually associated with decreasing volume and volatility. Many analysts are fooled into labeling a completed triangle way too early."

Triangles always unfold in a position prior to the final actionary wave in the pattern of one larger degree, i.e. wave 4 in an impulse, or wave B in an A-B-C. But what this pattern requires in patience, it rewards with promise. Explains EWP:
"Elliott used the word 'thrust' in referring to this swift, short motive wave following a triangle."
We at Elliott Wave International can proudly point to the gold market for a real-world example of the mainstream confusion versus Elliott wave clarity that accompanies the triangle pattern -- and the powerful thrust that follows.
The scene begins in early May 2019 amidst a multi-year long, sideways movement in gold -- pictured below:

Mainstream analysts were at their wit's end about gold's future. Wrote one May 16 CNBC: "Gold Struggles for Direction as Dollar Firms, Equities Drop"
Added another: "Wall Street, Main Street in a Quandary Over Direction of Gold Prices" - May 3 Kitco.
This piece vividly captured the lack of consistency and clarity among the fundamental experts, writing:
"Talk about indecision. Talk about this week's Kitco News gold survey.
"Sean Lusk, director of commercial hedging with Walsh Trading, figures gold will benefit from the Federal Reserve's reluctance to hike interest rates despite robust economic data. 'I think the path of least resistance is higher here,' he said.
"Meanwhile, Colin Cieszynski, chief market strategist at SIA Wealth Management, looks for prices to retreat. 'Gold remains in a downtrend and the U.S. dollar continues to climb,' he said."
But as Elliott Wave Principle -- Key to Market Behavior observes, this sideways movement is usually associated with the triangle pattern. And, in our May 2019 Elliott Wave Financial Forecast segment on gold, EWI's chief analysts Steve Hochberg and Peter Kendall confirmed a bullish triangle was underway in gold -- one that would lead to the pattern's iconic "thrust." Here's an excerpt from the May 2019 EWFF:
"Over the past several weeks, we have read myriad explanations as to why gold prices should rally or decline, from improving euro-area GDP numbers (bearish) to Persian Gulf tensions (bullish) to U.S. dollar strength (bearish) to Fed rate hikes on hold (bullish)...
"A mixed bag of opinions is perfectly compatible with gold's sideways movement in the triangle pattern...
"When the decline is complete, this wave will conclude Intermediate wave (B). Intermediate wave (C) will then be a five-wave advance that carries to $1400-$1550."

By the end of May, the triangle had ended and gold's dramatic "summer of love" proceeded to take prices to their highest level in six years! The full extent of gold's post-triangle rally can be seen on the chart below:

Most of the time, 70%-80% in fact, a market's price action develops as one of the five core Elliott wave patterns. For the first time since its 1978 release, we're giving away the sacred text, Elliott Wave Principle -- Key to Market Behavior, so traders can transform "quandary" into "clarity" on the world's leading financial markets.
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How to Capitalize on Market Corrections

By Elliott Wave International

90% of traders throw in the towel. One of the main reasons is because they don't have a method. Elliott Wave Principle is one of the most popular investment method books ever published. Now, we're working with Elliott Wave International to celebrate the book's 40th anniversary by giving you free access to Bob Prechter's bestseller. Get this must-have book now.

Want to See What's Next for the Economy? Try This.

By Elliott Wave International

Don't listen to the naysayers -- there IS a way to forecast the general health of the economy. This method has repeatedly proven itself.
Yes, you can anticipate the likelihood of a recession, even a depression -- or, conversely, when major economic measures -- like jobs -- will be robust.
That surefire way is the performance of the stock market.
That's right, despite the widespread belief that the economy drives the stock market, it's the stock market which leads the economy. Why not the other way around? Because the economy is a slow boat.
Think about it: When people are optimistic about the future, many of them buy stocks and can do so almost immediately. But that same optimism takes time to play out in the economy. It might take months to draw up plans to expand a business, hire new employees and so forth. So that's why the economy lags the stock market.
The evidence is supplied by a chart and commentary from Robert Prechter's 2017 book, The Socionomic Theory of Finance:

The stock market leads GDP. As the stock market fell in Q1 1980 and again in 1981-1982, back-to-back recessions developed. As the stock market rose from 1982 to 1987, an economic boom occurred. After stock prices went sideways to down from 1987 to 1990, a recession developed. As stock prices resumed rising, the economy resumed expanding. As the stock market fell in 2000-2001, a recession developed. As the stock market recovered in 2002-2007, an economic expansion occurred. As the stock market fell in 2007-2009, a recession developed, and it was commensurate with the size of the drop: The largest stock market decline since 1929-1932 led to the deepest recession since 1929-1933. As the stock market has recovered since 2009, an economic expansion has developed.

