Major Fed Myth: Debunked

The Fed is reactive in setting rates – not proactive

By Elliott Wave International

The days of near-zero interest rates are long gone -- at least for now.

As we look back on 2022, we know that it's been a year of rising interest rates, and many observers say it's all due to the Fed.

But it's a flat-out myth that the Fed determines the trend of interest rates. The market does. The Fed merely follows.

Here's a chart and commentary from the December Elliott Wave Theorist, a monthly publication since 1979 which covers major financial and cultural trends:

The chart updates the Fed's interest-rate activity since mid-2021. As you can see, the Fed's rate changes have continued to lag rate changes in T-bills as set by the market. The Board's decisions are not magical or even thoughtful. They look at the market rate, and they adjust the Fed Funds Rate accordingly. That's all there is to it. That's all there ever has been to it.

So, given that the market sets rates and the Fed follows, a key takeaway is that the Fed's interest-rate actions produce no outcomes (for example, "stepping on the brakes" of the economy) that wouldn't have happened through regular market forces.

Other central banks around the world also lag the market. Consider the European Union. Here's a historical snapshot from Robert Prechter's book, The Socionomic Theory of Finance:

The chart plots monthly data for the interest rate of the freely-traded, 3-month euro generic government bond versus the European Central Bank's (ECB's) main refinancing operations rate, which is Europe's equivalent to the U.S. federal funds rate. As these graphs show, rate-setting actions by the ECB have lagged the freely traded debt market at all seven major turning points in interest rates since 1999. The lags vary from one to ten months, and the average lag is 5.3 months.

You can find the same principle at work in the United Kingdom, Australia and other global central banks.

It may be difficult for central bank watchers to latch onto the idea that markets guide central banks rather than the other way around. Yet, no data show otherwise.

The December Elliott Wave Theorist provides you with more financial insights, including warning signs about the stock market.

And, speaking of warning signs about the stock market, you may want to become familiar with the Dow Industrials' Elliott wave pattern -- which can help you to anticipate what's next.

As Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior, notes:

The Wave Principle often indicates in advance the relative magnitude of the next period of market progress or regress. Living in harmony with those trends can make the difference between success and failures in financial affairs.

If you'd like to learn the details of the Wave Principle, here's good news: You can access the entire online version of the book for free once you become a member of Club EWI, the world's largest Elliott wave educational community.

Joining Club EWI is a great way to start 2023 because all the free Elliott wave resources which accompany a Club EWI membership will help to provide you with an independent perspective on financial markets which you may not be getting from other sources.

And, by the way, a Club EWI membership itself is also free.

So, get started now 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 Major Fed Myth: Debunked. 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.

Stocks: How Sentiment Measures Offer Clues About What's Likely Next

Insights into the stock market as a fractal

By Elliott Wave International

Elliott Wave International's analysts track dozens of indicators, and our U.S. Short Term Update pays particular attention to those which may offer clues about the near-term.

Consider this analysis from the Sept. 26 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which provides analysis of near-term trends of major U.S. financial markets:

Short term measures of investor sentiment indicate excess pessimism. ... Stocks should start a countertrend rally to relieve the downside compression.

No analytical method can guarantee an exact day and time a forecast will be fulfilled -- if it's fulfilled at all. However, some 13 trading days later, the Dow did hit a low. By Nov. 30, the senior index was more than 5,000 points higher. Excess pessimism had morphed into excess optimism. Fear had morphed into complacency.

Indeed, the November Elliott Wave Theorist, a monthly publication which provides analysis of financial markets and major cultural trends, noted:

By several measures, optimism at the current time is equal to or greater than that which held sway at the broad market's all-time high in November 2021 and at the blue chips' all-time high in January 2022!

The stock market pendulum usually starts to swing the other way when an extreme is reached -- in this case, extreme optimism. So, it hasn't been surprising that prices have mainly trended lower since around the beginning of December -- at least, so far.

So, are investors forever locked in to short-term swings between optimism and pessimism?

We all know the answer is "no" from looking at historic stock market charts. We see that short-term trends are part of intermediate term tends, which, in turn, are part of even larger trends and so on. In other words, the stock market is a fractal.

Here's an illustration and commentary from Robert Prechter's book, Last Call:

In 1938, Ralph Nelson Elliott ... described the fluctuation of stock market prices as a fractal. He illustrated a patterned fractal in which movements in aggregate stock prices trace out five waves (of a certain description) in the direction of the one larger trend and three waves (or combinations thereof) in the countertrend direction.

[The illustration] is a stylized depiction of a full cycle of Elliott waves, with their traditional labels.

Key things for an investor to know is whether the "larger trend" is up or down, and the current juncture of the market in that larger trend.

You can get more insights into Elliott waves by reading Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here's a quote from the book:

After you have acquired an Elliott "touch," it will be forever with you, just as a child who learns to ride a bicycle never forgets. Thereafter, catching a turn becomes a fairly common experience and not really too difficult. Furthermore, by giving you a feeling of confidence as to where you are in the progress of the market, a knowledge of Elliott can prepare you psychologically for the fluctuating nature of price movement and free you from sharing the widely practiced analytical error of forever projecting today's trends linearly into the future. Most important, the Wave Principle often indicates in advance the relative magnitude of the next period of market progress or regress. Living in harmony with those trends can make the difference between success and failure in financial affairs.

Good news: You can access the entire online version of the book for free once you become a member of Club EWI, the world's largest Elliott wave educational community.

A Club EWI membership is also free and allows for complimentary access to a wealth of Elliott wave resources on investing and trading.

A wonderful world of Elliott wave education awaits you! Join Club EWI now by following this link: Elliott Wave Principle: Key to Market Behavior -- get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Stocks: How Sentiment Measures Offer Clues About What's Likely Next. 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.

Stocks and Economy: Why 2022 May Have Just Been the Preview

"Fight the inertia that will keep you from taking action to prepare for the downturn"

By Elliott Wave International

The main show is likely about to begin.

2022 may have just been a preview of what's ahead for stocks and the economy, which Robert Prechter's Last Chance to Conquer the Crash warned about nearly a year ago, and our Global Market Perspective discussed at the start of 2022.

Let's start with that warning from the January 7, 2022 Global Market Perspective, a monthly Elliott Wave International publication which covers 50-plus worldwide financial markets, via these charts and commentary:

The blue-chip Dow Industrials and S&P 500 ... managed to eke out new highs in the first two trading days of 2022. There is a good chance that Wednesday's trend reversal is the start of a long-term decline.

The "Wednesday" referenced was Jan. 5 and indeed, an all-time high for the Dow Industrials occurred on that very date, with the S&P 500 hitting its high on Jan. 4. Mind you, the Global Market Perspective's forecast was made in real-time -- just two and three days, respectively, after those all-time highs registered.

As you know, the blue-chips have been in a downtrend since, albeit accompanied by some very sharp rallies -- which is not unusual during downtrends.

