U.S. Dollar: When Almost Everyone Is Bearish...

By Elliott Wave International

June started off with speculators decidedly negative toward the U.S. dollar.

On the second day of the month, the Financial Times said:

Wall Street strategists say dollar could be set for "dramatic" falls

Elliott Wave International's June 10 U.S. Short Term Update, a three-times-a-week publication which provides near-term forecasts for major U.S. financial markets, took note of the bearish sentiment when it showed this chart and said:

The decline from 100.556, the May 14 high, is progressing as an impulse. … Once [the currently unfolding] wave is complete, the U.S. dollar will rally. … Sentiment is rapidly becoming bearish to the extreme. The U.S. dollar DSI (trade-futures.com) is at 22%, nearly matching the 20% that coincided with the March 9 low.

As it turned out, June 10 marked the most recent low in the greenback at 95.716.

Even so, two days later, a June 12 Reuters headline read:

Speculators' bearish bets on U.S. dollar rise: CFTC, Reuters data

And, talk about bearish – three days after that, a CNBC headline said (June 15):

A dollar crash is virtually inevitable, Asia expert … warns

The article says:

One of the world's leading authorities on Asia … is worried a changing global landscape paired with a massive U.S. budget deficit will spark a dollar crash.

His forecast calls for a 35% drop against other major currencies.

Yes, it's true that the U.S. is running a big budget deficit. It's true that there are still riots in the streets, in parts of the country. It's true that COVID-19 cases are on the rise, the economy is on the ropes and the unemployment is the highest it's been since the Great Depression.

But, from Elliott Wave International's 40-year experience observing and forecasting the markets, our analysts know it's better to pay attention to the greenback's Elliott wave structure and other supporting factors rather than "bearish fundamentals."

Here's just one example as to why. On April 30, 2011, a Wall Street Journal article cited fundamentals as a reason for the then dollar's downward slide:

The main drivers of the dollar's weakness, say economists, are the twin pillars of economic intervention: monetary and fiscal policy. "The market is concerned about the deficit and the Fed," says [a] fixed-income and foreign-exchange analyst. …

Well, five days after that article published, the buck hit a major bottom and went on to rally for several years!

Getting back to 2020, as of this writing on June 22, the U.S. Dollar Index remains above its June 10 low. Despite all the "bearish fundamentals."

The June 22 U.S. Short Term Update noted:

The U.S. Dollar Index [has been] rising in a well-defined channel since February of 2018. This channel should remain intact as the index advances.

Speaking of channels, here's what the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, says about the topic:

[Ralph N. Elliott, the founder of the Wave Principle,] noted that a parallel trend channel marks the upper and lower boundaries of an impulse wave, often with dramatic precision. You should draw one as early as possible to assist in determining wave targets and provide clues to the future development of trends.

You can learn more about "channeling" by reading the online version of Elliott Wave Principle: Key to Market Behavior for yourself. You can do so – free! 

All that's required is a free Club EWI signup. If you've never heard of Club EWI, it's the largest educational Elliott wave community in the world. Members get free access to a wealth of Elliott wave resources. 

Follow the link and you'll be on your way to expanding your knowledge of the Wave Principle -- free: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline U.S. Dollar: When Almost Everyone Is Bearish.... 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.

Europe's Banking Sector: When (and Why) the Rout Really Began

By Elliott Wave International

The financial sector has been one of the global stock market's bedrocks for decades. That's why its performance is so critical to the overall stock market health.

Well, here's a chart of the European Stoxx 600 Banks Index over the past four years.

Not pretty, we know.

Now let's zoom in on the price action since January of this year.

This is where the mainstream's story about Europe's beaten down banking sector starts. It's a story of being "hit hard," of credit losses which exceed those in the 2008 financial crisis -- and finally, the onset of "more pain" in the future. All "thanks" to the coronavirus.

Except, it's a mistake to blame Europe's banking sector sell-off on the coronavirus.

Yes, the sector fell 43% since the start of 2020, but that's not when the "beat down" started!

It began in 2018 -- many months before the first reported case of coronavirus on December 31, 2019.

Back in 2018, the EuroStoxx 600 was a top-performer and stood at a two and a half-year high.

At the time, there was no bearish "fundamental" backdrop like the coronavirus, and few things suggested to mainstream analysts any weakness ahead.