This brings us to the June 2019 jobs report (July 5, The New York Times):

U.S. employers sharply stepped up their hiring in June, adding a robust 224,000 jobs

Given that the stock market's latest push higher has been in place since the December low, this positive jobs report was not a surprise.
Which is to say, if the stock market turns lower, don't anticipate any major consistently negative economic news to follow only weeks later. As Elliott Wave International President Robert Prechter once put it, "The stock market doesn't top on bad news, it tops when the news is good."
So, it's a myth that the stock market follows the economy. The evidence shows that it's the other way around.
Learn about several other market myths in the free report, "Market Myths Exposed."
Begin reading Market Myths Exposed now.

Worried About the Fed? Don't Be -- Here's Why

By Elliott Wave International

Achieving and maintaining success as a stock market investor is a tall order.
You, like many others, probably watch financial TV networks, read analysis and talk to fellow investors, trying to understand what's next for the stock market.
One popular stock market "indicator" is interest rates. Mainstream analysts parse every word from the Fed, hoping they hear a clue about interest rates. They assume that falling rates mean higher stock prices, while rising rates mean lower stock prices.
For example, in July 5, CNBC ran this headline:

Trump's Fed pick Shelton says she doesn't want to 'pull the rug out' from under the stock market

Fed nominee Judy Shelton was suggesting that higher rates would hurt the stock rally.
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 rate 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 Robert Prechter's 2017 book, The Socionomic Theory of Finance:

[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 happens, 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.

Yes, enjoying consistent success as a stock market investor is a major challenge. But, believing in the myth that interest rates have a big influence on the stock market makes success even harder. And, we have several more popular myths to dispel for you in an Elliott Wave International free report, "Market Myths Exposed."
Learn how you can gain instant access -- just below.
Begin reading Market Myths Exposed now.

This article was syndicated by Elliott Wave International and was originally published under the headline Worried About the Fed? Don't Be -- Here's Why. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Oil Prices and the 2019 Hurricane Season

By Elliott Wave International

In May, the National Oceanic and Atmospheric Administration predicted a near-normal 2019 hurricane season, which runs from June 1 to November 30.
But, the season got off to an early start with the short-lived sub-tropical storm Andrea on May 20.
On May 31, a financial website mentioned this early start as part of a larger warning to commodity traders (Marketwatch):

Storms in the Atlantic Ocean weren't a major worry for the commodities markets in 2018, but this year's hurricane season, which has seen an early start, may rattle traders'; nerves.

Of course, the presumption is that commodity prices, including oil, react to the impact of hurricanes.
However, you might be surprised to learn that this is simply not the case.
Consider Hurricane Katrina, a historic category 5 hurricane which hit the Gulf states in 2005.
Here's a description from the internet 11 years after Katrina made landfall:

Katrina shut down 95% of crude production and 88% of natural gas output in the Gulf of Mexico … thus having a major effect on oil prices.

The conventional wisdom says that such a disruption in "supply" would cause oil prices to skyrocket.
But, this chart and commentary from Robert Prechter's 2017 book, The Socionomic Theory of Finance, reveals what really happened:
 

The chart shows the day this event occurred: August 29, 2005, right at a top and just before a three-month oil-price slide of over 20%. A record-breaking, surprise disruption in the supply of oil failed to make oil prices zoom. On the chart, it even looks as if somehow the event made prices fall. According to Econ 101 the market's reaction makes no sense. … The historians who described Katrina's "major effect on fuel prices" must have figured that a disaster of such magnitude simply had to have a long term impact on oil prices, so they just said it. Their devotion to exogenous-cause logic obscured their perception of actual history.

Hurricanes are not the only reason for disruptions in the supply of oil. Sometimes disruptions are man-made.
For example, on July 2, a financial website mentioned the "extended OPEC-led production cuts." Again, the conventional wisdom says that prices should jump on this news. Yet, crude was down almost 5% on July 2!
The takeaway is that crude oil is not subject to the economic law of supply and demand, but instead is internally regulated and governed by the Wave Principle.
Elliott Wave International's July Global Market Perspective, which regularly covers the oil market, noted:

You [don't] need to know the news in advance to anticipate the move [in oil's price] -- just the insight that Elliott wave analysis offers.

The bottom line: It's a myth that supply and demand regulate oil prices.
There are several more market myths, which you can read about in the free report, Market Myths Exposed.

This article was syndicated by Elliott Wave International and was originally published under the headline Oil Prices and the 2019 Hurricane Season. 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.

Elliott Wave: Market Signaling Fed to Cut Rates Soon

We have tracked the U.S. Federal Reserve's interest rates decisions for years. This week, the Fed once again decided to keep the funds rate unchanged. We expect the Fed to change course soon.