Let's now turn our attention to Robert Prechter's Last Chance to Conquer the Crash, which, as a reminder, published nearly a year ago and warned of a major economic contraction ahead. This is from the book:

Fight the inertia that will keep you from taking action to prepare for the downturn. Start taking steps now. ... Think globally, not just domestically.

Yes, when the good times are rolling and stock market indexes are reaching new all-time highs, it can seem unnecessary to prepare for a downturn.

But, as you read these headlines, many people likely wished they had:

• Household wealth down by $13.5 trillion in 2022, second-worst destruction on record (Marketwatch, Dec. 9)
• Tech Layoffs in U.S. Send Foreign Workers Scrambling to Find New Jobs (The New York Times, Dec. 9)
• Economists: A US housing recession has already arrived (The Hill, Dec. 7)
• Defaults Loom as Poor Countries Face an Economic Storm (The New York Times, Dec. 3)
• The UK economy is sliding into recession and Europe is set to follow (CNN, Nov. 11)
• China's super-rich see fortunes plunge as economy slows (The Guardian, Nov. 7)

There are many more similar headlines.

The stance of Elliott Wave International is that these headlines represent only an inkling of what's likely ahead.

Keep in mind that the stock market leads and the economy follows. In other words, a downturn in the stock market is generally followed by a downturn in the economy and an upturn in the stock market is generally followed by improving economic conditions.

So, it would be a good idea to keep on top of the Elliott wave pattern of the stock market in which you are interested -- whether it's the U.S., another nation or many nations. Elliott wave analysis will help you to anticipate what's next for a given stock market index or indexes. Hence, you can also anticipate what's down the road for the economy. As you might imagine, Elliott wave analysis offers no guarantees, but it's the best analysis of financial markets of which Elliott Wave International knows.

If you're unfamiliar with Elliott wave analysis and would like to learn about it, read Frost & Prechter's Elliott Wave Principle: Key to Market Behavior -- the definitive text on the Elliott wave model. Here's a quote from the book:

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.

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. Nor is the market the cyclically rhythmic machine that some declare it to be. Its movement reflects a repetition of forms that is independent both of presumed causal events and of periodicity.

The market's progression unfolds in waves. Waves are patterns of directional movement.

If you'd like to read the entire online version of this Wall Street classic, you may do so for free once you join Club EWI -- the world's largest Elliott wave educational community. A Club EWI membership is also free and allows you complimentary access to a wealth of Elliott wave resources on investing and trading.

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

This article was syndicated by Elliott Wave International and was originally published under the headline Stocks and Economy: Why 2022 May Have Just Been the Preview. 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.

60% stocks, 40% bonds? Ha!

So much for the conventional wisdom of the "balanced portfolio"

By Elliott Wave International

In his February 2022 book, Last Chance to Conquer the Crash, Robert Prechter said:

Countless advisors have counseled "diversification," a "balanced portfolio" and other end-all solutions to the problem of allocating your investments. These approaches are delusional. ... No investment strategy will provide stability forever.

That certainly has applied to the classic 60% stocks / 40% bonds portfolio this year.

On Oct. 14, a Reuters headline said:

'60/40' Portfolios Are Facing Worst Returns in 100 Years: BofA

Of course, everyone knows that stocks are risky, but many investors expect bonds to provide a cushion in case equities slide into a downtrend. And, indeed, the stock market has been trending lower since January.

But bond prices have taken a hit, too. A BIG one. As you probably know, bonds prices decline when yields rise and that's what's taken place.

You may find it hard to believe, but Elliott wave patterns and sentiment readings in the bond markets warned of this. For example, the July 2021 Elliott Wave Theorist, a monthly publication (since 1979) which analyzes financial markets and major cultural trends, showed this chart and said:

U.S. Treasury bill rates have edged closer and closer to zero for over a year. The complacency about the nonexistent T-bill yield in the face of unprecedented inflating by the government and the Fed is truly amazing. ... The Fed's cavalier inflating is borne of optimism. ... When optimism and complacency finally melt like popsicles in the sun, the lines in [the chart] will turn up.

During that same month / year (July 2021), The New York Times ran this headline:

Federal Reserve Officials Project Rate Increases in 2023 [emphasis added]

This next chart of the 6-month U.S. Treasury bill yield, which published in the Nov. 18, 2022 Elliott Wave Theorist, shows what we all know: Rates began to turn up more than a year before 2023 and then soared higher.

The question now is: What's next?

Elliott wave analysis answered this question before, and it can help you answer it now.

You can read more about what Elliott Wave Theorist editor, and EWI Founder, Robert Prechter expects next in the Special Report: Preparing for Difficult Times. The report is free -- for a limited time -- inside their "12 Days of Elliott" event. You need only join Club EWI to read it, along with 11 other fascinating resources, December 1-12.

You can join Club EWI without any cost or obligation. All the while, you'll enjoy complimentary access to an abundance of Elliott wave resources on financial markets and investing.

Get started by following the link: 12 Days of Elliott -- get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline 60% stocks, 40% bonds? Ha!. 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. Dollar: Has the Mainstream Been Way Too Confident?

Meanwhile, greenback's Elliott waves are showing the way

By Elliott Wave International

Investors who use Elliott wave analysis know that the main price trend of a financial market subdivides into five waves.

Also know that wave 1 and wave 5 are often approximately equal in length.

That knowledge helped the Global Market Perspective, a monthly Elliott Wave International publication which covers 50-plus financial markets, make a successful call on the U.S. Dollar index.

The November issue showed a monthly chart which dates back more than 14 years and said:

The U.S. Dollar Index continues to look like it's topping. The index is testing the level where wave (5) would equal wave (1), a common relationship.

Keep in mind that Global Market Perspective subscribers get to see all the wave labeling.

With the benefit of hindsight, we now know that the top registered on Sept. 28 -- still, that doesn't discount the fact that the topping process was recognized by using Elliott wave analysis.

Since that analysis on Nov. 4, the U.S. Dollar Index has declined in price.

Another giveaway that the greenback was headed for a tumble is that the mainstream seemed to be growing a bit too confident about the prospect for a further rise in the index. These two magazine covers provide examples of that:

The late analyst Paul Macrae Montgomery showed over the years that specialist industry magazines sometimes highlight financial trends on their covers just as those trends are ending.

Of course, Elliott wave analysis nor any indicator -- such as the magazine cover indicator -- can offer a guarantee about future market action, but the Elliott wave model and many time-tested indicators have proven to be quite useful throughout different market cycles.

If you'd like to learn about the Elliott wave model, know that the definitive text on the subject is Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here's a quote from the book which should be in every serious investor's library:

[R.N.] Elliott himself never speculated on why the market's essential form is five waves to progress and three waves to regress. He simply noted that that was what was happening. Does the essential form have to be five waves and three waves? Think about it and you will realize that this is the minimum requirement for, and therefore the most efficient method of, achieving both fluctuation and progress in linear movement. One wave does not allow fluctuation. The fewest subdivisions to create fluctuation is three waves. Three waves (of unqualified size) in both directions would not allow progress. To progress in one direction despite periods of regress, movements in that direction must be at least five waves, simply to cover more ground than the intervening three waves. While there could be more waves than that, the most efficient form of punctuated progress is 5-3, and nature typically follows the most efficient path.

