Next Time You See "4 Times as Many Bulls as There Are Bears," Remember This

See how stock investors' "historic optimism" served as a warning

By Elliott Wave International

After a 12-year uptrend, just when caution might be in order, investor psychology has remained highly and stubbornly optimistic.

As the July Elliott Wave Financial Forecast, a monthly publication which provides Elliott wave analysis of major U.S. financial markets, said:

Large traders are more exuberant than ever. On June 11, large trader buy-to-open call purchases jumped to 45%, a new record.

A highly bullish outlook was also expressed in this July 10 Marketwatch headline:

The bull market in stocks may last up to five years -- here are six reasons why

Notice that the headline's suggestion is that the bull market has just started.

That five-year forecast might turn out to be correct -- but then again, keep this in mind from an earlier 2021 Financial Forecast:

A top never feels like a top. The bigger they are, the more permanent they seem.

And here's yet another recent look at sentiment via a chart and commentary from the July 14 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which provides near-term analysis of key U.S. financial markets:

The most recent result of the weekly Investors Intelligence Advisors' Survey (InvestorsIntelligence.com) shows that the percentage of bulls rose to 61.2%. ... With the percentage of bears dropping to just 15.3%, there are now four times as many bulls as there are bears. Since the stock market crash of 1987, a span of a Fibonacci 34 years, only 1.5% of the total weekly readings in the II bull/bear ratio have been higher than the 4-to-1 ratio of this past week.

Interestingly, just two days after this analysis published, the Dow Industrials dropped nearly 300 points on Friday (July 16) and on the following Monday, as of this writing, the Dow has tumbled more than 900 points.

To stay independent from the sentiment of the crowd, it's a good idea to employ Elliott wave analysis and other technical indicators. They will help you stay on track -- objectively, independently from the "bullish" news that inevitably fools the crowd.

If you'd like to learn about Elliott wave analysis, or need to brush up on the subject, there's great news: You can access the online version of Frost & Prechter's Elliott Wave Principle: Key to Market Behavior -- 100% free.

All that's required for free access to the book is a Club EWI membership. You can join this Elliott wave educational community for free, and membership allows you free access to a wealth of Elliott wave resources on financial markets, investing and trading.

Getting back to the book, here's a paragraph from the first page of Chapter 1:

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.

Get more insights 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 Next Time You See "4 Times as Many Bulls as There Are Bears," Remember This. 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 Investing: Here's the Message of Consumer "Overconfidence"

Bear markets tend to follow this particular sentiment

By Elliott Wave International

In many global regions, economies are flourishing.

For example, here are two headlines about the U.S.:

What America's Startup Boom Could Mean For The Economy (npr.com, June 29)
Inflation Rose in June as Economic Recovery Continues (WSJ, July 13)

The goings-on in the United Kingdom provide another example. Employers in the UK are hiring people at the highest rate in more than six years. Plus, business and consumer spending are climbing swiftly -- at the fastest clip in a quarter of a century.

So, it wasn't surprising to see this June 18 CNBC headline:

Morgan Stanley picks the global stocks set to ride Europe's expected boom

However, here's what investors need to know: An economic boom follows an uptrend in the stock market, not the other way around. In other words, history shows that a booming economy may serve as a contrarian indicator.

Indeed, here's a chart and commentary from our July Global Market Perspective, a monthly Elliott Wave International publication which provides forecasts for 50+ worldwide financial markets:

The chart shows that consumer confidence in the European Union two months ago eclipsed the survey's pre-pandemic optimism from February 2020. Financial markets have traveled this territory before. In May 2020, GMP discussed two prior outbreaks of consumer overconfidence and noted that bear markets followed such sentiment. In the case of this survey, the all-time high came in May 2000.

The Stoxx 600 peaked in March of that year and fell 60% over the next 24 months. Consumer confidence peaked two months before the stock market's top in July 2007, and the Stoxx 600 declined 61% to March 2009.

Yes, consumer and business confidence might climb even higher. However, the point is: The "boom part of the cycle" appears to be in the "mature" zone. Another key takeaway is that many in the investment community see the economic upturn as a sign that the bull market in stocks will persist when history suggests just the opposite.

The best way to get a handle on the world's stock markets is to use the Elliott wave model, which reflects the repetitive patterns of investor psychology.

After all, as Frost & Prechter's Elliott Wave Principle: Key to Market Behavior notes, "The Wave Principle is governed by man's social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value."