By Elliott Wave International

We have tracked the U.S. Federal Reserve's interest rates decisions for years.
In December, we wrote an article titled "Interest Rates Win Again as Fed Follows the Market," where we observed that although most pundits believe that central banks set interest rates, central banks actually follow the freely traded bond market in their rates decisions.
We noted that the December federal funds rate hike followed increases in the three-month and six-month U.S. Treasury bill yields set by the market.
In March, we pointed out that the Fed followed the market yet again. T-bill rates had gone sideways since November, and the Fed correspondingly kept the federal funds rate unchanged.
This week, the Fed once again decided to keep the funds rate unchanged. We expect the Fed to change course soon.

The chart shows the fed funds rate (red line) and the yield on both 3-month and 6-month U.S. T-bills (yellow and green lines, respectively). The latter two rates are freely-traded, while the former rate is set by the Fed. Observe the growing gap between the yield on short-term T-bills and the present fed funds rate. The market is leading the Fed to lower its fed funds rate.
The same behavior occurred in 2007. By June 18, 2007, the 3-month U.S. T-bill yield had declined to 4.52% since trending sideways after the Fed raised the fed funds rate to 5.25% in June 2006. The market was leading the Fed to cut rates. The spread between the two became even wider, and at its September 2007 meeting, the Fed finally acquiesced to the market and lowered the funds rate from 5.25% to 4.75%. The Fed chased T-bill rates lower in a series of rate cuts all through 2008, finally dropping the fed funds rate to 0.25% in December 2008. Meanwhile, the DJIA declined more than 50% during the entire episode, highlighting the central bank's impotence in controlling markets.
Based on current dynamics, the market is signaling that at some point in the coming months, the Fed will lower its Fed Funds rate to align with T-bill rates. We'll be watching.
See Chapter 3 of The Socionomic Theory of Finance for more examples of central banks' acquiescence to markets around the world.

This article was syndicated by Elliott Wave International and was originally published under the headline Elliott Wave: Market Signaling Fed to Cut Rates Soon. 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.

Costco Corp. (COST): Finding Opportunity in Five Minutes or Less

Our FREE video shows how wave clarity is the first step to identifying a high-probability trade set-up.

By Elliott Wave International

Our chart of Costco Wholesale Corporation as of March 12. If today was March 12, could you assess within five minutes where this popular stock was headed next?

Maybe you'd go directly to a "news-based" analysis for guidance. There, you'd find conflicting reports about the company's future growth, as captured in these headlines from the time:

• Costco is Bearish: "Valuation Does Not Reflect the Risks: Costco" (March 11 monreport.com)
• Costco is Bullish: "Costco Stock is Still Rising After Earnings and It Has Room to Grow" (March 12 Barron's)
• Costco is back to being Bearish: "Why This Stock is Considered to Be Overbought? Costco Wholesale Corp." (March 11 Wall Street Morning)

After skimming those articles, you'd come away with zero new clarity about Costco's price trend.
Next, you try your hand at technical analysis, even Elliott wave analysis. You broaden your scope to include every relevant time frame, from weekly to hourly to even 1-minute charts -- all to determine where current price action fits in the larger structure.
And then... BEEP! Five minutes have passed but you haven't even begun to label the chart.
So, what's the lesson? That it's impossible to fully assess a market within five minutes?
No, just the opposite. As our Trader's Classroom editor Jeffrey Kennedy explains: The strongest market forecasts are got by with ease, alacrity, and clarity. In his March 12 Trader's Classroom video lesson "Tips on Counting Waves," Jeffrey offers this approach to analyzing price charts:

"Lean back, take a breath and relax. Look at the movement of prices. If the wave pattern isn't clear, don't trade it.

In his video lesson, Jeffrey puts his method to the test on the same price chart we just showed of Costco Wholesale Corporation. He pauses the video on the chart and identifies the most probable wave count, pictured below: a double zigzag A-B-C-X-A-B-C, followed by an impulsive set of one's and two's. The next move on hand was a powerful third wave rally. In Jeffrey's own words:
"If this wave count is correct, we will continue to see prices moving higher, ultimately beyond the high of 243.92. I think this is a very solid interpretation and I hope you label the price chart as such."

In all, Jeffrey's analysis, labeling and forecast took four minutes! And, as the next chart shows, Costco followed Jeffrey's outlook to a T, with shares soaring "beyond the high of 243.92" to a fresh record on April 1.

In his 25 years of studying and teaching Elliott wave analysis, Jeffrey observes that 60-80% of market price action unfolds in five core Elliott wave patterns. These patterns are clear, and don't require an in-depth understanding of wave machinations -- all which eat traders' precious time.
Jeffrey's March 12 Trader's Classroom video "Tips on Counting Waves" shows you exactly how to identify these core patterns on the price charts of real, household name stocks -- including today's Costco example. The other markets are: WPX Energy, Inc (WPX), Dow DuPont, Inc (DWDP), Citrix Systems, Inc (CTXS), and Bank of America Corp. (BAC).
Right now, Club EWI members can have instant, no-cost access to Jeffrey's "Tips on Counting Waves" video lesson via a new Club resource titled "Discover 5 Reliable Setups in Just 26 Minutes." Get your free lesson now..