Good news: You can read the entire online version of the book for free once you become a member of Club EWI, the world's largest Elliott wave educational community.

A Club EWI membership is also free and allows you complimentary access to a treasure trove of Elliott wave resources on financial markets, investing and trading. These resources include videos and articles from Elliott Wave International's analysts.

Hop on the Club EWI bandwagon now by following this link: Elliott Wave Principle: Key to Market Behavior -- get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline U.S. Dollar: Has the Mainstream Been Way Too Confident?. 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.

Crude Oil: Why You Should Look Beyond Supply / Demand

The primary regulator of the rises and falls in oil's prices is market psychology

By Elliott Wave International

As I write on the morning of Friday, Nov. 18, crude oil is on track for its second weekly decline.

The financial media usually finds "reasons" for a market's price action that are rooted in "market fundamentals," and this decline in oil's price was no exception.

On Thurs., Nov. 17, a CNBC headline noted:

Oil falls on easing geopolitical tension, China demand outlook

The gist of the story was that a rising number of COVID-19 cases in China would contribute to a lower demand for crude oil in the world's second largest economy; hence, the falling prices.

However, Elliott Wave International has observed over the years that supply and demand doesn't play as large of a role in oil's price trend as widely believed. Indeed, all too often, oil's price moves in the opposite direction from what supply and demand observers expect.

That's why we would argue -- and this may seem like a radical notion -- that changes in the supply and demand for oil are far more a result of price fluctuations than a cause of them.

Let me explain. This chart and commentary from Robert Prechter's Socionomic Theory of Finance provides insight:

Elliott waves of social mood, as reflected in stock prices, regulate feelings of optimism and pessimism among producers, alternately motivating them to overproduce and then underproduce oil relative to contemporaneous consumption. Their optimism makes them believe business will expand, so they produce more; and their pessimism makes them believe business will contract, so they produce less. This depiction of causality accounts quite well for the rises and falls in oil's production/consumption ratio.

You may be interested in knowing that our crude oil analysis in our monthly Global Market Perspective is also based on Elliott waves of market psychology.

On Nov. 4, when the November Global Market Perspective published (the Global Market Perspective is a monthly Elliott Wave International publication which covers 50-plus global financial markets), Elliott Wave International's chief energy analyst said:

... at this juncture the intermediate-term outlook remains down.

On the date this forecast was made, WTI Crude Oil (NYMEX) closed at $91.45. As of this writing on the morning of Nov. 18, WTI Crude Oil is at $79.35 a barrel. Note that the Global Market Perspective's Nov. 4 forecast didn't mention a single "geopolitical" or "fundamental" factor. Elliott Wave International's chief energy analyst relied strictly on the bearish picture of market psychology in crude oil's price charts.

Do know that Elliott wave analysis does not always work out to a "T;" however, it's the best forecasting method for oil prices -- and other liquid markets -- of which Elliott Wave International knows. That's why Elliott Wave International has relied on it for over 40 years.

If you'd like to delve into the details of Elliott wave analysis, read Elliott Wave Principle: Key to Market Behavior by Frost & Prechter. Here's a quote from this Wall Street classic:

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 may be interested in knowing that you can access the entire online version of the book for free once you become a member of Club EWI, the world's largest Elliott wave educational community.

A Club EWI membership is also free, and members enjoy instant and complimentary access to a variety of Elliott wave resources on financial markets, investing and trading without any obligation.

Join Club EWI now by following this link: Elliott Wave Principle: Key to Market Behavior -- get free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline Crude Oil: Why You Should Look Beyond Supply / Demand. 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.

"Banks are becoming more cautious about lending"

And the implications are bigger than just getting a loan

By Elliott Wave International

Robert Prechter's Last Chance to Conquer the Crash discusses the psychological aspect of a deflation:

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.

Evidence of that developing financially conservative mindset is seen in this chart from the just-published November Global Market Perspective, a monthly Elliott Wave International publication which covers 50-plus worldwide financial markets (commentary below):

Eurozone stock market indices have declined this year indicating that the trend in social mood is negative. This trend towards ever more caution can be seen in the chart, from the latest Euro Area Bank Lending Survey released by the European Central Bank. It shows that a net 19% of banks are tightening credit standards, up from a neutral zero at the end of last year, meaning that banks are becoming more cautious about lending.

Just know that there's room for many more banks to tighten credit standards.

What does a rising trend in tightening credit standards mean? Let's return to the November Global Market Perspective:

As credit conditions become ever tighter, expect defaults to rise and debt to deflate.

And, speaking of defaults, here are some recent news items:

• Private lender cuts Canada mortgage business as defaults rise (The Business Times, Oct. 30)
• Ally Financial Inc. ... saw charge-offs for retail auto loans quadruple in the third quarter. (Bloomberg, Oct. 21)
• Leveraged Loan Default Volume In The U.S. Has Tripled This Year (Forbes, Oct. 2)

As social mood continues to grow more negative, expect more defaults in various sectors around the world.

Know that the price trend of the stock market directly reflects social mood, and Elliott Wave International's way of keeping on top of the stock market's trend is by employing the Elliott wave model.

If you'd like to learn about Elliott wave analysis, the definitive text on the subject is Frost & Prechter's Elliott Wave Principle: Key to Market Behavior. Here's a quote from the book:

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.

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. Nor is the market the cyclically rhythmic machine that some declare it to be. Its movement reflects a repetition of forms that is independent both of presumed causal events and of periodicity.

The market's progression unfolds in waves. Waves are patterns of directional movement.

If you'd like to access the online version of this Wall Street classic, you may do so for free once you become a member of Club EWI, the world's largest Elliott wave educational community.

You can join Club EWI for free and do know that members enjoy complimentary access to an abundance of Elliott wave resources on investing and trading.

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

This article was syndicated by Elliott Wave International and was originally published under the headline "Banks are becoming more cautious about lending". 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.

Crude Oil: 23 Years of Spot-on Forecasts You Can Fact-Check

For commodities like crude oil, supply and demand factors aren't everything

By Elliott Wave International

Everyone who drives a car is relieved that gas prices have dropped from what they were a little while back.

However, if one major Wall Street firm is correct, get ready for higher prices at the pump again. This is a Nov. 1 headline from Markets Insider:

Tightening oil supply will drive crude oil prices to $115 a barrel by April, Goldman Sachs strategist says

Of course, higher crude oil prices mean higher gas prices and vice versa.

But does a "tightening oil supply" mean higher crude oil prices? Well, that's certainly conventional wisdom, but as Elliott Wave International has observed over the decades, you cannot count on conventional wisdom.

