Stocks: What to Make of the "Overhanging Optimism"

This "is consistent with the early stage of a long bear market"

By Elliott Wave International

Intraday on April 27, the S&P 500 is trading 12.10% lower than it was at the start of the year.

Right -- not a huge setback -- but negative nonetheless.

Of course, it's always possible that this is just the start of a temporary correction that so many market observers mention.

Then again, the decline thus far this year could be the start of a bear market.

Corporate executives are certainly behaving in a way which is consistent with the start of a major financial downturn.

You see, history shows that companies usually buy back their own shares at a record pace near major stock market tops.

With that in mind, here's a March 22 Wall Street Journal headline:

Stock Buybacks Are on Course for Another Record

Analysts at Goldman Sachs recently said they anticipate buybacks to reach a record $1 trillion in 2022 -- at least, that's their forecast. However, investor behavior -- whether on Main Street or in corporate suites -- can change dramatically from what is expected.

Way before the end of the year, investor psychology may darken considerably.

The April Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets, picks up the story from here with this chart and commentary:

In the fourth quarter of 2021, S&P 500 companies bought $270.1 billion worth of their own shares. Record buybacks in the first quarter of 2000 and the third quarter of 2007 attended major tops. The latest record is a real barnburner, up a full 15.21% from the previous quarter's total. ... The Wall Street Journal reports that firms announced another $238 billion in buybacks in the first two months of 2022. ... This overhanging optimism is consistent with the early stage of a long bear market.

Of course, "overhanging" optimism refers to companies buying back shares even though the market may have already started a downtrend.

Also keep in mind that just because the market turned down severely in 2000 and 2007 after record buybacks doesn't mean it will do so again -- or immediately.

However, the recent flurry of buybacks is something to keep in mind. And, so is the stock market's Elliott wave structure, which puts the buybacks into context.

Read this quote from Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior:

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. 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.

Learn more about the Wave Principle -- and how you can apply it to your analysis of financial markets -- by reading the entire online version of the book for free.

All that's required for 100% free and unlimited access to Elliott Wave Principle: Key to Market Behavior is a Club EWI membership.

Club EWI is the world's largest Elliott wave educational community and is free to join. Members enjoy free access to a treasure trove of Elliott wave resources on financial markets, investing and trading with zero obligation.

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

"Why Is the Stock Market Falling?" -- (Not Because of These Reasons)

Here's what happened after the S&P 500 had its first negative earnings quarter ever

By Elliott Wave International

Financial journalists almost always mention "reasons" for a given day's market action.

For example, on April 22, an intraday Marketwatch headline gave two reasons for that day's plummeting prices:

Why is the stock market falling? Dow drops over 500 points as investors weigh Fed's policy path, earnings

Prices fell considerably further on April 22 after that headline published, however, the question is: Are the Fed and earnings the real reasons the stock market cratered?

Elliott Wave International's extensive research reveals that the answer is likely "no." The evidence is overwhelming that news -- whether positive or negative -- does not determine the market's trend. (Besides, on any given day, the news is usually a mixed bag anyway. You can always find a bullish or bearish "reason" for stocks to go up or down. Mainstream market observers simply pick from that bag what fits the day's price action.)

As cases in point, let's review the Fed and earnings as supposed "causes" of stock market action, given these two factors were mentioned in that headline.

Let's start with the Fed and a bit of history. The chart is from the March 2019 Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets. It shows the lack of correlation between Fed behavior and the stock market:

The Fed cut interest rates 13 times from 2000-2003, yet the S&P 500 still declined 51%. Again in 2007-2008, the Fed cut rates 10 times, but the S&P declined 58% from August 2007 to March 2009. Subsequent to that, 9 Fed rate increases starting in 2015 didn't stop the stock market from rallying. Simply put: The Fed does not control the trend of the stock market.

Regarding earnings, this chart is from the Dec. 2009 Elliott Wave Financial Forecast:

You'll notice on the chart that in Q4 2008, the S&P 500 had its first negative earnings quarter ever. According to conventional logic, stocks should have crashed afterwards. Instead, a rally started in March 2009, which stretched all the way into early 2022.

So, you see why Elliott Wave International's analysts do not look to the Fed, earnings -- or any other factor outside of the market when formulating a stock market forecast.