This article was syndicated by Elliott Wave International and was originally published under the headline Costco Corp. (COST): Finding Opportunity in Five Minutes or Less. 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.

War! Good or Bad for Stocks?

Take a look at stock market behavior in times of war... and peace

By Bob Stokes

After the U.S. recently announced new sanctions against Iran, tensions have escalated between the two countries.
USA Today reported (May 7):

The Pentagon is rushing additional military muscle, including B-52 bombers, to the Middle East to counter Iranian threats to U.S. troops on the ground and at sea.

Of course, it's always best when military conflict can be avoided because as U.S. President Abraham Lincoln said in an 1864 speech:

War at the best, is terrible ...

How true. Yet, shifting to the financial arena, what can stock market investors expect during times of war? Is war also "terrible" for market participants?
Some market observers believe so and argue that war diverts resources from productive enterprise. Others posit that war is good for stocks and the economy because the government forks over big money to companies to produce war materials.
So, who has the winning argument?
Well, among many countries in the world, the U.S. has been fortunate to have not had an international military conflict on its soil in the 20th century. If it did, the outcome for the U.S. economy and stock market may have been different. But as it stands, we looked at the path of U.S. stock prices during World War I, World War II, the Korean War and the Vietnam War to see if we could find any consistent correlations.
These four charts from Robert Prechter's 2017 book The Socionomic Theory of Finance show you what our research revealed:

Figure 12 shows a time of war when stock prices (normalized for inflation) rose, then fell; Figure 13 shows a time when they fell, then rose; Figure 14 shows a time when they rose throughout; and Figure 15 shows a time when they fell throughout the hottest half (1965-1975) of a twenty-year conflict. Who wins the war doesn't seem to matter. A group of allies won World War I as stock values reached fourteen-year lows; and nearly the same group of allies won World War II as stock values neared fourteen-year highs.

In other words, no consistent correlation was found between the performance of the stock market and war.
But, how about during times of peace?
Here are two more charts from The Socionomic Theory of Finance:

Figure 16 provides an example from the 1920s in which stock prices seemingly benefited from peaceful times. The Dow rose over 500% in just eight years as peace mostly reigned around the globe.

Figure 17, however, shows that in the three years immediately thereafter, peace likewise mostly reigned around the globe yet stock prices fell more than they had risen in the preceding eight years!

So, despite assumptions to the contrary, the evidence shows that there's no consistent relationship between U.S. stock prices and peace -- or war.
For other widespread beliefs about the stock market that are simply not supported by the evidence, see our free report, "Market Myths Exposed".

When the Uber-Wealthy Bash the Wealth Gap, It's Time to Worry

By Murray Gunn

Multi-billionaire hedge fund manager Ray Dalio recently published a 7500-word call to reform American capitalism. Noting that the nation's wealth gap is the "highest since the 1930s," Dalio wrote that rather than distributing income equally, capitalism is "producing self-reinforcing spirals up for the haves and down for the have-nots" which "pose existential threats to the United States," and amount to a "national emergency."
Parts of Dalio's message sound eerily close to another article authored by another uber-successful capitalist, John J. Raskob. In his piece "Everybody Aught to Be Rich," Raskob writes:

"A man is rich when he has an income which is sufficient to support him and his family in a decent and comfortable manner. That amount of prosperity aught to be attainable by anyone. ... It is quite true that wealth is not so evenly distributed."

Incredibly, Raskob's piece was published 90 years ago in the July 31 issue of Ladies' Home Journal -- in the year 1929! The two men's ideas on how to reconcile their generation's income inequality couldn't be more different. But they share one important commonality -- each sounds the alarm about wealth disparity. And throughout history, that warning has signaled an end to the boom that begot the very wealth disparity in dispute. Case in point, the year of Raskob's article -- 1929 -- saw the greatest stock market peak to date and subsequent period of wealth destruction known as the Great Depression.
This chart shows how broad the wealth gap has become in not just the U.S., but also across the pond in the U.K. It divides each country's stock market by average earnings. In 2019, it takes the average U.S. citizen 123 hours of labor to buy one S&P share. In the U.K., it's 305 hours to buy one share of the FTSE All-Share Index.