Indeed, Chapter 22 of Robert Prechter's landmark book, The Socionomic Theory of Finance, asks:

Do Supply and Demand Regulate Oil Prices?

He goes on to answer that question by saying:

The correct answer is ... no, they don't. In this chapter, I support my conclusion and demonstrate its value.

In a nutshell, Elliott waves regulate the trend of oil prices and the successful calls Elliott Wave International analysts have made over the years offer strong evidence for this.

Keep in mind that as you look at this chart from the book, it took Robert Prechter 43 pages to go into the details of how Elliott wave analysis called every major price turn in crude from 1993 into 2016:

Indeed, the very title of the chart says it all:

Elliott Wave Analysis Forecasted And / Or Recognized In Real Time All Of These Waves And Their Turning Points

Keep in mind that no method of analysis offers guarantees, yet -- looking at what's going on now -- the October Global Market Perspective, a monthly Elliott Wave International publication which covers 50-plus worldwide financial markets, noted:

Crude extended its string of lower lows and lower highs in September as anticipated.

The October Global Market Perspective goes on to provide a forecast for crude oil.

Looping back to that crude oil price target by the major Wall Street firm, that price may at some point be hit. The point is that it's best to consult the Elliott wave model rather than basing a crude oil prediction on supply and demand.

If you'd like to learn about Elliott wave analysis, or need a refresher, an excellent resource is Frost & Prechter's book, Elliott Wave Principle: Key to Market Behavior. Here's a quote from this Wall Street classic:

After you have acquired an Elliott "touch," it will be forever with you, just as a child who learns to ride a bicycle never forgets. Thereafter, catching a turn becomes a fairly common experience and not really too difficult. Furthermore, by giving you a feeling of confidence as to where you are in the progress of the market, a knowledge of Elliott can prepare you psychologically for the fluctuating nature of price movement and free you from sharing the widely practiced analytical error of forever projecting today's trends linearly into the future. Most important, the Wave Principle often indicates in advance the relative magnitude of the next period of market progress or regress. Living in harmony with those trends can make the difference between success and failure in financial affairs.

Would you like to read the entire online version of Elliott Wave Principle: Key to Market Behavior? If so, you may do so for free once you become a member of Club EWI, the world's largest Elliott wave educational community.

A Club EWI membership is also free and opens the door to complimentary access to a wealth of Elliott wave resources on investing and trading, including videos and articles from Elliott Wave International analysts.

You can have the book on your screen in moments as you follow this link: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Crude Oil: 23 Years of Spot-on Forecasts You Can Fact-Check. 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 Investors in U.S. Treasuries Face Major Risk

Rising rates will be "disastrous" for governments, other debtors and creditors

By Elliott Wave International

The market for U.S. Treasuries is the biggest bond market in the world, and it appears that potentially big trouble may be afoot.

Earlier this month, none other than the U.S. Treasury Secretary herself (Janet Yellen) acknowledged ...

... "a loss of adequate liquidity in the [U.S. government debt] market."

Then, in a statement last week, Bank of America strategists expressed concerns about ...

... "large scale forced selling [of U.S. Treasuries]."

No wonder other analysts and traders have voiced worries about U.S. Treasuries being a potential key factor in the next financial crisis.

It may interest you to know that Elliott Wave International has been ahead of this developing story.

In April of this year, The Elliott Wave Theorist, a monthly publication which provides analysis of financial markets and major cultural trends, showed this amazing chart and said:

Because of the 39-year symmetry in this picture and the unprecedented arrival of negative interest rates, we have been adamant that interest rates bottomed in 2020. Sure enough, they have been rising since. ... Rising interest rates will be disastrous for governments and other debtors as well as for creditors who hold long term bonds.

Fast forward to the Oct. 21, 2022 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which provides near-term analysis of major U.S. financial markets, which noted:

[U.S. Treasury long bond futures] are collapsing, as rates shoot higher. The yield on ... 10-year treasury paper pushed to 4.34%, its highest level in 15 years. Bond investors are being absolutely crushed.

Of course, when bond yields rise, prices fall.

The question now is: Is the rise in yields almost over or do they have a lot further to go?

Well, an Oct. 21 Reuters article said:

Some investors believe Treasury yields are close to peaking. ...

All financial markets have countertrend moves and it's certainly possible that one is ahead for U.S. Treasuries.

Yet, what's important to know is the main trend.

You can get a handle on the main trend of U.S. Treasuries by employing the Elliott wave model.

If you're unfamiliar with Elliott wave analysis, or need a refresher, a great resource is Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here's a quote from the book:

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.

[R.N.] Elliott noted three consistent aspects of the five-wave form. They are: Wave 2 never moves beyond the start of wave 1; wave 3 is never the shortest wave; wave 4 never enters the price territory of wave 1.

If you'd like to read more about the Elliott wave model, here's some good news: You can access the online version of Elliott Wave Principle: Key to Market Behavior for free once you become a member of Club EWI, the world's largest Elliott wave educational community.

Club EWI is free to join and members enjoy complimentary access to a wealth of Elliott wave resources on financial markets, investing and trading, including videos and articles from Elliott Wave International analysts.

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

This article was syndicated by Elliott Wave International and was originally published under the headline Why Investors in U.S. Treasuries Face Major 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.

Europe's Energy Sector: "The Lehman Moment Just Arrived"

This company's stock price "broke a support shelf that dates back 14 years"

By Elliott Wave International

Back in October 2021, two months before Germany's DAX hit an all-time high, our Global Market Perspective showed a big jump in references to "Lehman" in Bloomberg News.

Of course, the use of "Lehman" in a news article has become synonymous with the collapse of the then financial giant during the depths of the 2007-2009 financial crisis.

The October 2021 Global Market Perspective, an Elliott Wave International monthly publication which covers 50-plus worldwide financial markets, said:

The Lehman moment will come later, after investor optimism has receded and stock prices are well off their highs.

That was a year ago, and since then, Europe's key stock indexes have been in a downward trend. In other words, investor optimism across the Continent has indeed receded.

The October 2022 Global Market Perspective noted:

Right on schedule, the Lehman moment just arrived at one of the Continent's most critical sectors: "Europe's Lehman Warning on Energy Prompts Flurry of Cash Aid" -- Bloomberg, 9/6/22.

The October Global Market Perspective continued with these charts and commentary:

The chart shows stock prices at two of Europe's utility behemoths. Centrica, the largest supplier of gas to domestic customers in the UK, trades at levels last seen in the 1990s, while Fortum Oyj, Finland's largest company by revenue, dropped 68% over the past nine months and broke a support shelf that dates back 14 years.

... The Finnish government stepped in with a €2.4 billion bridge loan to Fortum, while Centrica is seeking billions of pounds of financing amidst soaring demands for collateral.