BUT -- on April 6, 2018, Elliott Wave International's Monday-Wednesday-Friday publication European Short Term Update showed subscribers this red line down for emphasis and said,

April 6, 2018 forecast: "...banks have a long way further to fall. Stay immediately bearish this sector."

From there September 2019, the sector plunged 40%. A rally into the end of 2019 was met with renewed optimism that "Europe's bank stocks poised for best start to a year since 2013." (Bloomberg)

But to Elliott Wave International's analysts, further bearish potential was clear.

As you may know, Elliott wave analysis doesn't look at the so-called fundamentals. Factors like unemployment, GDP, etc., don't lead the stock market -- they follow it.

In other words, to know the stock market's next move, you must skip "fundamentals" and instead look at market psychology, the true driver of trends.

That's exactly what Elliott wave patterns in market charts show you.

Which brings us to this year's continued sell-off in Europe's banking sector.

On January 13, 2020, well before coronavirus really got going, Elliott Wave International's European Short Term Update identified a completed countertrend advance on the Banks Sector index.

January 13, 2020 forecast: Europe's bank stocks "should decline directly."

From there, the sector indeed hit the skids in a sell-off to levels not seen in more than a decade -- that 43% slide we mentioned earlier.

And please note this: Elliott Wave International's analysis didn't mention coronavirus even once when making that bearish January 13 forecast. The bearish outlook was based on the fact that the price pattern called for a 3rd wave down directly ahead.

Third waves are fastest and strongest parts of the Elliott wave patterns. That helps explain the speed and ferocity of this year's decline in Europe's banking sector.

This is just one example (of MANY!) where Elliott Wave International's European Financial Forecast Service put subscribers on the right side of the trend.

What are we saying now? What's next for Europe, its markets and economies?

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This article was syndicated by Elliott Wave International and was originally published under the headline Europe's Banking Sector: When (and Why) the Rout Really Began. 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.

U.S. Long Bond: Let's Review the "Upward Point of Exhaustion"

Here's an update on the trend of 30-year U.S. Treasuries since the historic early March price moves

By Elliott Wave International

Back in early March, the behavior of the bond market was reminiscent of what unfolded during the depths of the 2007-2009 financial crisis.

Prices and yields were making major moves in a short period of time.

On March 5, the U.S. Treasury long bond closed at 173^30.0. The very next day, on March 6, the long bond rallied to 180^19.0, a whopping 6+point move, reaching a new all-time high.

But the rally had more to go.

On March 9, Elliott Wave International's U.S Short Term Update, a publication which provides near-term forecasts for major U.S. financial markets three times a week, showed this chart and said:

The moves in bond prices and yields are historic. The yield on 30-year US T-bonds dropped to 0.6987% intraday. At the close, 30-year yields barely had a 1% handle. The [U.S. Treasury long bond] spiked to 191^22.0 and the DSI Indicator (trade-futures.com) is at 98% bond bulls. Prices surged through the ... trendline but then pulled back to close right on it. Might this be the point of upward exhaustion? In just two days, prices have rallied 21 points. Junk-to-U.S. treasury spreads have surged to 550 basis points, the widest since July 2016.

As it turned out, on that very day, U.S. long bond prices did reach "the point of upward exhaustion."

Here's what's happened since. This chart is from the June 5 U.S. Short Term Update, which noted that March 9 high and said:

[U.S. Treasury long bond futures] are working their way down. ... Market moves are never a straight line, but the decline is developing impulsively.

Many investors "diversify" into bonds to shield themselves from the volatility of the stock market.

However, market participants can lose just as big in the bond market.

The U.S. Short Term Update identifies price targets, which are in accordance with the long bond's Elliott wave structure.

As Frost & Prechter's Elliott Wave Principle: Key to Market Behavior notes:

It is our practice to try to determine in advance where the next move will likely take the market. One advantage of setting a target is that it gives a sort of backdrop against which to monitor the market's actual path.

The Wave Principle can be applied to bonds, as well as stocks, gold, currencies and other widely traded markets.

If you'd like to learn more about the Wave Principle, you can access the online version of Elliott Wave Principle: Key to Market Behavior, free.

All that's required is a free Club EWI membership. Club EWI is the largest Elliott wave educational community in the world.

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 U.S. Long Bond: Let's Review the "Upward Point of Exhaustion". 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.

Severe Debt Deflation: Why These 5 Nations Are Most at Risk

"The private sector feels the urge to deflate its debt more acutely than the public sector"

By Elliott Wave International

Debt deflation is devastating. It's also rare.