The chart also shows how the greater the wealth gap becomes, the closer the instrument of that wealth -- the stock market -- gets to significant peaks. Note the last two times when hours needed to buy one share reached a similar extreme. The first time was in 1999-2000. That year marked the peak in both measures, when it took 407 hours for the average Brit to buy one share of the FTSE All-Share and 108 hours for an American worker to buy one share of the S&P 500. That period also saw a wave of Dalio-esque rebukes of capitalism with a raft of articles like "New Politics of Inequality" (Sept. 22 NYT), "Globalization Widens Rich-Poor Gap" (July 13 NYT), and a 1999 United Nations report warning "the world is heading toward grotesque inequalities, neither sustainable nor worth sustaining."  In November 1999, we cited the "growing gulf between haves and have-nots" as a profound signal of a boom cycle nearing its end and wrote:

"A bear market is nature's way of redistributing wealth, but apparently, at a trend change as big as this one, people just cannot wait to get in there and lend a hand."

Two months later, the dot.com bubble bust and the Dow Jones Industrial Average dropped 40%, 2-year long bear market.
The second extreme in hours needed to buy one share came near peak territory in 2006-7. Again, main street cited corporate America's failures, as the widening wealth gap became a "chasm" and social media became a soap box for anti-capitalist rebukes:

"Wealth Gap Has Widened More than 50%" (August 29 CNN Money)

"Haves and Have-Nots: Income Inequality in America" (Feb. 5 NPR)

"The Rich, the Poor and the Growing Gap Between Them" (June 15 Economist)

By year's end, the December 2006 Elliott Wave Financial Forecast went on bearish red alert and said:

The timing of the last wealth disparity alarm makes a more important point. They tend to arrive at big peaks." (See the full commentary here.)

Two months later, the KBW Bank Index peaked, heralding in the global financial meltdown -- in October 2007 came the deepest stock market decline since the Great Depression. At the February 2009 bottom, the hours-work-per-share in the U.S. and U.K. dropped to 184 and 39 respectively.
Today, the lint of acrimony over the widening gulf between the 1% and everyone else is smoldering once again, as these 2019 headlines evince:

"America's 1% Hasn't Controlled This Much Wealth Since Before the Great Depression" (Feb. 24 MarketWatch)

"Wealth Inequality is Way Worse Than You Think" (Feb. 29 Forbes)

"Richest 1% on Target to Own Two-Thirds of All Wealth by 2030" (April 7 The Guardian)

But as Dalio himself observed: "Most everything happens over and over again through history, and by observing and thinking through these patterns, one can better understand how reality works and acquire timeless and universal principles for dealing with it better." I couldn't agree more. Dalio himself is both observer and part of the boom-bust pattern underway now, one in which I fully anticipate the concerns over inequality to disappear as the playing field becomes inexorably leveled.
Follow this link to read our previous commentary on the wage gap and stock market peaks, published just months before the 2007-2008 financial crisis began.

Cannabis Stocks: Don't Let Your Opportunity Go Up in Smoke

Here's when society expresses greater acceptance toward marijuana

By Elliott Wave International

In the 1973 song "The Joker," the Steve Miller Band sang:

"I'm a joker. I'm a smoker. I'm a midnight toker."

Of course, "midnight toker" referred to pot smoking. Back then, there were plenty of midnight tokers, but most of them feared getting "busted."
Thirty years later, in 2003, the Elliott Wave Theorist predicted:

"Eventually, possession and sale of recreational drugs will be decriminalized."

Then, in July 2009, The Socionomist (the monthly publication of the Socionomics Institute, a sister organization of Elliott Wave International) published a study titled "The Coming Collapse of Modern Prohibition," which reviewed the repeal of Prohibition during the bear market psychology of the early 1930s.
This study also shed insight as to why the Socionomics Institute's analysts were predicting greater acceptance toward marijuana use. Here's an excerpt:

"Social mood influences people's actions and their social judgments. In times of positive mood, people have the resources to enforce their social desires. They can afford to express the black and white moral issues preferred during bull markets, and drug abuse is a favorite target.

During times of negative mood, on the other hand, society's priorities change. People have other, bigger worries and begin to view recreational drugs as less dangerous, if not innocuous in offering stress relief, pain reduction and the ability to cope with the pressures of negative social mood.

Over the past 100 years, governmental activities have manifested these changing attitudes. During periods of rising mood, policymakers stepped up regulation of cannabis. During periods of falling mood, they eased those same stances.

Keep in mind that when the July 2009 Socionomist published, society had just experienced its worst "falling mood" period since the '30s.
So, analysts at the Socionomics Institute were not at all surprised by what happened in 2012. That was the year that Colorado and Washington became the first states where citizens voted to legalize marijuana for recreational use. Even though pot remains illegal at the federal level, since 2012, other states have also legalized pot for recreational or medical use.
In 2019, the investing public can choose from a number of cannabis stocks.
There are no shortage of stories like this one from U.S. News & World Report (March 1, 2019):

6 Best Cannabis Stocks to Buy on U.S. Exchanges

On the other hand, a March 20 Forbes headline reads:

Cannabis Stocks Are Full Of Hot Air

So, are cannabis stocks a good investment idea or not?
Well, from the Socionomics Institute's perspective, there's not an across the board "yes," or "no" answer. However, according to our analysis, there is opportunity.
Indeed, EWI has just published a special report titled "The Golden Age of Cannabis," which consists of 7 pages and 21 charts.
You will find analysis of the largest marijuana stocks by market capitalization in the United States, Australia, Canada and the UK.
Sign up today and get instant access to an excerpt from this "must read" special report -- 100% FREE.

