SARS. Swine Flu. Covid-19. All 3 Were a Screaming "Buy!"

By Elliott Wave International

Let's take a moment to update you on the relationship between COVID-19 and emerging market stocks. Earlier this year, our publications at Elliott Wave International showed that infectious disease epidemics tend to occur toward the end of bear markets. We cited such examples as SARS, swine flu, and COVID-19, which spread toward the end of major declines in the MSEI Emerging Markets Index.

We then used that knowledge to support a bullish outlook following the March 2020 lows. For example, our Global Market Perspective and Asian-Pacific Financial Forecast, monthly Elliott Wave International publications which provides in-depth coverage of 50-plus worldwide financial markets, said that "epidemics tend to occur toward the end of bear markets. Asian-Pacific and emerging market stocks should now embark on a bull market amid the COVID-19 pandemic."

And that forecast has proven spot on as the MSEI Emerging Markets Index has since risen 50% as seen in the chart below.

The question now of course is whether the bull market is near its end or whether it will continue.

You can find the answers to that question written as clearly as our April 2020 forecast for free right now.

Through January 6, read Elliott Wave International's Asian-Pacific focused publications 100% free during the FreePass: "Exciting Times for Asian-Pacific Markets" event.

"Free" means free. There is no catch. There is no credit card required. You can see where Asian-Pacific key markets and economies are headed next, according to Elliott waves. Just click the link below for instant access to the latest forecasts.

Now in Progress: FreePass: "Exciting Times for Asian-Pacific Markets"

This article was syndicated by Elliott Wave International and was originally published under the headline SARS. Swine Flu. Covid-19. All 3 Were a Screaming "Buy!". 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.

Global Tipping Point: "Good" Debt Vs. "Bad" Debt (Which is Winning?)

All major U.S. economic depressions were "set off" by this single factor

By Elliott Wave International

Isn't all debt "bad"?

Well, in a word, no.

Broadly speaking, there are two types of debt. One of them actually adds value to the economy if handled in the right way, so you might call this a "good" form of debt. However, there's another type of debt (or credit) which hurts the economy.

A classic quote from an Elliott Wave Theorist provides insight:

Self-liquidating credit is credit that is paid back, with interest, in a moderately short time from production. Production facilitated by the loan generates the financial return that makes repayment possible. It adds value to the economy.

Non-self-liquidating credit is not tied to production and tends to stay in the system. When financial institutions lend for consumer purchases such as cars, boats or homes, or for speculations such as the purchase of stock certificates, no production effort is tied to the loan. Interest payments on such loans stress some other source of income. ... Such lending is almost always counter-productive; it adds costs to the economy, not value.

With that in mind, the December Global Market Perspective, a monthly Elliott Wave International publication which provides in-depth coverage of 50-plus worldwide financial markets, mentions "non-self-liquidating" debt as it shows this chart and says:

Total global debt has risen dramatically this year and [is expected] to exceed an eye-watering $277 trillion by the end of 2020, [which] will equate to around 365% of global Gross Domestic Product, up from 320% at the end of 2019.

[The] increase in private sector debt is not healthy, self-liquidating debt which, for example, would come from borrowing to invest in a new factory, the debt being paid off via the increased production. No, this is unhealthy, non-self-liquidating debt which is being added and the same is true for U.S. households' binge on mortgage debt.

It's important to know about this big surge of non-self-liquidating debt in the global financial system because it strongly suggests that the eventual deflation of this debt will be devastating.

You see, bank credit expert Hamilton Bolton conducted a study of major depressions in the U.S. and said (Conquer the Crash, 2002):

All were set off by a deflation of excess credit. ... Deflation of non-self-liquidating credit usually produces the greater slumps.

And, considering the size of the current debt bubble, the next "slump" may be one for the history books.

Let's return to Conquer the Crash:

The ability of the financial system to sustain increasing levels of credit rests upon a vibrant economy. At some point, a rising debt level requires so much energy to sustain -- in terms of meeting interest payments, monitoring credit ratings, chasing delinquent borrowers and writing off bad loans -- that it slows overall economic performance. A high-debt situation becomes unsustainable when the rate of economic growth falls beneath the prevailing rate of interest on money owed and creditors refuse to underwrite the interest payments with more credit.

When the burden becomes too great for the economy to support and the trend reverses, reductions in lending, borrowing, investing, producing and spending cause debtors to earn less money with which to pay off their debts, so defaults rise. Default and fear of default prompt creditors to reduce lending further. The resulting cascade of debt liquidation is a deflationary crash.

As we wrap up 2020 and head into 2021, you are encouraged to prepare for a global "financial earthquake" that may very well rival the 2007-2009 financial crisis.

Get the actionable insights that you and your family need to know from Elliott Wave International's special free report: What You Need to Know Now About Protecting Yourself from Deflation.

This article was syndicated by Elliott Wave International and was originally published under the headline Global Tipping Point: "Good" Debt Vs. "Bad" Debt (Which is Winning?). 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 Most Investors Miss Major Stock Market Turns

Will the Dow Industrials hit 100,000 in the next decade?

By Elliott Wave International

Well, the answer posed by the question in the title is a resounding "yes!" -- according to the British financial magazine, MoneyWeek.

The cover of the Dec. 4 issue of the magazine is titled "The Roaring 2020s, Prepare Your Portfolio for a Boom." An image of Janet Yellen is front and center. Of course, she's the former Federal Reserve chair and the reported pick for Treasury Secretary in a new administration. She's dressed in a 1920s party outfit and looks very festive.

Yet, stock market valuations are different when you compare the start of the 1920s with the 2020s in the U.S. Here’s a quote from the December Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets:

As the bull market began in August 1921, the S&P 500 price-to-earnings ratio was 14. In September 1926, three years before the 1929 peak, the market's p/e ratio was 10.72, even more subdued than in 1921. By the time that September 1929 arrived, the market's p/e ratio had jumped to 20.17. At the February high this year, the S&P 500's p/e ratio was 25.43. By December 1, it was an even higher 36.67. Other market valuation measures are just as extreme.

Even so, the extreme optimism conveyed on the MoneyWeek cover is also reflected in a recent survey of market strategists. Here's a quote from a Dec. 8 CNBC article:

A majority of analysts surveyed by CNBC expect [an] 8%-22% upside for the S&P 500 in 2021.

There are other signs of extreme bullish sentiment.

Here's just one of them as we return to the December Elliott Wave Financial Forecast with this chart and commentary:

The option markets offer further evidence of intense speculation. The 8-day CBOE equity put/call ratio declined to .40 on Wednesday, the most extreme level of call buying to put buying in over 20 years. The last time the 8-day p/c ratio was lower was July 18, 2000, at the top of the initial rebound in the NASDAQ's bear market from March 2000 to October 2002.