Then there is this chart of Uniper, the European gas giant sitting at the epicenter of the energy earthquake. On September 20, the German government forked over 8 billion "to nationalize the gas giant and stave off a collapse of the country's energy sector." (Bloomberg, 9/20/22)

Stave off a collapse? The chart shows that Uniper has already collapsed despite every effort.

Some of Europe's energy sector firms face the same kind of liquidity problem which wrecked established investment banks a decade ago. Uniper was reportedly losing €100 million per day in early September, and Fortum's collateral requirement jumped by €1 billion over one single week.

Getting back to the downtrend in major European stock indexes, the Elliott wave method for analyzing financial markets can help you determine if the decline in prices is nearly over or if there's much more to go.

If you need to brush up on your Elliott wave knowledge, or are entirely new to the subject, an ideal resource is Frost & Prechter's Wall Street classic book, Elliott Wave Principle: Key to Market Behavior. Here's a quote:

[R.N.] Elliott himself never speculated on why the market's essential form is five waves to progress and three waves to regress. He simply noted that that was what was happening. Does the essential form have to be five waves and three waves? Think about it and you will realize that this is the minimum requirement for, and therefore the most efficient method of, achieving both fluctuation and progress in linear movement. One wave does not allow fluctuation. The fewest subdivisions to create fluctuation is three waves. Three waves (of unqualified size) in both directions would not allow progress. To progress in one direction despite periods of regress, movements in that direction must be at least five waves, simply to cover more ground than the intervening three waves. While there could be more waves than that, the most efficient form of punctuated progress is 5-3, and nature typically follows the most efficient path.

If you'd like to read the entire online version of the book, you may do so for free once you become a member of Club EWI, the world's largest Elliott wave educational community (about 500,000 worldwide members and growing rapidly).

A Club EWI membership is also free and allows you complimentary access to a wealth of Elliott wave resources. All the while, you are under no obligation.

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

This article was syndicated by Elliott Wave International and was originally published under the headline Europe's Energy Sector: "The Lehman Moment Just Arrived". 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 Why This Bear Market is a "Global Story"

"The decline started in emerging market stocks way back in February 2021"

By Elliott Wave International

A widely accepted measure of a bear market is a drop of 20% or more in a major index from an all-time high.

By that measure, both the S&P 500 index and the Dow Industrials have entered bear market territory since their January peaks.

Yet, Robert Prechter's Conquer the Crash offers a message for those entirely focused on U.S. stocks:

The emerging bear market is a "global story."

That assessment is certainly validated by this chart and commentary from the October Elliott Wave Financial Forecast, a monthly publication which covers major U.S. financial markets and more:

The decline started in emerging market stocks way back in February 2021. It spread to major world stock markets, excluding the U.S., in June 2021. Both these indexes fell below their early 2020 peaks earlier this year. The top graph shows the Dow Jones Industrial Average, which peaked on January 5 of this year and [in the week of Sept. 19-23] declined below its early 2020 high.

Another message which Conquer the Crash emphasized is the "all the same market hypotheses." As the book notes:

When stocks turn down, it will signal a major liquidity contraction, and all major asset classes should decline together.

This message is also being currently confirmed. Let's return to the October Elliott Wave Financial Forecast:

Clearly, liquidity is waning as normally disparate assets are starting to trend together. [In the last half of September], for instance, the decline in stocks was joined by a decline in bond prices, precious metals, FOREX, commodity indexes and oil.

There's even been a correlation between stocks and Bitcoin.

Now is the time to prepare for what is likely ahead.

An ideal way to prepare is to become familiar with the Elliott wave patterns of major global stock market indexes, including the U.S.

If you're unfamiliar with Elliott wave analysis or need a refresher, you may want to read Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior. 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.

Although it is the best forecasting tool in existence, the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. Nevertheless, that description does impart an immense amount of knowledge about the market's position within the behavioral continuum and therefore about its probable ensuing path.

Here's the good news: You can access the entire online version of the book for free once you become a member of Club EWI, the world's largest Elliott wave educational community. A Club EWI membership is also free and allows you 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 instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Here's Why This Bear Market is a "Global Story". 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.

Yes, Elliott Waves Work with Individual Stocks -- Here's How

"The primary value of the Wave Principle is that it provides a context for market analysis"

By Elliott Wave International

Elliott waves reflect the repetitive patterns of mass psychology -- so they are ideally suited for analyzing the widely traded main stock indexes.

On the other hand, thinly traded individual stocks may not trace out Elliott wave price patterns nearly as well.

That said, there are many individual stocks which are widely traded -- like most of the big and well-known companies (and others which have captured the interest of investors).

Consider the stock of the largest bank in the U.S. Back in March, our Global Market Perspective showed this chart and said:

This chart shows the five-wave pattern of JPMorgan Chase's rise from March 2009 to September 2021.

Of course, the completion of a five-wave up pattern means a downtrend is next. When that analysis published, the share price was $134.40. As of this intraday writing on Oct.3, it's $106.79.

Let's go back in time to review another example of how Elliott wave analysis can be applied to an individual stock.

This case-in-point involves GE. The September Elliott Wave Theorist was discussing wave analysis with individual stocks and showed these side-by-side charts and said:

The October 27, 2000 [Global Market Perspective] published the chart on the left, showing a completed Elliott wave in GE stock. This quarter-century pattern portended a major reversal. The chart on the right shows what happened thereafter.

Not every forecast based on the Elliott wave model works out perfectly. At the same time, keep in mind these words from Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior:

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.

If you'd like to read the entire online version of the book for free, you may do so once you become a member of Club EWI, the world's largest Elliott wave educational community (approximately 500,000 worldwide members).

A Club EWI membership also opens the door to free access to a wealth of other Elliott wave resources -- such as videos and articles from Elliott Wave International's analysts.

Jump on the Club EWI bandwagon now by following this link: Elliott Wave Principle: Key to Market Behavior -- get free and instant access.

Are You Prepared for Widespread Bank Failures?

"This time, the world economy appears to be on much shakier footing"

By Elliott Wave International

The ideal time to prepare for most anything in life, especially a potential circumstance that's adverse, is before it happens.

The problem is: Many people don't know what will happen in their lives ahead of time.

However, sometimes warnings are provided yet they're ignored or not taken seriously. A current warning from Elliott Wave International which people are urged to take very seriously is that the economic slowdown could morph into something far worse than a garden-variety recession.

Here's what Robert Prechter's Last Chance to Conquer the Crash has to say:

In 2008-2009, some U.S. banks came under pressure of insolvency, just as the first edition of Conquer the Crash predicted. Fed bailouts kept most of them open. In the next depression, bank runs and mass closings are far more probable.

Indeed, a troubling sign for the banking industry has already started to develop.

Here's an Oct. 3 headline (Business Insider):

Credit Suisse is fending off concerns about its financial health, fanning fears of another Lehman Brothers moment that could roil the global financial system. ...

The next day (Oct. 4), Barron's had the straightforward headline:

Credit Suisse Is In Deep Trouble.