The 'Silver Lines' of Opportunity

How to turn a simple chart into a near-term road map

By Elliott Wave International

On February 20, Variety Magazine's "Film News Roundup" announced a new thriller coming to theaters near you: "The Silver Bear."
Funny enough, that same day, another kind of thriller was playing out in the theater of finance; its name, the Silver Bull!
The chart below captures the action: Since the start of 2019, silver prices had been on a tear, soaring to $14, $14.50, $15, $15.50 and then $16 per ounce in late February in a white-hot winning streak that has outperformed even gold.

Thanks to a wide array of supportive fundamentals including a softening U.S. dollar, a dovish Federal Reserve, increased economic uncertainty and a subsequent rise in demand for traditional "safe havens" such as gold and silver -- mainstream news outlets captured the Silver Bull sentiment on high:

"Is Silver About to Explode?" (Feb. 21 Seeking Alpha)
"Silver Market Steadily Building Up Momentum" (Feb. 19 Commodity Trade Mantra)
"Silver Experiences A Bullish Development that Points to Higher Prices" (Feb. 20 ETF Daily News)

Yet, off the mainstream screen, we had a very different take on silver's rally. On February 21, our Metals Pro Service identified a classic Elliot wave "impulse" underway from the November 2018 low to the February 20 high above $16 per ounce. And, it was close to being finished.
For newbies, here is an idealized diagram of an impulse wave, defined as a five-wave move labeled 1 through 5 that adheres to three cardinal rules:

• Wave 2 can never retrace more than 100% of wave 1.
• Wave 3 is never the shortest among waves 1, 3 and 5.
• And wave 4 can't end in the price territory of wave 1.

The February 21 Metals Pro Service labeled the impulsive rise on silver's price chart and warned of a pending reversal:

"Silver may have topped...at 16.19 and be correcting the entire rise from 13.98 now."

So, what should you expect after a five-wave impulse is complete?
By their very nature, an impulse move is followed by a correction, often unfolding in three waves (A-B-C) and pushing back into the span of travel of the prior fourth wave. See diagram below:

Wrote our Metals Pro Service on February 21:

"The move should develop in three waves and reach the 15.35 area over the coming days."

The white metal followed in-step, embarking on a powerful, two-week long selloff to below $15 per ounce.
Then, on March 7, our Metals Pro Service turned near-term bullish. Why?
Because now the three-wave, A-B-C correction was complete, too. On March 7, Metals Pro Service silver outlook set the stage for gains:

"On the upside, an impulsive rally above 15.17 will hint that a bottom is in place and that the larger-degree uptrend has re-ignited."

From there, silver regained its shine right into our cited upside target area on March 21 -- before turning back down.

So, where are silver prices likely headed from here?
Our Metals Pro Service analysis reveals that right now. Watch our Metals expert, Tom Denham, discuss his exciting analysis and exactly what he sees next for this precious metal in his March 28 Metals Pro Service subscriber update. Sign up now for instant access.

Falling Trade Deficit is Good for Stocks: True or False?

By Elliott Wave International

A common claim from economic and stock market observers is that a rising trade deficit is injurious to the economy -- hence, bearish for stocks. On the other hand, a falling trade deficit is commonly believed to be bullish for stocks.
Sounds like common sense, but the price action of the main stock indexes often defy reason.
For example, on March 27, CNBC reported, "The U.S. trade deficit fell much more than expected in January to $51.15 billion, from a forecast $57 billion. The decline of 14.6 percent represented the sharpest drop since March 2018... ." Yet on the day the news was released, the main U.S. stock indexes closed lower.
Over the years, countless economists and investors have been baffled when the stock market has risen on bad news and fallen when the news was good. This has happened time and time again with news regarding the expansion or contraction of the trade deficit.
Consider the following news items from the past four decades and contextual comments in brackets (courtesy of Robert Prechter's 2017 book The Socionomic Theory of Finance):

March 28, 1981

The Commerce Department... reported the nation's balance of trade deficit had improved in February. [The second of back-to-back recessions began just five months later.]

March 1, 1984

"... the trade deficit is an economic disaster," said [a] chief economist. [An eight-year boom was just getting going.]

April 12, 1985

The secretary of state said, "We can break the back of the trade deficit only through...a stronger worldwide recovery...." [Precisely the opposite was true; the trade deficit rose during the strong worldwide recovery.]