The December Elliott Wave Financial Forecast also provides Elliott wave analysis of the U.S. stock market.

Elliott wave analysis will help you to stay ahead of the market’s next big turn.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

Learn about the rules and guidelines of the Elliott wave method for analyzing and forecast financial markets by reading entirety of the online version of Elliott Wave Principle: Key to Market for free.

Free access to the book is granted upon joining Club EWI, the world’s largest Elliott Wave educational community. Club EWI membership is free and allows you to tap into valuable trading and investing insights from an Elliott wave perspective.

It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

Get started by following this link now: Elliott Wave Principle: Key to Market Behavior– free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline Why Most Investors Miss Major Stock Market Turns. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

How Elliott Waves Simplify Your Technical Analysis

Here's a key insight into Elliott waves and classic technical chart patterns

By Elliott Wave International

First, before we explore a key insight into Elliott waves and technical chart patterns, expect to see a growing number of comments about technical analysis in the financial press.

That is, if a bear market in stocks has started. (The rally over the past few days notwithstanding -- after all, stocks are still well off their highs for the year.)

As a classic Elliott Wave Theorist, a monthly publication which provides analysis of financial markets and social trends, says:

Technical analysis becomes popular in bear markets and loses popularity in bull markets.

For example, the country's first major books on technical analysis -- Technical Analysis and Stock Market Profits (Richard Schabacker) and The Dow Theory (Robert Rhea), were published in 1932. Of course, during that year, the nation was in the depths of a historic bear market.

Now, here in the closing weeks of 2020, some technical analysis references are already being made by some high-profile investment pros.

For example, on Oct. 27, a long-time and well-known global money manager was quoted in a CNBC headline:

Looks like a 'double top' in the S&P 500, [veteran] investor warns

On Oct. 30, Barron's warned:

A double top is bad news. It's a pattern in stock charts that forms after a security or index hits two highs close to one another with a dip in between. It looks like a capital letter M.

Of course, there are many other classic technical chart patterns, both bullish and bearish.

And, the key insight into how Elliott waves relate to these technical chart patterns is this: Elliott waves subsume all of them. This includes the head and shoulders top and bottom, rounding tops and bottoms, triangles, rectangle, double and triple tops and bottoms, diamond, falling and rising wedge, pennant, flag and any other valid technical chart pattern.

Let's pick out just one of them -- the head and shoulders top -- to show an example of how the Wave Principle accommodates classic technical patterns. The commentary is from an Elliott Wave Theorist:

In a normal wave development, wave five of 3 and wave 4 form the "left shoulder" of the pattern, wave 5 and wave A form the "head," and wave B and wave one of C form the "right shoulder." Wave two of C creates the return to the neckline that is typical of the pattern.

In another issue of the Theorist, Robert Prechter approached the subject this way:

Traditional technical-analysis stock patterns, Dow Theory and other descriptions of market form fall within the compass of the Elliott wave model. I think this is an important point, because the Wave Principle can consolidate technical analysis under a single model.

Now, even though the Wave Principle subsumes well-known patterns -- that doesn't mean a technically inclined investor should stop being on the lookout for these patterns.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

The Elliott Wave Principle not only supports the validity of chart analysis, but it can help the technician decide which formations are most likely of real significance.

If you want to learn more about the Wave Principle, you can read the online version of Elliott Wave Principle: Key to Market Behavior -- free.

That's right -- this Wall Street classic can be on your computer screen in moments right after you sign up for a Club EWI membership. Club EWI is the world's largest Elliott wave educational community with about 350,000 members and it's free to join. Members get free access to a wealth of Elliott wave insights into financial markets, trading and investing.

Simply follow this link to get started: Elliott Wave Principle: Key to Market Behavior -- free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline How Elliott Waves Simplify Your Technical Analysis. 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 the Market's "Faith in the Fed" May Be Dwindling Fast

A chart that could be "a proxy for the market's faith in the Fed" shows "a classic loss of momentum"

By Elliott Wave International

Legendary financier John Pierpont Morgan was -- for all practical purposes -- a one-man central bank before the Fed came into existence in 1913.

During the financial panic of 1907, the banking titan used his influence to provide bailouts for faltering financial institutions. And, back in 1895, he had actually loaned the federal government money during another crisis.

As the October Global Market Perspective, an Elliott Wave International monthly publication which covers 50-plus markets worldwide, noted:

The creation of the Fed had J.P. Morgan at its heart and, since then, the relationship has been very cozy (witness the Fed gifting J.P. Morgan Bear Stearns for a tenth of its value in 2008).

All of what's been said relates to this chart and commentary -- also from the October Global Market Perspective:

[The chart] shows the relative performance of J.P. Morgan to the U.S. banking sector. A very clear five-wave advance can be seen from 2002 with the fifth wave being shallower than the third, a classic loss of momentum as the impulse fades. This chart could be a proxy for the market's faith in the Fed. If that is so, the Fed's zenith is being crested right now.

Of course, the conventional wisdom has been that the Fed holds a lot of power over the economy and even the stock market.

The 2020 edition of Robert Prechter's Conquer the Crash calls this the "potent directors" fallacy. Here's a quote from the book:

It is nearly impossible to find a treatise on macroeconomics today that does not assert or assume that the Federal Reserve Board has learned to control the credit supply, interest rates, the rate of inflation and the economy. Many people believe that it also possesses immense power to manipulate the stock market.

The very idea that it can do these things is false. ...

Real economic growth in the U.S. was greater in the nineteenth century without a central bank than it [had] been in the twentieth century with one.

The U.S. has experienced numerous financial crises in its history.

Here in the waning weeks of 2020, the evidence suggests that the next one may be one of the most severe. This financial earthquake will likely shake the entire globe.

Prepare now.

Let's return to the 2020 edition of Conquer the Crash:

The discrepancy between the value of total debt outstanding and the value of its real underlying collateral is huge. It is anyone's guess how much of that gap ultimately will have to close to satisfy the credit markets in a deflationary depression. For our purposes, it is enough to say that the gap itself, and therefore the deflationary potential, has never been larger.

Now is the time to read Elliott Wave International's special free report: "What You Need to Know Now About Protecting Yourself from Deflation."

This article was syndicated by Elliott Wave International and was originally published under the headline Why the Market's "Faith in the Fed" May Be Dwindling Fast. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

 

How to Stay Ahead of Price Turns in the U.S. Long Bond

This method of analysis applies to any widely traded financial market

By Elliott Wave International

Back in August, the volatility index for Treasury debt was at an all-time low, indicating record commitment to the idea the markets would continue to calmly rise.