Instead, they look to the market itself -- which unfolds in repetitive price patterns, in accordance with the Elliott wave model.

Indeed, the April Elliott Wave Financial Forecast provided this warning to subscribers:

Patterns in the indexes are at junctures where they should resume the decline from the November and January highs.

The Elliott wave model does not promise perfect forecasts, yet, in our view, it does reflect how financial markets really work.

Here's a quote from Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior:

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

You can learn the details of The Wave Principle by reading the online version of the book for free.

All that's required for free access is a Club EWI membership. Club EWI is the world's largest Elliott wave educational community and is free to join. Plus, members enjoy complimentary access to a wealth of Elliott wave resources on investing and trading without any obligation.

Simply follow the link to get started right away: Elliott Wave Principle: Key to Market Behavior -- free and instant access now.

This article was syndicated by Elliott Wave International and was originally published under the headline "Why Is the Stock Market Falling?" -- (Not Because of These Reasons). 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.

Another One Bites the Dust - The Deflation of Netflix

By Elliott Wave International

Bubbles are popping, one by one.

The share price of Netflix plummeted last week, coinciding with news that it is losing subscribers, a big change after years of growth. The media and conventional analysts will, of course, link the cause of the share price decline to the news but the chart below disputes that. More on that later. In the meantime, there are two aspects to consider with what is happening here.

Firstly, the deflation of Netflix shares is the latest domino to fall in a chain of popping bubbles since last year. Electric vehicles, SPACS, meme stocks and crypto / NFTs have all seen spectacular crashes in many asset prices. Fueled by a manically positive social mood, assets such as these were pumped up on hot air only to deflate as the consequence of herding behavior took hold. Netflix, the doyen of subscription broadcasters, was not immune and is now reaping the same result. Herding behavior, ironically enough, is in the DNA of broadcast media such as Netflix. When a show such as the Netflix-produced "The Crown" starts to trend on social media, its popularity is driven by quintessential herding behavior. It's the same dynamic across all popular culture of course.

The second aspect to consider about the Netflix news is that it is a clear signal of demand destruction taking hold in the economy. The best cure of rising prices is rising prices goes the old saw, meaning that as consumer prices rise, demand will fall, and prices will stabilize. With consumer price inflation running rampant, households are examining their budgets and cutting back on what is not necessary. The stagflation that is being talked about now (low economic growth with high consumer price inflation) is a precursor to outright deflation as the low economic growth turns to recession and contraction.

Coming back to the "cause" of the Netflix collapse, the chart below shows that this latest news about losing subscribers has come well after the 2021 peak in the share price. The quarterly Japanese candlestick chart shows that a clear (and appropriate for the entertainment industry) Shooting Star pattern occurred in the final quarter of 2021. This bearish signal also occurred after a five-wave advance since 2009. Thus, coming into 2022, the stage was already set for a decline in the fortunes of Netflix.

As economic and financial conditions continue to tighten, expect many more dominoes to fall.

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This article was syndicated by Elliott Wave International and was originally published under the headline Netflix (NFLX): See How Candlesticks Foresaw the Sell-Off. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

The New "Social Movement" Surrounding Cryptos -- and What It May Mean

"The crypto sisterhood makes the Beardstown Ladies look like pikers"

By Elliott Wave International

Both genders have long participated in financial markets but investing and trading had long been considered to mainly be the province of men.

There are notable exceptions -- like Hetty Green. Around the turn of the last century, she was thought to be the richest woman in the U.S. and her miserly ways earned her the nickname of the "Witch of Wall Street."

As society evolved, many more women have become prominent in the field of investing, especially in recent decades.

Yet, even today, when a woman gains prominence in finance, the fact that she's a "she" gets special mention.

For example, here's a March 22 news item from The Street:

Crypto Queen Raises $1.5 Billion in Largest Ever Female VC Fund

Relatedly, a female social movement of sorts has developed around crypto investing.

Here's another recent news item -- this one from the Wall Street Journal (March 11):

Reese Witherspoon and Gwyneth Paltrow Push for Crypto Sisterhood

They are among a wave of female celebrities pitching cryptocurrencies and NFTs to women, saying the unregulated, volatile market is a boys' club that they can breach.

Of course, it's perfectly OK for anyone to invest, whether they're tall or short, rich or of moderate means, experienced or inexperienced and so on.