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Meet SuperMania and its Ever-Present Sidekick, SuperMeltdown

By Elliott Wave International

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Advance warnings about the recent crypto crash were there all along.

How did almost everyone miss them?

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Anyone on Planet Earth in 2021 knows about the rise and fall of digital currencies.

Even many kids are aware.

But what has baffled just about everyone is what's BEHIND the moves.

This was made especially clear by the recent cryptocurrency crash, which saw Bitcoin plunge 50% from its April 15 peak. That move alone eliminated $1.3 trillion of wealth.

Days are lit powder kegs; like June 22, when Bitcoin plummeted below the $30 k level to erase its entire 2021 gains before recovering 24 hours later.

A June 4 CNN article quoted one spooked investor:

"... It's just stupid. I'm never going to have as much invested in crypto again."

Another June 9 UK Independent article led its pages with: "Crypto Market Faces 'Moment of Truth' After Crash Wipes Value from Ethereum and Dogecoin." It said the plunge had two causes:

1. On May 12, Tesla CEO Elon Musk tweeted that the electric carmaker would "stop accepting bitcoin for car purchases, citing environmental concerns."
2. On May 18, China banned the country's payment institutions from using cryptocurrencies.

Yet, a bit of analysis shows that the peak had been registered almost a month BEFORE the Musk and China announcements.

In fact, as decades of historical research have shown, financial markets are NOT driven by external events like these. Rather, they are driven by recurring waves of optimism and pessimism among investors, traders and society at large.

That's great news. It means that knowledgeable investors can predict the waves, and therefore market prices, to a surprising degree.

The "Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity" summarizes how the Elliott Wave Principle works. It is based on these facts:

1. Mass psychology swings from excessive optimism to pessimism and back again.
2. You can see these swings, or waves, in the markets, where optimistic and pessimistic investors bid prices up or down accordingly.
   
3. The waves repeat, making them quite predictable.

When you know which Elliott wave a market is in, you can forecast what's coming next. This gives Elliott wave traders and investors a very important advantage.

Here's just one recent example. Weeks before Musk's May 12 tweet and China's May 18 bitcoin ban, the Elliott Wave Financial Forecast predicted the top in cryptos was near. It showed subscribers several charts, including this one highlighting Paul Montgomery's famous Magazine Cover indicator.

The Financial Forecast explained:

The Magazine Cover indicator... postulates that when a financial trend is established enough to reach the cover of a general interest news magazine, which is rare, that trend is near exhaustion.

The magazine cover at the top of bitcoin's long rise is from the latest issue of Newsweek. The story says that 'The Smart Money' is betting on bitcoin.

Bitcoin's susceptibility to such a signal is clear from the 'Rhymes With Bitcoin' BusinessWeek cover at the bottom of the chart. As The Elliott Wave Theorist noted on December 21, 2018, the negative appraisal appeared a few days from bitcoin's December 14, 2018 low.

A few days later, an Update to Financial Forecast told subscribers:

Barron's magazine put bitcoin on its cover over the weekend. On Wednesday, April 14, Coinbase, 'the fastest-growing exchange at the center of the speculative frenzy in cryptocurrencies,' (Bloomberg, Apr. 12) will issue an IPO with an expected valuation of $100 billion, more than the New York Stock Exchange and the NASDAQ combined.

Bullish sentiment toward cryptocurrencies, and in particular bitcoin, is extreme and compatible with a change of trend.

To be clear, both of these issues of the Financial Forecast warned subscribers BEFORE bitcoin's peak, BEFORE bitcoin's crash, and BEFORE Musk and China made their announcements.

This bearish bitcoin analysis was only the beginning of how Elliott waves predicted cryptos' top and then, early in the plunge, identified it as a crash. The May 2021 Financial Forecast said "evidence of market-peak psychology" in Dogecoin amounted to "a perfect setup for a bet against" the altcoin.

In the May 5, 2021 Crypto Pro Service, Elliott wave experts posted a Special Update on Dogecoin. It evaluated the extreme optimism surrounding the market. The message was clear:

FOMO (Fear of Missing Out) is out of hand as people try to catch up here and jump in because of the huge percentage moves that Dogecoin is making.

We do think a crash in prices is very likely. At its current reading, Dogecoin has entered extreme overbought territory.

As with the Financial Forecast's analysts, Crypto Pro Services' analysts had used Elliott waves to predict massive run-ups in digital currencies prior to the top.

The extreme psychology in DOGE coincided with a mature Elliott wave pattern; namely, a five-wave impulse. The "Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity" report shows this structure:

The market's progression unfolds in waves. ...progress ultimately takes the form of 5 waves...