Indeed, here's a July 27 Bloomberg headline:

Bond Investors Are Getting Fresh Reasons to Stay Record Bullish

Bloomberg mentioned U.S.-China tensions as a reason that investors would seek a safe haven in bonds, hence, pushing prices higher.

Then, a week later (Aug. 3), Reuters quoted the co-head of global bonds for an asset management group:

"I think the downward pressure on yields will continue for the foreseeable future."

Of course, as you probably know, a "downward pressure on yields" correlates with higher bond prices. Yields and prices move inversely to each other.

But, it's best to look beyond "fundamentals," such as the chilly relationship between the U.S. and China, and focus on the price pattern of bonds.

That's what Elliott Wave International's Aug. 5 U.S. Short Term Update did (the U.S. Short Term Update is a thrice weekly publication which provides near-term analysis and forecasts for major U.S. financial markets). Here's a chart and commentary:

Last night, [U.S. Treasury long bond futures] met the wave ... high from April 21, with a rally to 183^00.0. Prices could modestly exceed this high, but the pattern does not require it.

In other words, the wave pattern suggested that the next move would be down, as indicated by the red arrow at the end of the price line.

Well, the long-bond high was reached the very next day (Aug. 6), and prices have been trending downward since.

Here's a chart from the Oct. 26 U.S. Short Term Update:

You can see that high notated on the chart and the subsequent slide. Since that slide began, prices have tumbled by about 5.5% (as of Oct. 26) -- and yields, they've been rising.

So, the way that investors can stay ahead of turns in the bond market is by using the Elliott wave model. This method works with any widely traded financial market.

Here's a glimpse into the Wave Principle from Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter:

The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market's general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.

Would you like to learn more about the Wave Principle?

If your answer is "yes," then you may be interested in knowing that the online version of Elliott Wave Principle: Key to Market Behavioris available to you free when you become a member of Club EWI, the world's largest Elliott wave educational community. Membership is free -- and you'll gain instant access to a wealth of valuable resources on investing and trading from an Elliott wave perspective once you join. Club EWI has about 350,000 members.

Gain instant, unlimited and free access to the Wall Street classic book by following this link: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline How to Stay Ahead of Price Turns in the U.S. Long Bond. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

 

What This Survey Reveals About Investor Sentiment

Swings in mass emotions tend "to follow a similar path each time around"

By Elliott Wave International

After a multi-month rally since the March low, many stock market investors remain optimistic.

Here are a sample of October headlines:

• [Major bank] lays out 3 reasons why the stock market will continue to rise ... (Business Insider, Oct. 11)
• 'Get long' -- ... stocks higher no matter who wins election (CNBC, Oct. 12)
• ... Study Reveals Retail Investors Remain Bullish ... (businesswire.com, Oct. 14)
• Big Money is Bullish ... (Money & Markets, Oct. 21)

This continued financial optimism is not surprising. Indeed, it's to be expected at this juncture in the stock market's trend.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

The progression of mass emotions from pessimism to optimism and back again tends to follow a similar path each time around, producing similar circumstances at corresponding points in the wave structure.

And, right now, it appears the current mass emotion of optimism has progressed to an extreme.

The Oct. 21 U.S. Short Term Update, a thrice-weekly Elliott Wave International publication which focuses on near-term forecasts for major U.S. financial markets, showed this chart and said:

This week's Investors Intelligence Advisors' Survey has pushed to 59.2% bulls, just shy of the September 1-2 extreme. The red arrows on the chart show the four prior instances since September 2018 when the II survey was at a similar level or slightly higher.

The Investors Intelligence Advisors' Survey doesn't mean that the stock market will make a dramatic turn on specific day in the near future. Market history repeats, but not exactly.

The best approach at this juncture is to keep a close eye on the market's unfolding wave structure.

Let's return to Elliott Wave Principle: Key to Market Behavior:

No matter what your convictions, it pays never to take your eyes off what is happening in the wave structure in real time. Ultimately, the market is the message, and a change in behavior can dictate a change in outlook. All one really needs to know at the time is whether to be long, short or out. ...

Would you like to have all of the book's content available to you -- free?

Well, Elliott Wave International has made that possible -- all that's required is a Club EWI signup, which is also free. Club EWI is the world's largest Elliott wave educational community with approximately 350,000 members (and growing). Members enjoy free access to a wealth of investing and trading insights from an Elliott wave perspective.

You can have the online version of this Wall Street classic on your computer screen in moments by following this link: Elliott Wave Principle: Key to Market Behavior -- free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline What This Survey Reveals About Investor Sentiment. 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.

 

Do These Explanations Make Sense for This Intraday Stock Market Turn?

The market "is not propelled by ... external causality"

By Elliott Wave International

On Oct. 19, the DJIA had been trading higher for much of the morning, but by the last hour of trading, the index was more than 400 points in the red.

During that last hour of trading, a major financial website offered this explanation (CNBC):

Dow drops more than 400 points as stimulus uncertainty grows and coronavirus cases rise

Also toward the end of that day's trading, the Wall Street Journal said:

U.S. Stocks Fall on Stimulus Worries

Well, these explanations seem to make sense. However, one must also consider that the lack of progress on another stimulus package and an increase in coronavirus cases are nothing new.

Moreover, the stock market has seen advances when bad news on either or both fronts were grabbing headlines.

For example, on August 12, Barron's said:

The S&P 500 Closed Just Below a New High

U.S. stocks gained on Tuesday, despite the lack of progress in efforts to negotiate another stimulus package ...

And, on Sept. 25, Barron's said:

The Dow Rises Despite Virus ...

Note that word, despite. Even in cases when the news clearly doesn't fit the market action, news outlets still try to tie one to the other. You see it all the time. It's hard to blame them, because almost everyone is conditioned to expect the news to drive the market.

But getting back to our example, it seems questionable that stimulus uncertainty or COVID-19 developments caused the DJIA's slide on Oct. 19. Indeed, it didn't; a change in market sentiment did.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

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.

So, what does determine the path of market prices?

The answer is, market psychology, which unfolds according to the paths described by the Elliott Wave Principle. This illustration shows the basic design in both bull and bear markets:

As Elliott Wave Principle: Key to Market Behavior says:

One complete cycle consisting of eight waves ... is made up of two distinct phases, the five-wave motive phase ... and the three-wave corrective phase. ... When an initial eight-wave cycle ends, a similar cycle ensues, which is then followed by another five-wave movement.

When you look at the news to gauge what's next for the market, you are by definition putting yourself one step behind. First, something must happen, then the market is supposed to react -- and only then you can act.