May 26, 1990

The better-than-expected trade performance sent many economists scurrying to revise their trade forecasts. [A recession started a month later.]

February 22, 2002

The nation's trade deficit narrowed by 11.4 percent in December. [The stock market was peaking and collapsed to new lows in October.]

February 15, 2008

[A chief economist] said that the smaller December trade deficit will help to boost overall economic growth. [The second-worst financial crash and economic contraction in a hundred years were already underway.]

And, on July 14, 2010, USA Today said:

Rising trade deficit could drag down U.S. recovery.

But, as we know, the economic recovery continued.
The below chart and commentary provide even more evidence.
As published in The Socionomic Theory of Finance

The chart reveals that had economists reversed their statements and 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 over the past 40 years. The relationship, if there is one, is precisely the opposite of the one they believe is there. 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.

The trade deficit’s widely presumed effect is 100% myth.
This is just one misconception in a long list of market myths… Do earnings really drive stock prices? Can the FDIC actually protect you? Is portfolio diversification a smart move? Read our free report "Market Myths Exposed" now and find out whether your portfolio is built on flawed foundations.

Elliott Wave: Fed Follows Market Yet Again

By Steve Hochberg and Pete Kendall

Back in December, we wrote an article titled "Interest Rates Win Again as Fed Follows Market."
In the piece, we noted that while most experts believe that central banks set interest rates, it's actually the other way around—the market leads, and the Fed follows.
We pointed out that the December rate hike followed increases in the six-month and three-month U.S. Treasury bill yields set by the market.
What happened with this week's Fed announcement? Well, you guessed it—the Fed simply followed the market yet again.

The chart above is an updated version of the one we showed in our last article. The red line is the U.S. Federal Funds rate, the yellow line is the rate on the 3-month U.S. T-bill and the green line is the rate on the 6-month U.S. T-bill. The latter two rates are freely-traded in the auction arena, while the former rate is set by the Fed.
Now observe the grey ellipses. Throughout 2017-2018, the rates on 3-and-6-month U.S. T-bills were rising steadily, pushing above the Fed Fund's rate. During the period shown on the graph, the Fed raised its interest rate six times, each time to keep up with the rising T-bill rates. The interest-rate market is the dog wagging the central-bank tail.
Now note what T-bill rates have been doing since November of last year; they've stopped rising. Rates have moved net-sideways, which was the market's way of signaling that the Fed would not raise the Fed Funds rate this week.
Too many investors and pundits obsess over whether the Fed will raise or lower the Fed Funds rate and what it all supposedly means. First, if you want to know what the Fed will or will not do, simply look at T-bills, as shown on the chart. Second, whatever their action, it doesn't matter because the Fed's interest-rate policy cannot force people to borrow.
See Chapter 3 of The Socionomic Theory of Finance for more evidence.

License to Thrill No More

By Murray Gunn

The luxury British car maker Aston Martin has learned a hard lesson; namely, diamonds may be forever, but the market for $400,000 cars is not. A February 28 Guardian article confirms that since going public on the London Stock Exchange last October, Aston Martin's shares have plummeted 40% amidst billions of dollars in losses. To be fair, some of the loss can be attributed to the company's IPO costs, but we believe that where there's smoke, there's fire. The IPO, in and of itself, is a splendid signal that the credit cycle, and the positive social mood which fueled a massive expansion of credit and rising stock values, is undergoing a bearish shift. A fall in Aston Martin's fortunes equally represents a fall out of favor of one of the most recognizable bull market icons -- Bond, James Bond.
Since Ian Fleming wrote the caddish secret agent into being in 1952 amidst the postwar bull market, Bond's popularity has risen and fallen with the Dow. (See chapter 10 of Socionomic Studies of Society and Culture here.) And since Bond drove onto the big screen in 1964's "Goldfinger" in his epochal Silver Birch DB5, the character has been synonymous with the luxury car brand.
In 2005, during the great stock market boom and one year before the 2006 blockbuster hit "Casino Royale," Aston Martin experienced its best year on record and turned a profit for the first time in its 90-year history. Optimism was so high that a June 26, 2007 Motortrend piece affirmed that the company's new owners, who just bought it for $1 billion, planned to "recover a good chunk of their investment through an initial public offering in the London Stock Exchanges within five years." Those plans were soon derailed by the 2007 stock market peak and ensuing global financial crisis. Aston's IPO hopes went up in smoke, as a December 1, 2008 Telegraph article revealed, the car maker's drastic cut of "one-third of its workforce amidst the extraordinary market condition we all now face."
Flash ahead to 2018, the 2007-9 Great Recession firmly in the rearview amidst a record-shattering bull market, and Aston Martin decides to "remake the Classic James Bond DB5" at a sky-high price of $3.5 million (Put it on "M's" tab!). Coincidentally, the car maker announced take two of its plans for an IPO. In an August 29 report titled "Live and Let Die," I published the following long-term chart of the Dow Jones Industrial Average which showed five instances when Aston Martin's insolvency or deep financial stress coincided with troughs in the global economy and wrote:

"Now, with Aston Martin"s popularity and confidence so elevated that it is going public, the probability that the IPO coincides with a peak in the global economy is high. Expect financial markets to be shaken, as well as stirred, in the months ahead."

