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.

Options Traders Keep "Opting" for Even Higher Stock Market Prices

 

And this continued bullish behavior speaks volumes about the trend

By Elliott Wave International

What a rally!

After a swift and scary ride downward, the DJIA has climbed from a low of 18,213 on March 23 to near-record high territory.

Even so, many investors are still bullish, and they're backing up their conviction with a great enthusiasm for call options, which are bets on higher prices. (By contrast, as you probably know, put options are placed when market participants expect lower prices.)

This enthusiasm for call options has been on display for at least a couple of months now.

Let's go back to these two charts and commentary from our July Elliott Wave Financial Forecast, a monthly publication which provides analysis and forecasts for major U.S. financial markets:

[Looking at the chart on the left], the Dow declined over 38% to March 23, the fastest decline from an all-time high on record. The week of June 12, small trader call buying surged. ... At 52% of volume, the percentage of small trader call buying equaled the record of April 2000, which was the forefront of a 2½-year bear market. In dollar terms, the speculation this year is far higher than it was in 2000. The chart on the right shows that the total number of small trader purchases of opening call options surged to 14.6 million contracts the week of June 12, more than nine times that of March 2000.

Small traders were not the only ones feverishly purchasing call options. During the same time frame, at just over 40%, the percentage of large-trader call-buying was the highest since March 2000.

Fast forward to an August 29 Marketwatch article headlined "Options bets that the stock market will continue to soar have exploded to dot-com bubble levels." Here's a quote:

Wall Street bets for further gains are around their highest levels since the dot-com bubble.

[The] appetite for calls, particularly among individual investors, has boomed.

So, it's notable that the big bets on call options have been remarkably persistent. It's what you could easily call "an extreme."

Yes, there's a chance that this "extreme" could become more extreme.

Yet, you are encouraged to learn what our analysts are saying about the stock market's price pattern.

You see, chart patterns repeat at all degrees of trend, hence, these patterns offer predictive value.

Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, offers further insights:

Until a few years ago, the idea that market movements are self-similarly patterned was highly controversial, but recent scientific discoveries have established that self-similar pattern formation is a fundamental characteristic of complex systems, which include financial markets. Some such systems undergo "punctuated growth," that is, periods of growth alternating with phases of non-growth or decline, building into similar patterns of increasing size. Nature is replete with such "fractals."

Learn more about these Elliott wave patterns by reading the entirety of the online version of Elliott Wave Principle: Key to Market Behavior -- free.

The only requirement for free access to this Wall Street classic book is a Club EWI membership, which is also free and allows you access to a wealth of Elliott wave educational materials. Around 350,000 of your fellow traders and investors are already members.

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

This article was syndicated by Elliott Wave International and was originally published under the headline Options Traders Keep "Opting" for Even Higher Stock Market Prices. 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.

This Group of Wealthy Investors Hoard Cash at Unprecedented Levels

 

By Elliott Wave International

Yes, stocks have been in rally mode.

Even so, a group of multimillionaires appears to be shifting from an optimistic mindset to one of pessimism about the financial future.

Their solution is hard, cold cash.

Here's an excerpt from an August 27 Bloomberg article:

A group of multimillionaire investors in the U.S. are hoarding cash at unprecedented levels.

Tiger 21, a club of more than 800 investors, reported Thursday that its members have raised their cash holdings to 19% of their total assets on concerns over the economic consequences of the covid pandemic in the U.S. That's up from about 12% since the start of the pandemic. About a quarter now expect the crisis to continue until the end of next June, the group said.

"This rise in cash is an extraordinary change -- statistically, this is the largest, fastest change in asset allocation Tiger 21 has seen," said [the] chairman of the club, whose participants typically have more than $100 million in assets. "In trying to build resources prudently, members have gained liquidity and will not immediately reinvest in those areas in order to keep and build cash to weather this storm."

The raising of cash by this group of wealthy individuals may turn out to be a very wise move.

You see, if a historic deflation develops, as Elliott Wave International's analysts anticipate, cash will be king.

Robert Prechter's 2020 edition of Conquer the Crash explains with these two charts and commentary:

Now let's dispose of the idea that the return on cash is always "low." How would you like to own a safe asset that goes up over five times in value in nineteen years? Figure 15-1 is a picture of the soaring value of cash in Japan from 1990 through 2008. Cash appreciated over 400% in terms of how many shares of Japanese stocks it couldbuy. Figure 15-2 is one picture of the rising value of cash in the United States, which appreciated 287% from March 2000 to October 2002 in terms of how many shares of the NASDAQ index it could buy. Wouldn't you like to enjoy this kind of performance, too? You can, if you move into cash before a major deflation. 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.

Prepare for what Elliott Wave International's analysts expect just around the corner by reading the free report, What You Need to Know Now About Protecting Yourself from Deflation.

All that's required to access this free report is a Club EWI membership. Don't worry -- joining Club EWI, the world's largest Elliott wave educational community, is also 100% free. There are no obligations once you join.

Follow this link to start reading the free report: What You Need to Know Now About Protecting Yourself from Deflation.