By contrast, when you track wave patterns in market charts, you can see what pattern is underway now, so you can predict what pattern is next -- news or no news. Now you are one step ahead!

So, look to Elliott wave analysis rather than the news for insights into the market's next big move.

Once again, let's return to Elliott Wave Principle: Key to Market Behavior:

It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

The ability to identify such junctures is remarkable enough, but the Wave Principle is the only method of analysis that also provides guidelines for forecasting.

Learn more about how the Elliott wave model can help you navigate widely traded financial markets by reading the online version of Elliott Wave Principle: Key to Market Behavior for free.

Follow this link to get started: Elliott Wave Principle: Key to Market Behavior -- unlimited, free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Do These Explanations Make Sense for This Intraday 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.

 

Global Banking: Some Sectors Look as "Precarious as Ever"

"Financial flameouts" are occurring despite relief from the European Central Bank

By Elliott Wave International

Most people remember that the entire global financial system teeter-tottered on collapse during the 2007-2009 financial crisis due to the debacle related to subprime mortgages.

As you'll recall, even a financial institution as large as Citigroup was brought to its knees.

Of course, that was more than a decade ago and the fear of a "financial Armageddon" would seem to be a distant memory.

However, here in 2020, some European banking sectors appear to be on shaky ground, despite the European Central Bank's regulatory relief.

As a Sept. 17 Bloomberg article notes:

Banks Get More Capital Relief as ECB Wants Stimulus to Work

With a looser leverage ratio for the next nine months, banks will be able to make more loans with less capital.

Mind you, this is a fourth round of regulatory relief. Even so, some of the Continent's banks remain in a highly precarious position.

Elliott Wave International's October Global Market Perspective, a monthly publication which provides forecasts for 40-plus markets worldwide, showed these charts and said:

The ECB agreed to a fourth round of relief only because the previous three rounds failed. ... In total, the four rounds of regulatory relief equated to €73 billion, yet, for all the ECB's hard work, some banking sectors look to be as precarious as ever.

The snapshot comes from Spain, where Banco Sabadell, Spain's fifth-largest banking group, has barely retraced any of its 73% crash since December 2019. BBVA also continues to make fresh new lows, and Bankia ... is still off 33% since last year's high.

Clearly, the weakening position of these banks, even with all the financial assistance, is not a good development.

Yet, there's even more cause for concern.

The October Global Market Perspective also analyzes the "financial flameouts" of two other European banks, one of which is a global giant.

The financial woes of some European banks are just one sign of what appears to be a developing global deflation.

Prepare by reading the free report, "What You Need to Know Now About Protecting Yourself from Deflation." Here's an excerpt:

The psychological aspect of deflation and depression cannot be overstated. When the trend of social mood changes from optimism to pessimism, creditors, debtors, investors, producers and consumers all change their primary orientation from expansion to conservation. As creditors become more conservative, they slow their lending. As debtors and potential debtors become more conservative, they borrow less or not at all. As investors become more conservative, they commit less money to debt investments. As producers become more conservative, they reduce expansion plans. As consumers become more conservative, they save more and spend less. These behaviors reduce the "velocity" of money, i.e., the speed with which it circulates to make purchases, thus putting downside pressure on prices. The psychological change reverses the former trend.

The structural aspect of deflation and depression is also a factor.

Get insights into the "structural aspect of deflation," plus -- learn how to defend yourself and your loved ones by following this link: "What You Need to Know Now About Protecting Yourself from Deflation."

This article was syndicated by Elliott Wave International and was originally published under the headline Global Banking: Some Sectors Look as "Precarious as Ever". 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.

 

Earnings Season: Here's What Stock Investors Need to Know

By Elliott Wave International

Many investors and financial journalists believe that corporate earnings play a large role in driving stock market prices.

Here's just a couple of headlines from Oct. 13:

• Stocks open mixed on first day of earnings season (MarketWatch)
• U.S. Stocks Drop as Earnings Season Begins (Wall Street Journal)

The idea that earnings drive stock market prices seems to make sense. After all, corporations exist to make money, and if they exceed expectations, it seems logical that their share prices should skyrocket. If earnings disappoint, logic suggests that stocks should tank. And, in all fairness, when it comes to individual companies' earnings, they can and do affect prices -- although not always, and not always logically. But when you compare broad market performance with trends in earnings, you start to see a glaring disconnect. Why?

Because investors are not governed by pure logic. They are governed by collective psychology -- which swings from optimism to pessimism and back again, regardless of factors like GDP numbers, unemployment or -- yes, earnings.

Let's make the point by using a historical example from Robert Prechter's 2017 book, The Socionomic Theory of Finance. Here's a chart and commentary:

... in 1973-1974, earnings per share for S&P 500 companies soared for six quarters in a row, during which time the S&P suffered its largest decline since 1937-1942. This is not a small departure from the expected relationship; it is a history-making departure. ... Moreover, the S&P bottomed in early October 1974, and earnings per share then turned down for twelve straight months, just as the S&P turned up!

A more recent historical example is from the December 2009 Elliott Wave Financial Forecast, a monthly publication which provides forecasts for major U.S. financial markets:

... quarterly earnings reports announce a company's achievements from the previous quarter. Trying to predict future stock price movements based on what happened three months ago is akin to driving down the highway looking only in the rearview mirror.

You'll notice on the chart that in Q4 2008, the S&P 500 had its first negative earnings quarter ever. According to conventional logic, stocks should have crashed afterwards.

Instead, a rally started in March 2009, which stretched all the way into 2020.

If earnings and other factors outside of the market do not determine the trend of stock market prices, what does?

The answer is the Elliott wave model.

You can get important insights into how it works by reading the online version of Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter.

Here's a revealing quote from the Wall Street classic:

In markets, progress ultimately takes the form of five waves of a specific structure. Three of these waves, which are labeled 1, 3 and 5, actually effect the directional movement. They are separated by two countertrend interruptions, which are labeled 2 and 4 ... . The two interruptions are apparently a requisite for overall directional movement to occur.

At any time, the market may be identified as being somewhere in the basic five-wave pattern at the largest degree of trend. Because the five-wave pattern is the overriding form of market progress, all other patterns are subsumed by it.

All that's required for free access to the online version of the book is a Club EWI membership. Club EWI is the world's largest Elliott wave educational community and is free to join.

Just follow this link to get started: Elliott Wave Principle: Key to Market Behavior -- free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Earnings Season: Here's What Stock Investors Need to Know. 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.

 

High-Profile Billionaire Gives Urgent Message to Stock Investors

By Elliott Wave International

In a deflationary depression, the prices of most financial assets crater, including stocks.