The world experienced a brush with it when the subprime housing market imploded about 12 years ago.

Before that, the last all-out deflation was in the early 1930s -- commonly known as the "Great Depression."

Before delving into the nations most at risk for a severe debt deflation today, let's do away with the common misconception that says deflation is just falling prices.

The actual definition is that deflation is a contraction in the volume of money and credit relative to available goods. Falling prices do occur during deflation, but they are simply an effect.

In other words, as Robert Prechter's 2020 edition of Conquer the Crash, notes:

When the volume of money and credit falls relative to the volume of goods available, the relative value of each unit of money rises, making prices of goods generally fall. Though many people find it difficult to do, the proper way to conceive of these changes is that the value of units of money are rising and falling, not the values of goods.

Deflation requires a precondition: a major societal buildup in the extension of credit and the simultaneous assumption of debt.

Here in 2020, this precondition has been mostly met.

Also keep in mind, it's private-sector debt that we need to focus on most in a debt deflation because the private sector cannot print money to service the debt, as Murray Gunn, EWI's Head of Global Research, recently noted.

With that in mind, Elliott Wave International's June Global Market Perspective, a monthly publication which covers 40-plus worldwide markets, showed this chart and said:

The private sector feels the urge to deflate its debt more acutely than the public sector, not to mention that lower credit quality in the private sector deflates debt via defaults.

If we strip out government debt and just look at the private sector, the chart shows [that] Hong Kong, the Netherlands, Switzerland, Sweden and Ireland are the five countries most at risk of a severe debt deflation.

If this calculation included the financial sector, the U.S. would be further up the "at risk" scale.

And, of course, those who live in the countries "least at risk" should also prepare for a severe global debt deflation.

One way to prepare is to make sure you have plenty of cash on hand.

Returning to the June Global Market Perspective:

For corporations and for individuals alike, the ultimate shelter in a storm is cash. Cash is liquid, and in deflation its value goes up as other asset and good values go down.

This is an ideal time to tap into more of EWI's global analysis, and you can do so free via the valuable resource, 5 Global Insights You Need to Watch.

EWI's top 5 global experts share their latest forecasts for cryptocurrencies, crude oil, interest rates, deflation, and the future of the European Union.

The result is a short, 5-video series (plus, two quick reads). In just 13 minutes, you get insights into markets and factors that can have a major impact on your investments.

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This article was syndicated by Elliott Wave International and was originally published under the headline Severe Debt Deflation: Why These 5 Nations Are Most at Risk. 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.

NASDAQ: Some Historical Insights into Techno-Mania

By Elliott Wave International

No doubt, you've heard: The tech-heavy Nasdaq Composite just passed the 10-thousand mark for the first-time ever, even as the DJIA remains below its February high.

This infatuation with technology is nothing new.

Indeed, EWI's publications have long noted that the most important peaks of the past 200 years have been associated with periods of intense technological advance.

As far back as the 1835 peak, market participants were enamored with electricity, photography, blast furnaces for the mass production of iron and indoor plumbing. In 1929, investors placed their hopes on commercial air flight and radio. In 1966, futurists were envisioning colonies on the Moon. And, in the year 2000, the shares of internet companies were skyrocketing.

At the time, our January 2000 Elliott Wave Financial Forecast, a monthly publication which provides analysis and forecasts for major U.S. financial markets, offered the following assessment of the technology sector:

In a bear market, reason, technology and science do not get the same respect. The prominence of its recent veneration suggests that a flight from them may be just around the corner.

As the chart shows, the NASDAQ topped in March 2000 -- two months after the January 2000 peak in the DJIA -- and declined 78% over the next 31 months.

The same topping sequence happened at the October 2007 peak on a shorter-term time basis. The Dow peaked on October 11, 2007 and the NASDAQ held up for several more weeks, topping on October 31, 2007. The market then declined more than 55% until March 2009.

How about here in mid-2020? Are investors facing another top in the technology sector?

After all, the DJIA peaked in February while the Nasdaq Composite just hit an all-time high.

Of course, it remains to be seen whether the current juncture unfolds in the same way.

Yet, Elliott Wave International's June 8 U.S. Short Term Update, a thrice weekly publication which provides near-term forecasts for key U.S. financial markets, provided this insight:

History shows the NASDAQ topping last at the end of strong rallies.

Right now, EWI's analysts are discussing an Elliott wave formation in the NASDAQ's price chart.