In a nutshell, the Swiss banking giant plans a massive restructuring, and executives recently had to reassure major clients and investors about the bank's liquidity.

Concerns about the financial health of Credit Suisse doesn't mean that a systemic banking crisis will start tomorrow or next week. However, it may be a good idea to check out the financial health of the bank or banks with which you do business, especially considering the broad backdrop -- as represented by these headlines:

• Global Manufacturing Index Contracts for First Time Since 2020 (Bloomberg, Oct. 3)
• IMF presents 'darkening outlook' for global economy (UPI News, Oct. 6)

Days before that global economy headline published, the October Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets, showed this chart and said:

This chart of Global Real Economic Activity ... shows that the world economy is heading into an extraordinary period of economic contraction. The trendline points out a long-term divergence from the last peak, in May 2008, which followed the Dow Industrials' October 2007 top by eight months. The latest peak in the index came in October 2021. ... This time, the world economy appears to be on much shakier footing.

Now is the time to prepare for what may be just around the corner.

One way to prepare is to get a handle on the stock market's trend because the stock market tends to lead the economy.

The Elliott wave model can help you analyze the stock market.

If you're unfamiliar with the Elliott wave model or need a refresher, the definitive text on the subject is Frost & Prechter's Elliott Wave Principle: Key to Market Behavior. Here's a quote:

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. 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.

If you'd like to read the entire online version of this Wall Street classic, you may do so for free once you join Club EWI, the world's largest Elliott wave educational community.

A Club EWI membership is also free and members enjoy complimentary access to a wealth of Elliott wave resources on investing and trading.

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

This article was syndicated by Elliott Wave International and was originally published under the headline Are You Prepared for Widespread Bank Failures?. 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 is Why the Real Estate Tide is Turning

Here's your next step to get a handle on the global property market.

By Elliott Wave International

Treat houses as a consumption item -- or simply as a place to live, and history shows that real prices will fluctuate only modestly over the decades.

Treat houses as an investment, and the value of houses takes on the characteristics of the stock market.

This is from the January 2012 Elliott Wave Theorist, a monthly publication which covers financial markets and major cultural trends -- in the wake of the prior housing bust:

Real home prices [in a U.S. index] stayed within a range of 66-123 [from 1890] until 1997. Then they went straight up for 9 years. Inflation doesn't account for the rise in real prices, because inflation has been factored out. And loans were available for decades without causing real prices to soar. Why did it finally happen? ... Real estate began to take on the aura of being an investment.

As we know, after going up for 9 straight years, the housing market then crashed -- just like the stock market is apt to do at times.

That same psychology of "a house as an investment" sent prices soaring again in the most recent housing bubble.

However, trouble has already started to brew. Here's a Sept. 2 CNBC headline:

1 in 5 home sellers are now dropping their asking price as the housing market cools

This brings us to Elliott Wave International's latest analysis -- which is provided in the just-published special report "Home Prices: How Much Trouble Are YOU In?"

Here's just one of the several charts you'll find in the special report, along with the commentary:

Many of the cities that led the real estate market on the way up are now doing so on the way down. Home sellers in former boomtowns have been quickest to lower asking prices. ...

Nationally, Redfin reports that the percentage of sellers lowering their prices is the largest since it started tracking the data in 2012. ... The tide is turning.

Likewise, builders themselves have been reducing prices. A Sept. 24 Yahoo Finance article noted:

Almost 1 in 4 home builders reported reducing their price this month, up from 19% in August ... Home builder confidence fell three points to its lowest level since May 2014.

You'll find more evidence in the special report that the "tide is turning" for the U.S. housing market, including examinations of housing starts and what's going on with a firm that's been a big player in the housing flipping business.

And getting back to asking prices, you may be interested in knowing that on August 15, Bloomberg reported that asking prices in the United Kingdom fell at their fastest pace in two-and-a-half years.

Speaking of which, the coverage in the special report extends beyond the U.S. as Elliott Wave International looks at European, Asian-Pacific and Australian property markets.

Here's the good news: You can access the special report "Home Prices: How Much Trouble Are YOU In?" for free for a limited time.

Just follow this link: "Home Prices: How Much Trouble Are YOU In?"

This article was syndicated by Elliott Wave International and was originally published under the headline THIS is Why the Real Estate Tide is Turning. 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 Are "Doomed" to Miss Major Market Turns

"The arrows show how conventional futurists approach forecasting"

By Elliott Wave International

The reason why most investors miss key turns in financial markets is that they linearly extrapolate a trend into the future.

If a market is going down, these investors expect that market to continue to go down and if it's going up, they expect it to continue to go up.

In other words, most investors have no method for anticipating a turn. By contrast, the Elliott wave model does.

The September Elliott Wave Theorist, a monthly publication which provides analysis of financial and major cultural trends, provides insight with this graph and commentary:

[The chart] depicts the fractal movements of the stock market as described by an idealized version of the Elliott wave model. The arrows show how conventional futurists approach forecasting. Because they project trends linearly, they are most convinced of an old trend's continuation at the very time when waves at several degrees of trend are culminating.

That's not to say that Elliotticians are perfect. Even those who use the Elliott wave model in their market analysis might make the mistake of looking for too many turns.

As the new Elliott Wave Theorist also says:

Being patient while an Elliott wave plays out can be challenging for a mind bent on looking for evidence of change. But at least Elliotticians are not doomed to miss every turn. They may be early or late, but they are not inevitably, pathologically late in identifying turns, as linear extrapolators are.

A recent example of how linear extrapolation almost immediately hurt investors occurred with technology stocks.

This is a Sept. 13 headline and sub-headline from Bloomberg:

Billions in Wrong-Way Bets Poured Into Biggest Tech ETF
Biggest tech ETF posted best inflow since February on [Sept. 12]

On that one date alone (Sept. 12), investors put $2.6 billion into the Invesco Trust Series 1 ETF. The very next day (Sept. 13), the NASDAQ cratered 5.16%. Talk about bad timing!

You see, the NASDAQ had rallied for four straight days before that big price slide, and many investors thought it was time to jump in and join the party.

That's not to say that the Elliott wave model anticipated a more than 5% drop in the NASDAQ on that very day. However, the Elliott wave model had anticipated a continuation of the downward trend.

Indeed, on Friday, Sept. 9, our U.S. Short Term Update stated:

The [NASDAQ 100] rally should be complete or nearly so.

That analysis was provided just two trading days before that big one-day decline in the NASDAQ.

No analytical method can provide a guarantee, however, in our view, the Elliott wave model is far better than linearly extrapolating trends.

If you'd like to learn the details of the Elliott wave model, the definitive text on the subject is Frost & Prechter's Elliott Wave Principle: Key to Market Behavior. Here's a quote:

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 guidelines are specific and can occasionally yield stunningly precise results. If indeed markets are patterned, and if those patterns have a recognizable geometry, then regardless of the variations allowed, certain price and time relationships are likely to recur. In fact, experience shows that they do.