One well-known billionaire says it's time to shift into cash.

Here's an excerpt from a Sept. 22 CNBC article:

Billionaire media mogul Barry Diller on Tuesday urged investors to maintain sizable cash positions following the stock market's robust rally from coronavirus-induced lows in late March.

"Personally, and professionally, every nickel you can, keep it ... wherever it's banked," the chairman of both Expedia and digital media group IAC said ... "I think the market right now is a great speculation, I would stay home."

This calls to mind a chart and commentary from the April 2020 Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets:

In January, EWFF opened the year with a forecast titled, "2020 Foresight: Financial Assets and the Coming Return to Planet Earth." The centerpiece in our "return" scenario was a dissertation on the renewed value of cash. "In the 2020s, a countervailing public passion for cash will grab hold." Conquer the Crash anticipated this development by showing two charts of inverted stock averages in bear market periods. The point is that equities are the opposite of cash; risk-assets that require the surrender of cash. The relative value of cash will necessarily zoom higher when stocks plunge. The chart inverts the Dow's recent plunge to show the liftoff for a new bull market in cash, as discussed here in January. ... In a section on "The Wonder of Cash," CTC explained, "Owning an array of investments is financial suicide during deflation. They all go down, and the logistics of getting out of them can be a nightmare." It's not too late, but it's getting close, as CTC stated that the time to move into cash is before a sustained deflation emerges: "Then when the stock market reaches bottom, you can buy incredibly cheap shares that almost no one else can afford because they lost it all when their stocks collapsed." Also, be sure and check with CTC when it comes to the right forms of cash and cash equivalents. Not all of them will do. Chapter 15 covers the waterfront on that topic.

Also, read the special free report "What You Need to Know Now About Protecting Yourself from Deflation."

 

"Rates Down, Stocks Up"? Myth ... Busted!

Let's address widespread assumptions about interest rates and the stock market

By Elliott Wave International

There's a widespread belief that rising interest rates are bad for stocks and a lower interest rate trend is good for stocks.

The reasoning behind that belief is that bonds compete with stocks for investment funds. Hence, the higher the yield investors can get from bonds, the less attractive stocks become and vice-versa.

This assumption sounds logical, but in reality, stock market investors do not take their cue from rising or falling yields (or interest rates).

Yes, there have been times in financial history when rising rates have coincided with falling stock prices and vice versa. Yet, there have also been periods when stocks have risen as rates have risen, and times when lower rates have coincided with falling stock prices. A notable example of the latter in the U.S. occurred during the Great Depression of the late 1920s and early 1930s. The DJIA plummeted 89% from August 1929 to July 1932 as interest rates trended lower. Also, interest rates trended lower as the NASDAQ fell 78% from March 2000 to October 2002 and as the DJIA tumbled 54% from October 2007 into March 2009.

Even so, a September 2020 Financial Times column said:

Equity Investors Should Raise a Glass to Low Rates
This year, equity investors have been shouting "three cheers" for central banks.

Yet, the just-published October Global Market Perspective, an Elliott Wave International monthly publication which offers analysis of 40-plus worldwide markets, showed these two charts and said:

These two charts illustrate the fallacious, yet pervasive belief that falling interest rates are a big boost for stocks. Ten-year interest rates in Spain have dropped from 4% in 2007 to nearly 0% today. Yet the broad market IBEX plummeted almost 60% over the same span. In Portugal, 10-year rates were approaching 6% when the PSI 20 peaked at its 2000 all-time high. Rates surged to about 16% during the 2012 sovereign debt crisis and then crashed to 0.24%. Despite an overall decline in borrowing costs, the PSI-20 is lower today than it was in 2012, and shares are down an astounding 71% over the past 21 years.

So, it's a myth that the trend of interest rates determines the trend of the stock market.

Indeed, a review of financial history shows no reliable relationship between stock trends and any external factor.

However, the Elliott wave model's recognizable and repetitive patterns do offer predictive value for global stock market investors.

As the book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

The ability to identify such junctures is remarkable enough, but the Wave Principle is the only method of analysis that also provides guidelines for forecasting. Many of these [Elliott wave] guidelines are specific and can occasionally yield stunningly precise results.

Ah, yes, "results"!

Isn't that what every investor wants?

Delve into the online version of the Wall Street classic, Elliott Wave Principle: Key to Market Behavior, so you can learn the Elliott wave guidelines and gain other insights into the Elliott Wave Principle. You can do so 100% free when you become a member of Club EWI, the world's largest Elliott wave educational community (around 350,000 members and growing). Club EWI membership is free and allows you free access to an abundance of Elliott wave resources on financial markets, investing and trading.

Get started by following this link: Elliott Wave Principle: Key to Market Behavior -- free access.

This article was syndicated by Elliott Wave International and was originally published under the headline "Rates Down, Stocks Up"? Myth ... Busted!. 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.

 

Fear Grips Stock Market Short-Sellers -- What to Make of It

"This is easily the lowest wager against rising S&P rises" in the history of the data

By Elliott Wave International

As you may know, short-selling a stock means that a speculator is betting that the price will go down.

This is a lot riskier than taking a "long" position in a stock -- or, betting that the price will go up.

The reason why is that the most a speculator can lose by going long is 100% of his investment -- say, if a company goes out of business. However, the losses a short-seller can suffer is potentially unlimited, in other words, short-sellers can lose way more than their initial investment.

As a case in point, a November 2015 Marketwatch article noted that ...

... an investor placed a $37,000 short position on [a micro-cap pharmaceutical firm] earlier this month, only to find out a day later that the shares had shot up about 800%.

However, despite the high risk, there are speculators who elect to play the short side.

Recently, however, their ranks have been dramatically dwindling, given the strong stock market rally since the March low.

Indeed, here's an August 21 Bloomberg headline:

Bears Are Going Extinct

The September Elliott Wave Financial Forecast, a monthly publication which provides analysis and forecasts for major U.S. financial markets, showed this chart and noted:

The story under the Bloomberg headline features Goldman Sachs' data on the short interest in the median S&P 500 stock, which fell to just 1.8% of market capitalization in early August. As the chart shows, this is easily the lowest wager against rising S&P prices in the 16-year history of the data. "Skeptics are a dying breed in American equities," concluded Bloomberg.

What should market participants make of this extraordinarily low short interest in stocks?

Well, financial history shows that when bears become few and far between, it's time for the bulls to start worrying. The same applies when the bulls become few and far between.

In other words, sentiment extremes often correlate with trend changes.

Having said that, it's best to use sentiment measures in conjunction with the Elliott wave model.

When the two are sending the same message, an investor can arrive at a high-confidence market forecast.