There are two modes of wave development: motive and corrective. Motive waves have a 5-wave structures, while corrective waves have a 3-wave structure or variation thereof…

In the May 5 Crypto Pro Service, analysts showed a chart of DOGE with a clearly completed five-wave impulse.

Currency Pro Service's Elliott analysts warned that the pattern implied DOGE was primed to fall hard:

When fifth waves crash, the crash is very substantial.

Why We Are Here

Economist Milton Friedman made this prediction about the rise of a universally adopted digital currency:

I think that the Internet is going to be one of the major forces for reducing the role of government. The one thing that's missing, but that will soon be developed, is a reliable e-cash method whereby on the Internet you can transfer funds from A to B without A knowing B or B knowing A.

Friedman made that prediction in 1999. He nailed the reason bitcoin and other cryptocurrencies were later invented.

What he didn't necessarily see was the wild fluctuations in sentiment that came to surround the digital coins.

Before the recent meltdown, mainstream experts extolled cryptos as better than "gold" and said "Bitcoin Is the Only Sound Money" (April 23 Medium).

Again, these comments make a sound point about the utility of bitcoin and other cryptos.

The wisdom of investing in them is another matter entirely. In markets where emotion is such a significant component, Elliott waves are massive -- and fortunes can be made and lost, literally, in a few moments.

Investors have a choice. They can fall victim to the waves of sentiment surrounding the coins. Or, they can use the waves to their advantage -- predicting them, in both directions, and responding objectively.

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When it debuted in 2009, one Bitcoin was worth ~0.5 a cent. By 2011, it suffered one blow after another, from hacking and theft, and remained currency-non-grata to most of the world.

But the contrarians at Elliott Wave International saw Bitcoin's potential as early as 2012; quote:

"Presuming Bitcoin succeeds as the world's best currency -- and I believe it will -- it should rise many more multiples in value over the years."

Result: What happened next... well, you already know.

The question is, how do you ride Bitcoin's upcoming twists and turns? (And there will be many!)

EWI's free crypto report gives you 5 clear Bitcoin strategies.

Read EWI's "Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity" now.

This article was syndicated by Elliott Wave International and was originally published under the headline Meet SuperMania and its Ever-Present Sidekick, SuperMeltdown. 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 U.S. Corporate Bankruptcies Could Skyrocket

"U.S. bankruptcies in the first quarter of 2021 and all of 2020 were above the 13-year average"

By Elliott Wave International

An April 17 article headline on the website of National Public Radio says:

U.S Economy Looking Good As Spending Jumps In March

And, on April 29, The New York Times said:

Americans' spending on durable goods -- cars and furniture and other goods meant to last a long time -- rose at a stunning 41.4 percent annual rate in the first three months of the year.

Considering that the economy is "looking good," economic observers might conclude that a wave of corporate bankruptcies is of little concern.

However, that conclusion would be off the mark.

The June Global Market Perspective, a monthly Elliott Wave International publication which offers coverage of 50+ worldwide financial markets, provides insight with this chart and commentary:

U.S. bankruptcies in the first quarter of 2021 and all of 2020 were above the 13-year average. In March, there were 61 announced corporate bankruptcies, the highest total since July 2020. If companies are defaulting in record numbers in China and at above average levels in the U.S. with interest rates at historic low levels, what will happen when rates rise appreciably?

That's right, defaults would zoom higher.

Understand that in the U.S., "the level of outstanding corporate bonds is the highest in history at approximately $10.6 trillion." This represents almost half of annual U.S. GDP.

A positive social mood has led executives at many U.S. firms to believe that they can issue and service ever-increasing levels of debt.

But interest rates may rise a lot higher than many businesspeople expect. Hence, many corporate bonds would lose value.

Indeed, the June Global Market Perspective provides Elliott wave analysis of the iShares Core U.S. Aggregate Bond ETF, the largest exchange-traded bond fund in terms of assets.

If you'd like to learn about Elliott wave analysis, you can do so by reading the online version of Frost & Prechter's Elliott Wave Principle: Key to Market Behavior for free. Here's a quote from the book:

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.

This Wall Street classic can be on your computer screen in mere moments after you join Club EWI -- the world's largest Elliott wave educational community (about 350,000 members and growing rapidly.)

Joining Club EWI is 100% free and you are under no obligation as a member.

Here's the link to follow: 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 U.S. Corporate Bankruptcies Could Skyrocket. 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.