If you'd like to read the entire online version of the book for free, you can do so by joining Club EWI, the world's largest Elliott wave educational community.

A Club EWI membership is free, and members enjoy complimentary access to a treasure trove of Elliott wave resources on financial markets, investing and trading -- including videos and articles from Elliott Wave International's analysts.

Get started right away by following this link: Elliott Wave Principle: Key to Market Behavior -- get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Why Most Investors Are "Doomed" to Miss Major 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.

Bear Market Rallies: Here's a Key Insight

How investors get snookered into the belief of "a further market advance"

By Elliott Wave International

Nothing raises the hopes of the bullishly inclined like a rapid bear market rally. And there's been several since the early January top in the Dow Industrials and S&P 500 index.

You may be interested in a key characteristic of most of these rallies.

The Sept. 12 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which provides near-term analysis of major U.S. financial markets, explains with this chart and commentary:

Sometimes the upward push will end at or near top tick of the daily range. A quick glance at the countertrend rallies since the January peak in the S&P shows at least five instances of this happening, indicated by the red arrows on the chart. The final trade of these daily ranges was at or very near the high of the day, creating belief in a further market advance when in fact it was the top of the rally.

Keep in mind that "not every strong up day that closes at top tick marks the end of the rally but the end of the rally is often attended by strong up days that close at top tick."

That said, here are just a couple of examples in recent months of the lingering optimism:

• Why There's a Chance the Stock Market Has Hit Bottom (Barron's, July 19)
• Top Investment Ideas for a Market That Might Have Hit Bottom (Bloomberg, Aug. 4)

In other words, memories of the prior bull market die hard, even several months after the S&P 500's record high near the start of the year.

And, regarding those July and August headlines about a market bottom, that didn't turn out to be the case. Here's a Sept. 16 headline (CNBC):

FedEx plunge could spell bad days ahead for market as bellwether Dow Transports index hits new low

The question is: Will other indexes -- like the S&P 500 and Dow Industrials -- also plunge to new lows?

Now is the time to familiarize yourself with the U.S. stock market's Elliott wave pattern.

If you're new to Elliott wave analysis or need a refresher, do know that the definitive text on the topic is Frost & Prechter's book, Elliott Wave Principle: Key to Market Behavior. Here's a quote from this Wall Street classic:

Without Elliott, there appear to be an infinite number of possibilities for market action. What the Wave Principle provides is a means of first limiting the possibilities and then ordering the relative probabilities of possible future market paths. Elliott's highly specific rules reduce the number of valid alternatives to a minimum. Among those, the best interpretation, sometimes called the "preferred count," is the one that satisfies the largest number of guidelines.

If you'd like to read the entire online version of Elliott Wave Principle: Key to Market Behavior, you may do so for free after you join Club EWI, the world's largest Elliott wave educational community (about 500,000 worldwide members and growing rapidly).

A Club EWI membership is free and allows you free access to a wealth of Elliott wave resources on financial markets, investing and trading without any obligation. Those resources include exclusive videos and articles from Elliott Wave International's analysts.

Just follow the link, and you'll be on your way to becoming a Club EWI member: Elliott Wave Principle: Key to Market Behavior -- get instant and free access now.

This article was syndicated by Elliott Wave International and was originally published under the headline Bear Market Rallies: Here's a Key Insight. 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 You Should Be Leery of the 60 / 40 Portfolio

"The tidal wave of risk assumption … may be turning"

By Elliott Wave International

Many investors allocate a percentage of their portfolios to bonds to cushion against a drop in the stock market.

A popular allocation is a 60 / 40 mix of stocks and bonds.

However, this hasn't worked out recently. Here's a Yahoo! Finance headline (Sept. 6):

The 60/40 strategy is on pace for its worst year since 1936: BofA

The mix of 60% stocks and 40% bonds was down 19.4% from the start of the year through the end of August, according to Bank of America Global Research.

Specifically, the S&P 500 declined more than 16% through that period with long-term Treasuries sinking more than 20%. Investment grade corporate bonds were down 13%.

Investors who thought bonds would provide a degree of financial "safety" may not have been aware of Elliott Wave International's forecasts.

Indeed, back in March 2020, our Global Market Perspective, an Elliott Wave International monthly publication which provides analysis of 50-plus worldwide financial markets, showed this graph of yields on global bonds, 10-year U.S. Treasury notes and U.S. general obligation municipal bonds (commentary below the graph):

According to 150 years' worth of data... this is the first time that 10-year Treasury note yields have dropped below 1%. Grand Supercycle-degree tops set Grand Supercycle records. Investor ebullience is the only thing that allows for an embrace of no-yield debt. The tidal wave of risk assumption, however, may be turning.

In other words: Expect the downward trend in yields to turn upward.

Shortly after that March 2020 analysis in our Global Market Perspective published, yields began to climb (meaning bond prices began to sink).

In fact, on Sept. 13, yields on 2-year U.S. Treasuries jumped to their highest level since 2007. On the same day, the Dow Industrials registered a 3.94% decline.

Speaking of stocks, here too, our Global Market Perspective provided timely warnings. Our Dec. 2021 issue stated:

Junk [bond] yields should rise while stocks decline... The Wave Principle suggests that the era of space flight for financial assets is over. [emphasis added]

The Dow Industrials hit a top a month later.

Not every forecast based on the Wave Principle works out to a "T," however, the Elliott wave model is the best analytical method of which we know.

If you’d like to learn the details of the Wave Principle, the definitive text on the subject is Frost & Prechter’s Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the book:

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 guidelines are specific and can occasionally yield stunningly precise results. If indeed markets are patterned, and if those patterns have a recognizable geometry, then regardless of the variations allowed, certain price and time relationships are likely to recur. In fact, experience shows that they do.

You may be interested in knowing that you can access the entire online version of this Wall Street classic for free once you become a member of Club EWI, the world’s largest Elliott wave educational community.

A Club EWI membership is free and opens the door to a wealth of Elliott wave resources on investing and trading.

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

This article was syndicated by Elliott Wave International and was originally published under the headline Why You Should Be Leery of the 60 / 40 Portfolio. 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.

Will Another "Great Depression" Start in Europe?

This action by investors resulted in "the highest total since 2014, and probably ever"

By Elliott Wave International

Many people are familiar with the Great Depression of the early 1930s, but most of them may not know that this economic calamity began in Europe before arriving in the U.S., as a past issue of the Global Market Perspective has noted (the Global Market Perspective is a monthly Elliott Wave International publication which covers 50-plus worldwide financial markets).

In Germany, for instance, consider that real GDP fell 1% in 1929 after growing 8.2% in 1927 and 2.8% in 1928. Other economic indicators hit a peak as early as 1927.

Only time will tell if history repeats. Yet, here in 2022, we do know that troubling signs are developing in Europe's biggest economy.