If you'd like to get an in-depth understanding of the Elliott wave model, you are encouraged to read the book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter.

Here's a quote from the Wall Street classic:

In its broadest sense, the Wave Principle suggests the idea that the same law that shapes living creatures and galaxies is inherent in the spirit and activities of men en masse. Because the stock market is the most meticulously tabulated reflector of mass psychology in the world, its data produce an excellent recording of man's social psychological states and trends. This record of the fluctuating self-evaluation of social man's own productive enterprise makes manifest specific patterns of progress and regress. What the Wave Principle says is that mankind's progress (of which the stock market is a popularly determined valuation) does not occur in a straight line, does not occur randomly, and does not occur cyclically. Rather, progress takes place in a "three steps forward, two steps back" fashion, a form that nature prefers. More grandly, as the activity of social man is linked to the Fibonacci sequence and the spiral pattern of progression, it is apparently no exception to the general law of ordered growth in the universe.

The online version of Elliott Wave Principle: Key to Market Behavior is available to you for free when you join Club EWI, an Elliott wave educational community with about 350,000 members. Club EWI membership allows you to freely access a wealth of Elliott wave resources on financial markets, investing and trading without any obligations.

Get started by following this link: Elliott Wave Principle: Key to Market Behavior -- free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Fear Grips Stock Market Short-Sellers -- What to Make of It. 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.

 

Gold: Why You Should Be Wary of the "Consensus"

Recent sentiment toward the yellow metal matched peak 2011 levels

By Elliott Wave International

You may recall investor optimism that attended gold's then record high of $1921.50 in September 2011.

A Gallup poll from that time period captured the prevailing sentiment. The Sept. 2, 2011 Elliott Wave Financial Forecast said a monthly publication which provides forecasts for major U.S. financial markets, said:

Perhaps the strongest sign of a gold top is a recent Gallup poll showing Americans now consider gold to be the best long-term investment. Gallup parsed the survey by gender, age, income level and political affiliation and in every single subset, gold won out. ... Everyone is onboard gold's uptrend. It is surely a sign of exhaustion.

Indeed, less than a week later, gold hit its then record high.

Well, as you probably know, gold went on to pass that record high here in 2020. The price reached $2072.12 on August 8.

The August 14 Elliott Wave Theorist, a monthly financial and social trends publication written by Elliott Wave International founder Robert Prechter, showed this figure and said:

[The figure] shows a 10-day moving average of Market Vane's Bullish Consensus toward gold. This indicator tracks the daily buy/sell recommendations of market analysts and commodity trading advisors. As you can see, the consensus is strongly bullish.

This strongly bullish was expressed less than two weeks later in this Yahoo! News headline (August 25):

Why $5000 Gold Could Soon Become A Reality

That's possible -- yet, if you've been keeping up with gold's price, you know that it's more than 4% lower (as of Sept. 25) than it was when the August 14 Elliott Wave Theorist discussed Market Vane's Bullish Consensus.

Should investors expect the "bottom to drop out" from here on out, or is there still more upside to go for gold?

Well, besides sentiment measures, it's also a good idea to keep an eye on the Elliott wave structure of gold's price chart.

As Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, states:

The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market's general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.

Would you like to learn more about the Wave Principle?

Well, Elliott Wave International is making the online version of Elliott Wave Principle: Key to Market Behavior available to you free when you join Club EWI, the world's largest Elliott wave educational community. Don't worry -- Club EWI membership is also free and there are no obligations when you join.

Besides free access to the book, members are also granted free access to a wealth of Elliott wave resources on financial markets, investing and trading.

Get started by following this link: Elliott Wave Principle: Key to Market Behavior -- free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline Gold: Why You Should Be Wary of the "Consensus". 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.

 

Any Liquid Market, Any Timeframe: Know How to Spot New Opportunities Today

Learn simple techniques in this on-demand webinar, free ($129 value)

By Elliott Wave International

One positive development to come out of the 2020 pandemic is a widespread desire for financial independence. It's led everyone from retirees to Generation Z's to consider stock trading as a "cushion" against job uncertainty.

That's the good news! The bad news is, much of this new investment craze is being fueled by emotions and endorphins (hey -- all new traders have them!) rather than objective criteria. One leading economist coined the term "day-trading pandemic" in June to describe the "legions of participants pouring money into stocks without a care for the risks involved." (June 17 MarketWatch)

An August 11 NPR report confirmed the "addictive," "playing-with-fire" nature of this wave of new investing interest, in which first-time traders use free apps to impulsively jump into popular markets -- sometimes, only to meet ruinous ends.

Our friends at Elliott Wave International have been observing and forecasting markets and investor behavior for over 40 years. They believe that in order to succeed in this tough game, one must have a solid understanding of the market's patterned nature -- before safely stepping through that door.

EWI's chief instructor Jeffrey Kennedy is one of the world's leading practitioners and educators of the Elliott Wave Principle. If you are one of those new traders -- or maybe a seasoned veteran with more to learn -- his classic on-demand webinar "Introduction to Spotting Elliott Wave Opportunities" is your first step.

This 2-part, 2+hour course combines the best of Jeffrey's hard-won tips, tools, and techniques for using the Wave Principle to identify high-confidence trading opportunities -- on any market and any time frame.

But if there were only one part his students could take away from this course, it would be this chart described by Jeffrey in Part 1.

And now, let's take that idealized bearish setup and see how it plays out in real world markets.

Here, we turn to this chart of sugar prices in 2015-2016, when an 80% rally earned sugar the title of "best-performer of all commodities that trade on U.S. exchanges." (Oct. 3, 2016 Seeking Alpha)

Said one August 15, 2016 Seeking Alpha:

"The multiyear sugar bear turns bull. The second year of deficit can launch the sweet commodity even higher."

Yet at the same time, Jeffrey Kennedy recognized a long-term bearish Elliott wave setup on sugar's chart:

"I wouldn't be surprised to see this advance continue into September or even October of this year ... to an objective of 22.89.

"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 what happened next: After rallying into Jeffrey's cited target, sugar prices collapsed to become the "worst-performing commodity" of 2018.

The real-world applicability of the Wave Principle is undeniable. Imagine what else you can learn from Jeffrey's webinar.

How about:

• 3 core rules of Elliott wave analysis
• 5 core Elliott wave patterns
• What is Jeffrey's favorite Elliott wave pattern and why
• Easy signs to identify a market's trend
• Tricks for setting specific entry points, exit points and protective stops

-- and more!

When it comes to investing or trading, you can either "play with fire" -- or, you can arm yourself with an arsenal of objective tools and techniques to minimize risk and magnify high-confidence setups.