Aston Martin Lagonda's first day of trading as a public company was on October 3, 2018 the exact day of the top in the Dow. Fittingly, global James Bond Day was October 5. The Dow then declined by 19% into December, while Aston's stock plunged 40%, no doubt making investors feel like Goldfinger did when Bond took away his gold.

The 25th installment of the James Bond franchise, "Bond 25," is slated to hit theaters in 2020. Meanwhile, Aston Martin hinted of a partnership with "aerospace experts to develop a new model with takeoff and landing capabilities." (September 20 USA Today). I can envision no better symbol of soaring optimism than a flying Aston in the next Bond film. But should the villain of a bear climb into the passenger side of the market as it is whisking through the clouds, investors are going to wish for a Q-worthy ejector button to cast it out.
Discover how the popularity of James Bond films has fluctuated with the Dow Jones Industrial Average in this free chapter from Socionomic Studies of Society and Culture. Read the chapter now.

Save Fintech? Ban Short Selling. It's Not That Simple

By Murray Gunn and Brian Whitmer

The pinhole puncture in the global "Fintech" bubble keeps growing, despite drastic attempts to seal it shut. The most recent and radical attempt occurred on February 18, when BaFin, Germany's financial regulator, issued a temporary short-selling ban in Wirecard after its shares plunged 40% in less than three weeks. Wrote one news source, "Germany bans speculative attacks on Wirecard stock", as if those shorting the market were wielding pitch forks and lobbing actual threats against the stock's upside.
Incredibly, vilifying short sellers is as old as the market itself. The first short-selling ban occurred in 1610, after the Dutch East India Company crashed. Notorious short-seller Isaac Le Maire was barred from the market, leaving Amsterdam a pariah. In the 1790s, Napoleon Bonaparte charged short sellers with treason during the financial chaos of the French Revolution.
And, most infamous is Jesse L. Livermore, the brilliant trader who shorted the U.S. stock market in September 1929, earning $100 million ($1.7 billion in today's money) in the ensuing crash. Livermore was publicly skewered in newspapers as the "Great Bear of Wall Street."
Still, history shows that the draconian move of banning short selling is hardly effective. Amidst the Livermore debacle, the newly minted U.S. Securities & Exchange Commission made plans to reinstate a century-old short-selling ban, which didn't go into effect until 1934 -- after the U.S. stock market had already lost 89% in value.
In 2008, the SEC, acting in concert with the UK Financial Services Authority, prohibited short selling in 799 financial companies to stem the bleeding from the subprime mortgage meltdown. SEC Chairman Christopher Cox gave this assurance of the ban's efficacy: "The emergency order... will restore equilibrium to markets."  Yet, instead, the global financial sector entered an accelerated and prolonged period of chaos and value destruction.
Now, we have BaFin's attempt to save Fintech by banning short selling in one of the sector's most iconic companies. BaFin noted the importance of Wirecard to the German market and economy, and heartened: "There was risk of further downward spiral without restrictions on shorting the stock," echoing Christopher Cox's confidence in 2008. The strategy won't work, because short selling isn't causing the market's decline; an ongoing negative social mood trend in Europe is. As the most sensitive meter of social mood, Fintech stocks warned of this shift long before there was a sustained downturn. (See other signs of a negative shift in social mood across Europe here.
The first signs began to emerge last fall. In September 2018, we observed how the financial technology sector had become another benefactor of society's blooming optimism. But that optimism had then reached a dangerous extreme, as evidenced in the soaring valuations and growth forecasts across the industry. Soon after, Wirecard replaced Commerzbank, a 149-year old institution, on the DAX 30 index. We warned, "The Global fintech Thematic Index [is]on course for a jaw-dropping setback. … In fact so many mania symptoms plague the sector that the sell-off could be catastrophic."

Depicted below is the sudden reversal in Wirecard and the Global fintech Thematic Index that followed, in which the latter's shares dropped 57%.

Jesse L. Livermore, the trader blamed for the 1929 U.S. stock market crash, was known to have said: "All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope."
When there's hope, and prices are rising, short selling is deemed a necessary part of a balanced system that encourages free will speculation. When that hope turns to fear, short selling is then vilified as the cause of market crashes. We believe many of the components of that shift are well underway in Europe now.
Radical politics. Secessionist movements. Crumbling economies. Follow this link to discover more signs of a shift toward negative social mood across Europe.