If you're new to Elliott wave analysis or need to brush up on your Elliott wave knowledge, you can read the online version of the "must read" book, Elliott Wave Principle: Key to Market Behavior, 100% free.

As this Wall Street classic notes:

The primary value of the Wave Principle is that it provides 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.

All that's required to enjoy free access to Elliott Wave Principle: Key to Market Behavior is a Club EWI signup. Club EWI is the world's largest Elliott wave educational community and membership is also free.

Simply 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 NASDAQ: Some Historical Insights into Techno-Mania. 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.

Silver: How to Gauge the Crowd's Mindset

Watching out for sentiment extremes helps you avoid getting "caught up with the crowd"

By Elliott Wave International

Simply put, a market sentiment extreme is a situation when most everyone has already taken a bullish or bearish position in a financial asset, leaving almost no one left to buy or sell.

Silver provides an excellent case study.

Let's briefly go back to April 18, 2011, when Elliott Wave International's U.S. Short Term Update, which provides near-term forecasts for major U.S. financial markets thrice weekly, showed this chart and said:

The 10-day average of Market Vane's Bullish Consensus has now risen to 93.3%, reflecting a broad consensus among advisors that silver will continue even higher. The Daily Sentiment Index of traders pushed to 97% bulls as of Friday's close. ... Extremes are extremes and have to be recognized as such otherwise one gets caught up with the crowd and fails to extricate themselves at a reversal.

Just a week later, silver hit a high of $49.91 and in less than three weeks, the price had plummeted 35%.

Now, sentiment measures are not always precise timing indicators. Markets can stay overbought or oversold for a long time. Still, extremes can be quite valuable when used along with the Elliott wave model, which was also signaling a turn in silver's price trend in April 2011.

In the past nine years, silver prices have traded well below their 2011 high, but there have been rallies.

This brings us to 2020.

On May 11, a well-known precious metals website sported this headline:

Silver prices to soar by 40%+, here's the case ...

They proceeded to outline a bullish case that supported their views of even higher silver prices to come.

They may end up being right, however, the May 20 U.S. Short Term Update showed this chart and said:

[Silver]'s rally has coincided with a surge in the Daily Sentiment Index to 91%. Traders are more optimistic toward silver's future prospects than at any time since the peak at $19.69 on September 4, 2019 (95%). The only other comparable reading was on February 21 of this year, when the DSI rose to 87%. The prior sentiment extremes corresponded with price highs. Silver declined 41% from September 2019 to March 18, at which time the DSI dropped to just 8% bulls. The environment has now come full circle. Today's new intraday extreme was not confirmed by gold.

Just like back in 2011, today silver's Elliott wave pattern provides even more insight into what to expect next for the precious metal.

If you'd like to learn more about Elliott wave patterns, Elliott Wave International has made the online version of the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior available for free.

All that's required to access the wealth of information in the book is a free Club EWI signup. Club EWI is the world's largest Elliott wave educational community. When you join, you get free access to resources, reports and videos which provide you with Elliott wave insights on investing and trading, the economy and social trends that you will not find anywhere else.

Follow this link for your fast and free Club EWI signup: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Silver: How to Gauge the Crowd's Mindset. 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.

Russia: How Financial "Complacency" Morphed into "Crisis"

By Elliott Wave International

It's been a tough year for Russia financially.

Of course, there's been the big collapse in oil prices, plus -- just like many other global stock indexes -- Russian stocks are well off their highs.

That's quite in contrast to 2019, when the RTSI index, a U.S. dollar-based index of 50 Russian companies, climbed 29%.

Shortly after registering that performance, Elliott Wave International's January Global Market Perspective, a monthly publication which covers 40-plus worldwide markets, showed this chart and said:

Complacency toward financial risk stands at unprecedented extremes.

Our global analyst's comment suggested that a change of trend was afoot, given that extremes in financial markets are akin to a rubber band that is stretched to the breaking point.

Well, here's an update on the RTSI from the just-published June Global Market Perspective. An EWI global analyst notes:

The RTSI index ... did worse than Europe's broader indexes, losing more than half of its value from February to March. The stunning crash was followed by [a] rally that has since retraced about 50% of the decline.

In addition to stock prices being well off their highs, Russia's economic output will contract at 6% this year and the jobless number is expected to double.

Plus, in April, the government projected that the budget deficit will hit 4% of GDP.