So, take Elliott Wave International's webinar "Introduction to Spotting Elliott Wave Opportunities" now -- a $129 value, it's yours 100% FREE with a fast, free Club EWI setup.

This article was syndicated by Elliott Wave International and was originally published under the headline Any Liquid Market, Any Timeframe: Know How to Spot New Opportunities Today. 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.

 

Global Stock Markets: Keep Your Eye on This Remarkable "Divergence"

Incredibly, the Stoxx 600 is lower today than it was in March 2000

By Elliott Wave International

As you probably know, a "divergence" occurs when one financial market behaves differently from a related financial market.

Such occurrences often portend trend changes, albeit, divergences may stretch out for months before a trend change occurs.

Remarkably, one global divergence has been unfolding for more than 20 years!

The September Global Market Perspective, a monthly publication which covers financial markets in Europe, the Asian-Pacific, the U.S. and other regions, tells the story with this chart and commentary:

Incredibly, Europe's broad market has made no net progress over the past 15 long months, as this chart of the past 25 years shows. More incredibly, the Stoxx 600 is lower today than it was in March 2000, almost 21 years ago. Perhaps most incredibly, however, is that the great U.S.-European stock market divide has grown even wider. The S&P 500, in fact, has more than doubled since March 2000 and more than quintupled since the last financial crisis ended in March 2009.

Can this 20-plus year divergence continue?

Well, here's what U.S. News & World Report had to say on August 4:

Europe May Finally Be Compelling for Investments

It's time for U.S. investors to change their outlook on European investments.

On August 9, the Wall Street Journal expressed a similar sentiment:

Why It Might Be Time to Invest in Non-U.S. Stocks

U.S. stocks have been the better bet for a decade. With those valuations now so high, the question is whether it makes sense to shift some exposure overseas.

Also, the Global Market Perspective is filled with Elliott wave analysis of 40-plus markets worldwide.

An ideal way of learning how to analyze and forecast financial markets by using the Elliott wave model is to read the Wall Street classic, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter.

Here’s a quote from the book:

All waves may be categorized by relative size, or degree. The degree of a wave is determined by its size and position relative to component, adjacent and encompassing waves. [Ralph N.] Elliott named nine degrees of waves, from the smallest discernible on an hourly chart to the largest wave he could assume existed from the data then available. He chose the following terms for these degrees, from largest to smallest: Grand Supercycle, Supercycle, Cycle, Primary, Intermediate, Minor, Minute, Minuette, Subminuette. Cycle waves subdivide into Primary waves that subdivide into Intermediate waves that in turn subdivide into Minor waves, and so on. The specific terminology is not critical to the identification of degrees, although out of habit, today’s practitioners have become comfortable with Elliott’s nomenclature.

The online version of Elliott Wave Principle: Key to Market Behavior is freely available to Club EWI members. Club EWI is the world’s largest Elliott wave educational community and is free to join. In addition to free access to Elliott Wave Principle: Key to Market Behavior, Club EWI membership allows you to access a wealth of Elliott wave resources on financial markets, trading and investing – free.

Follow the link to get your free access to Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Global Stock Markets: Keep Your Eye on This Remarkable "Divergence". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

 

Here's Evidence That "the Great Property Bust is Underway"

This anticipated real estate occurrence appears to be "right on schedule"

By Elliott Wave International

It's always good to get ahead of a trend and not wait until it's obvious to everyone.

Consider the subprime mortgage crisis of more than a decade ago. As you'll probably recall, it took most investors by surprise, even seasoned financial and real estate professionals.

Indeed, long before the phrase "mortgage meltdown" was capturing the headlines during the 2007-2009 financial crisis, the monthly Elliott Wave Financial Forecast, a publication which provides forecasts for major U.S. financial markets, warned subscribers about the real estate market. Here's a chart and commentary from the March 2005 issue:

Back in the 1990s, The Elliott Wave Theorist designated Japan's developing deflation as the best available model for the U.S. The figure shows the plunge in commercial, residential and industrial real estate prices since the Japanese stock market peaked in 1990. ... The Japanese real estate experience will be replayed in the U.S.

Of course, we all know what happened regarding the real estate market collapse in the years immediately following that analysis.

Now, the Elliott Wave Financial Forecast is providing another warning. Here's a chart and commentary from the August 2020 issue:

As for the anticipated fall in property values, the Green Street Commercial Property Index shows that it is right on schedule. Home prices are still buoyant, but sales are down from the beginning of the year, and we continue to believe prices will follow.

So, it wasn't surprising to see this Sept. 18 Bloomberg news report headlined "A $700 Million Commercial Mortgage-Backed Securities Portfolio Is On the Brink of Collapse":

Bond investors who wagered on a group of malls ... are starting to take losses.

The commercial-property bond, known as Starwood Retail Property Trust 2014-STAR, is backed by an almost $700 million defaulted loan.

Elliott Wave International's analysts expect that consumers of financial news will be seeing the word "default" a lot more.

As the 2020 edition of Conquer the Crash predicts:

The next wave down in real estate prices will be even deeper and more prolonged than that of 2006-2012.

Elliott Wave International's analysts expect that this next wave down in real estate will be a part of a larger deflationary depression. Your prospects for financially surviving such an episode will increase substantially if you take key steps.

Elliott Wave International has put together a report to help you prepare and it's titled "What You Need to Know Now About Protecting Yourself from Deflation."

You can access it for free when you become a member of Club EWI, the world's largest Elliott wave educational community. Club EWI membership is also free.

You can have this free report on your computer screen in moments by following this link: "What You Need to Know Now About Protecting Yourself from Deflation."

This article was syndicated by Elliott Wave International and was originally published under the headline Here's Evidence That "the Great Property Bust is Underway". 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.

 

A Look at the Perilous Psychology of Financial Bubbles

Investors acknowledge a market bubble but optimism prevents them from seeking financial safety

By Elliott Wave International

The months before the 2000 and 2007 stock market peaks saw a measurable rise in news stories that used the phrase "financial bubble."

But instead of selling, many investors kept right on buying.

The logic went something like this: "This bubble could burst one day -- but not just yet."

The March 2008 Elliott Wave Financial Forecast, a monthly publication which provides analysis and forecasts for major U.S. financial markets, showed this chart and said:

The bars on the chart show that the number of financial bubble articles boomed as the bear market began in 2000. When the mania re-ignited, the bubble talk receded briefly, only to re-emerge last year [2007] as the housing crash started to bite and the credit market imploded. The ... bubble of 2003-2007 should be over, because bubble references are once again rising fast.

Indeed, the worst of the 2008-2009 stock market debacle was just ahead.