First, look at this recession indicator from the August Global Market Perspective with the commentary below:

Companies in Germany are seeing "softer demand for their products amid a darker economic outlook." (Bloomberg, 7/4/22) Germany's GDP also stagnated in July. More importantly, the economy recorded a 0.5% drop in overseas sales while imports were up 2.7%, meaning that the country recorded its first trade deficit since 1991. While deficits themselves are not recessionary, the change in behavior is notable, and, in case you're wondering, 1991 was indeed a recession year.

Since this analysis published, an August 22 Reuters headline said:

German recession increasingly likely, Bundesbank says

Some of Germany's neighbors are likely already experiencing economic contractions -- like Estonia and Latvia. Other economies -- Austria, Belgium, Luxembourg and Portugal -- registered shrinking GDPs in Q2.

Getting back to Germany, here's more commentary and another chart from the August Global Market Perspective:

The bottom graph on this chart shows the market capitalization of German companies as a percentage of worldwide market cap. Notice that it has been declining since its high point in 2008. ... The percentage has dipped relentlessly lower, falling to an all-time low of 1.92% just two weeks ago. Today, among Germany's largest four companies, only one ranks among the world's 100 largest.

Free Report ($30 value): See 3 more charts that open your eyes to what's next

The insights above are also featured in a new special report that you can access right now (free, easily a $30 value).

The report gives you 4 short, powerful excerpts from one of our most popular services -- Global Market Perspective. Usually reserved for subscribers, we think you will also appreciate the insights. It's our quick take on markets in the U.S., Europe and Asia, plus a look at the U.S. dollar.

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This article was syndicated by Elliott Wave International and was originally published under the headline Will Another "Great Depression" Start in Europe?. 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 a Potential Signal for What May Be Next for U.S. Stocks

This action by investors resulted in "the highest total since 2014, and probably ever"

By Elliott Wave International

Frost & Prechter's Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, first published nearly 45 years ago and said:

"Eight years of a raging bear market have taught today's investor to be cautious, conservative and cynical. Defensiveness is not in evidence at tops."

Considering this description of investors' mindset in the late '70s and early '80s, many market observers were not contemplating the start of a big bull market.

Yet, Elliott Wave Principle did forecast a major uptrend and that's what happened.

Bull markets are generally born after investor sentiment has reached a negative extreme.

Here in the late summer of 2022, there's the opposite mindset. Instead of playing "defense," investors are aggressively on the offense -- and in at least one sector -- by a record degree.

Consider this chart and commentary from the August Elliott Wave Financial Forecast, a monthly publication which provides coverage of major U.S. financial markets:

The depth of the dip-buying zeal is evident by a late-July retail surge into technology stocks. Investors pushed about $580 million into a basket of tech stocks, the highest total since at least 2014, and probably ever. "I'm extremely bullish tech stocks," one 27-year-old investor told The Wall Street Journal. The FAANG stocks -- Facebook (Meta), Apple, Amazon, Netflix and Google (Alphabet) -- and various ancillary issues are once again the big favorites.

Some professional investors are also gung-ho on tech stocks (CNBC, August 28):

[Famous Market Pundit]: I will not abandon tech stocks because the end of their downturn is near

This well-known stock picker might be right. Yet, keep in mind that stocks which lead on the way up tend to lead on the way down.

Also keep in mind that stocks in the technology sector are not the only focus of investors. According to a poll by deVere Group, a Zurich-based asset management firm, "56% of Investors Plan to Buy More Stock Before 2022 Ends."

And here's another CNBC headline (August 26):

S&P will be at 4,400 by year end, says "chief equity strategist"

In other words, the complete lack of "defensiveness" is likely a signal that stocks are not set to kick off another major uptrend.

The stock market's Elliott wave pattern can help you gain more insight into what to expect next for the main indexes.

If you'd like to learn about Elliott wave patterns, or simply need a refresher, the book which was mentioned earlier -- Elliott Wave Principle: Key to Market Behavior -- is an ideal resource. Here's a quote:

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 may be interested in knowing that you can read the entire online version of the book for free.

The only requirement for free access is a Club EWI membership -- which is also free. In case you're unfamiliar with Club EWI, it's the world's largest Elliott wave educational community and members enjoy complimentary access to a wealth of Elliott wave resources without any obligation.

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

This article was syndicated by Elliott Wave International and was originally published under the headline Here's a Potential Signal for What May Be Next for U.S. Stocks. 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.

Was It Really the Fed That Sent Stock Prices Tumbling?

"Stocks have the strong potential to continue lower as prices trace out..."

By Elliott Wave International

Elliott Wave International has mentioned time and again that the mainstream financial media nearly always mentions a news development as the reason for a given day's stock market action.

More than that, we've provided example after example of how these so-called explanations usually don't hold water.

For example, on August 26, when the Dow Industrials closed lower by just over 1,000 points, a headline said (Marketwatch):

Dow closes down 1000 points, Nasdaq falls 3.9% after Powell warns of pain to households in inflation battle

That "warning" was given by Fed Chairman Powell in Jackson Hole, Wyoming when he basically said that the central bank will continue with its aggressive rate hikes.

However, this stance by the Fed is nothing new, and indeed, the stock market staged a significant rally since mid-June. All the while, the Fed had been hawkish.

Here's a Forbes headline from July 27:

Dow Jumps 400 Points After Fed Hikes Rates By 75 Basis Points

There have been other similar headlines during the stock market's two-month rally.

So, how can Fed rate hikes be bullish one day but bearish at another time?

Our decades-long observations here at Elliott Wave International is that news does not drive stock prices in the first place -- contrary to popular belief.

The stock market is driven by investor psychology, which is reflected in the repetitive patterns of the Elliott wave model.

Indeed, before the 643-point drop in the Dow on August 22, and the 1008-point plunge on August 26, the August 19 U.S. Short Term Update (a thrice weekly Elliott Wave International publication which provides near-term forecasts for major U.S. financial markets) said:

As the week wore on, selling strength became more intense. On Wednesday, August 17, the NYSE advance/decline ratio was negative by 4.30-to-1. Today's closing a/d ratio was negative by 6.32-to-1. The same with Big Board up and down volume. Down volume as a percentage of up and down volume was 81.4% on Wednesday and today it was 86%. Stocks have the strong potential to continue lower as prices trace out declining impulse patterns at various degrees of trend. [emphasis added]

In other words, patterns of the Elliott wave model were strongly suggesting further decline -- regardless of what the Fed chairman said or didn't say.

If you'd like to learn about the Elliott wave model, an excellent book on the subject is Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter. Here's a quote from this Wall Street classic:

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.

You can learn more about the Wave Principle by reading the entire online version of the book for free!

The only requirement for free access is a Club EWI membership -- which is also free.

Club EWI is the world's largest Elliott wave educational community and members enjoy complimentary access to a wealth of Elliott wave resources on investing and trading -- without any obligations.

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

This article was syndicated by Elliott Wave International and was originally published under the headline Was It Really the Fed That Sent Stock Prices Tumbling?. 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.