As the June Global Market Perspective also notes:

Russia's last financial crisis in 2014-15 also came on the heels of a decline in oil prices, and the crisis culminated on December 15, 2014, when the ruble suddenly plummeted against the euro and dollar. ... Russia is entering its current crisis from a much weaker financial position.

So, does this mean that the rally in Russian stocks is nearly over, or might the RTSI index climb the proverbial "wall of worry"?

Well, a March 27 Barron's headline suggests that investors will eventually be rewarded:

Russia's Stocks Are a Buy Only for Very Patient Investors

Elliott Wave International's global analysts provide their own perspective on the big financial picture, yet they are also focused on what's next for Russia financially and economically -- as well as many other worldwide markets.

Indeed, EWI has recently published the valuable, free resource: 5 Global Insights You Need to Watch.

You see, EWI's top 5 global experts share their latest forecasts for cryptocurrencies, crude oil, interest rates, deflation, and the futures of the European Union.

The result is a 5-video series (plus, two quick reads) -- all in just 13 minutes.

And -- you get it free with a fast Club EWI signup. Club EWI membership is also free.

Follow this link to get started: 5 Global Insights You Need to Watch.

This article was syndicated by Elliott Wave International and was originally published under the headline Russia: How Financial "Complacency" Morphed into "Crisis". 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.

Deflation: Why the "Japanification" of the U.S. Looms Large

By Elliott Wave International

The U.S. faces the prospect of a Japan-like deflation.

Let's begin with a brief review of Japan.

Here's a chart and commentary from the 2020 edition of Robert Prechter's Conquer the Crash:

Japan had one of the strongest economies in the entire world, growing at a 9% rate for 20 years up to 1973, and then a pretty strong rate of about 4.5% through 1994. From there, it';s averaged about 1%. …

Economic growth in the United States today is weaker than Japan's was in 1989 when its bull market ended. The U.S. economy is dramatically weak relative to the amount of central-bank inflating.

Speaking of the U.S., here's a May 18 headline and sub-headline from Bloomberg:

America Is Becoming Japan, Not in a Good Way

The country could be on the brink of its own deflationary era.

Bloomberg referred to this prospect as the "Japanification" of the U.S.

But, getting back to that phrase "deflationary era" – what would that look like? What is deflation?

Well, many people erroneously believe that deflation simply means "falling prices." Yet, it goes well beyond that.

Let's return to the 2020 edition of Conquer the Crash for a fuller explanation:

A deflationary crash is characterized in part by a persistent, sustained, deep, general decline in people's desire and ability to lend and borrow. A depression is characterized in part by a persistent, sustained, deep, general decline in production. … Because both credit and production support prices for financial assets, their prices fall in a deflationary depression. As asset prices fall, people lose wealth, which reduces their ability to offer credit, service debt and support production.

Well, the U.S. has already experienced falling asset prices. Consider oil and other commodities, as well as the stock market – which, despite the recent rally, is still well off the highs.

Plus, and most importantly, there's been a credit market contraction and slackening production.

In April, manufacturing output declined 6.3%, according to the Federal Reserve. Moreover, industrial production dropped 5.4% and Q1 GDP fell 4.6%. The Q2 GDP number could show a much bigger drop. Current estimates range from a decline of 25% to 40%.

Also in April, the Credit Managers' Index from the National Association of Credit Management slid 8.3 points. That's after a drop of 7.2 in March.

Other deflationary pressures are also in place. As examples, producer prices have been sluggish, and according to the Atlanta Fed's U.S. wage growth tracker, wage growth peaked at 3.9% in July 2019 and fell to 3.3% in April 2020.

There's only been two major deflationary depressions in U.S. history. The first one extended from 1835 to 1843. The second one – known as "The Great Depression" – followed the 1929 stock market crash and stretched into 1933.

As you may know, other nations also suffered through the Great Depression.

Is another deflationary depression on our doorstep?

Get a 2020 Foresight and learn about 5 Market Trends 99% of Investors Will Miss, which is a 1-week, 5-insight series pulled directly from our flagship Financial Forecast Service.

It's premium, subscriber-level content -- 100% free to you when you join Club EWI. Membership is also free.

You get our latest forecasts for U.S. stocks, the economy, gold and more.

Follow this link now -- 2020 Foresight: 5 Market Trends 99% of Investors Will Miss.

This article was syndicated by Elliott Wave International and was originally published under the headline Deflation: Why the "Japanification" of the U.S. Looms Largey. 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.