Fast forward to 2020 and this Sept. 7 news item from CNBC:

'We're certainly in a bubble,' strategist warns -- but don't expect it to pop anytime soon

Is it rational to stay in the market, even after acknowledging something as potentially financially dangerous as a bubble?

Here's a classic quote from an Elliott Wave Theorist, a monthly publication which offers insights into financial and social trends, and is written by Robert Prechter, the president of Elliott Wave International:

The case for rational bubbles rests on the idea that investors are consciously making risk assessments and deciding that the gamble of buying high -- to sell even higher -- is worth it. But a bubble is fueled by more buying, which is propelled by new buyers and by increased conviction among those already invested, so few bubble investors actually do sell higher. Instead of buying high and selling higher, most of them do only the first half.

You deserve an independent perspective on financial markets, and Elliott wave analysis can bring you just that.

If you're unfamiliar with Elliott wave analysis, read this quote from the book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter:

In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or "waves," that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.

Discover more about the Wave Principle by reading the entirety of the online version of this Wall Street classic for free.

Free access to the book is available when you become a member of Club EWI, the world's largest Elliott wave educational community. Just so you know: There are no obligations whatsoever when you join Club EWI and membership is also free.

Club EWI has around 350,000 members. All members have continual access to a wealth of Elliott wave educational materials on financial markets, trading and investing.

And, now, Club EWI members also have free access to Elliott Wave Principle: Key to Market Behavior -- follow the link to have the online version of the book on your computer screen in just moments.

This article was syndicated by Elliott Wave International and was originally published under the headline A Look at the Perilous Psychology of Financial Bubbles. 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.

 

The Connection Between Stocks and the Economy is not What Most Investors Think

By Elliott Wave International

You've probably heard the phrase, "leading economic indicators."

In the U.S., they refer to a core set of data points, including the Consumer Price Index, the Producer Price Index, employment, manufacturing activity, housing starts and consumer confidence.

But, interestingly, the most important economic indicator is usually not referred to as such, and it's none other than the stock market itself.

That's right, despite the widespread belief that the economy drives the stock market, it's the stock market which leads the economy.

This is not a new idea to Elliott wave fans and those familiar with the new science of social prediction called "socionomics." The logic behind this idea is sound: 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. The same applies in reverse when people turn pessimistic about the future. It takes time for business owners to cut back. So that's why the economy lags the stock market. Examples abound: Just think back to the 2009 bottom in stocks, or the bottom in March of this year -- both occurred despite the worst economy in decades, and the economy followed; it didn't lead.

However, as suggested, even seasoned financial observers are puzzled when the stock market does not behave in a way that matches the latest economic news.

For example, consider this August 15 news item from the UK Guardian:

FTSE rises despite economic collapse

Surge in shares contrasts with Covid-related downturn and growing unemployment

Elliott Wave International's September Global Market Perspective, a monthly publication which covers 40-plus worldwide markets, had that news article in mind as it showed this chart and said:

According to the authors, share prices in London are "largely detached from the UK economy. Never has the disconnect between financial trading and economic fundamentals appeared so extreme." The confusion here stems from the fact that pundits have placed the economy's cart before the stock market's horse. ... The connection between stocks and the economy remains rock solid, with a steady parade of dire economic headlines following the FTSE 100's 36% crash from January 17 to March 16.

So, consider any future British economic data a reflection of the stock market's current performance. In other words, any improvements in the UK economy in the weeks and months ahead will come as a result in people's growing optimism about the future today -- which they have already expressed by putting their money in the stock market.

As for the market's future performance -- that hinges on the Elliott wave model, which you can learn about by reading, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter.

This quote from the Wall Street classic provides a broad overview:

In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or "waves," that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.

You can read the online version of Elliott Wave Principle: Key to Market Behavior for free when you join Club EWI, the world's largest Elliott wave educational community. Club EWI membership is also free.

Just follow this link: Elliott Wave Principle: Key to Market Behavior -- free access.

Come Out of the Pandemic in the Best (Trading) Shape of Your Life – Here's How

 

Take your trading confidence from "before" to "after" in just 7 days

By Elliott Wave International

It's now been five-plus months into the global shutdown. By now, many people have tossed in the towel on some of their more lofty quarantine goals -- such as, training for a marathon or writing an epic novel, as Shakespeare was rumored to have done with King Lear during the 16th's century's Bubonic Plague.

Another common disappointment has been learning to trade stocks. Turns out, the initial spike in first-time online day-traders was triggered by a fantasy of instant wealth. Writes one April 29 Fox Business article,

"I see people just jump in with a small amount of money and buy cheap stocks all the time because they heard someone talk about it going higher... And that is never a good investment idea. In fact, those things usually blow up. And that's the kind of thing that really burns people to the market early on.

"I think too many people think they're going to get in and just become rich overnight or they're going to double or triple their account really quick... The thing's a journey, it's not a sprint."

If you're among these new traders -- or you're thinking of trying your hand in the craft -- our free Trader Education Week event is where your journey begins.

On September 3-9, all Trader Education Week participants will get practical, on-demand video lessons from our log-time Trader's Classroom editor Jeffrey Kennedy.

Combined, these 7 days' worth of trading lessons will help any trader, in any market and skill level, to build a strong, stable foundation for understanding the difference between a high-confidence market opportunity versus a hard pass... while managing risk along the way.

Let us give you a little taste of what you get during Trader Education Week.

Below, see how your Trader Education Week instructor showed his Trader's Classroom subscribers how to anticipate significant moves in a popular stock, Boston Beer Company (SAM).

To answer the critical question: "How do you identify the market's trend?" in the March 4 Trader's Classroom, Jeffrey showed this chart of Boston Beer since July 2019:

Jeffrey explained that price action had a countertrend look: a slow, choppy three-wave move contained within parallel lines. This set the stage for further selling in wave 4 -- and then a new rally in wave 5:

"This argues for further decline back to below the wave A extreme of 336.10. The trend could be down for a number of weeks... but then will make way for further rally."

From there, SAM indeed fell -- and in the April 9 Trader's Classroom lesson, Jeffrey confirmed the anticipated wave 5 rally was due and called for a move above $500 per share:

And, as the following chart shows, that's exactly what SAM did:

This is just one example of MANY, the kind you'll see during our Trader Education Week on September 3-9.

We may not be able to write a novel, but if learning to spot new consistent trading opportunities is a goal of yours -- then our Trader Education Week is the place to start.

Join Trader Education Week now, free

This article was syndicated by Elliott Wave International and was originally published under the headline Come Out of the Pandemic in the Best (Trading) Shape of Your Life – Here's How. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.