A point to make, however, is that "social movement" investing rarely ends well. Indeed, the April Global Market Perspective, a monthly Elliott Wave International publication which covers 50-plus worldwide financial markets, mentions what it generally means when an asset class becomes the focus of a cause:

The crypto sisterhood makes the Beardstown Ladies look like pikers: The "cryptocurrency social community targeting women" doesn't just plan "to make money by issuing its own NFTs." Its goal is to "right gender imbalances in investing and shape the next chapter of the internet." Making money in the market is hard by itself. When alternate aspirations get blended in, it almost never works out.

As you might imagine, while the "push for crypto sisterhood" appears to be serving as a contrarian indicator, that doesn't mean Bitcoin and other cryptos will nosedive tomorrow or next week.

However, this social movement may suggest that the overall mania surrounding cryptos may be closer to an end rather than its beginning.

The message of the Elliott wave structure for major cryptocurrencies is revealing.

You'll find our Elliott wave analysis of Bitcoin, Ethereum, Cardano, Solana and Polkadot in the "Cryptocurrency" section of the April Global Market Perspective.

If you'd like to learn how to analyze financial markets using the Elliott wave model, you are encouraged to read Frost & Prechter's Elliott Wave Principle: Key to Market Behavior.

Here's a quote from this Wall Street classic:

It is our practice to try to determine in advance where the next move will likely take the market. One advantage of setting a target is that it gives a sort of backdrop against which to monitor the market's actual path. This way, you are alerted quickly when something is wrong and can shift your interpretation to a more appropriate one if the market does not do what you expect. The second advantage of choosing a target well in advance is that it prepares you psychologically for buying when others are selling out in despair, and selling when others are buying confidently in a euphoric environment.

You may be interested in knowing that you can read the entire online version for free once you become a Club EWI member. Club EWI is the world's largest Elliott wave educational community and is free to join. Members enjoy free access to a wealth of Elliott wave resources on investing and trading without any obligation.

Just follow this link to get started now: 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 The New "Social Movement" Surrounding Cryptos -- and What It May Mean. 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.

London Stock Exchange... Stock: Predicting the Collapse of a "Parabolic Rise"

5 Elliott waves up signaled a turn for this stock's steep upward climb

By Elliott Wave International

The first part of the Cambridge dictionary's definition of "parabolic" is: "having a type of curve like that made by an object that is thrown up in the air ... ."

It's not straight up vertical but the trajectory is steep. Many investors have seen charts of financial markets which show such a parabolic rise.

Now, let's add the second part of the Cambridge dictionary's definition to the first part: "having a type of curve like that made by an object that is thrown up in the air and falls to the ground in a different place." [emphasis added]

Indeed, many investors have seen how this second part also applies to the price charts of financial markets at times.

The September 2019 Global Market Perspective, an Elliott Wave International monthly publication which covers 50-plus worldwide financial markets, called attention to a parabolic rise in the stock price of the London Stock Exchange Group (LSE). Here's the chart and commentary:

The London Stock Exchange Group has been riding along an upward parabolic curve that has generated a 20-fold increase in the stock price since the late 2000s. Parabolic advances are inherently unsustainable, and this one is even more precarious given that we can count five waves up since the LSE's public debut.

As you may know, the completion of five-waves -- up or down -- signals the start of a new trend, which, in this case, would be down.

Well, here's an update on the price path of LSE from the April Global Market Perspective:

The cited fifth wave turned out to be Minor wave 5 of Intermediate wave (3), one degree smaller than we originally anticipated. Intermediate wave (4), the ensuing decline, initially bounced off support, and [Intermediate] wave (5) completed an ending diagonal at 10,010 on February 16, 2021. [Afterwards], LSE Group dropped 30% in six weeks, and a countertrend rally peaked in June 2021.

As noted, sometimes an Elliott wave practitioner must adjust the wave count as a market's action unfolds. After all, the Wave Principle is an "exercise in probability." Having said that, the Wave Principle can sometimes offer amazingly "precise results."

You can delve into the details of how to apply the Wave Principle to your analysis of financial markets 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.

Here's the good news: You can read the entire online version of the book for free once you become a Club EWI member.

In case you're unfamiliar with Club EWI, it's the world's largest Elliott wave educational community and is free to join. More than that, members enjoy free access to a wealth of Elliott wave resources on investing and trading.

Just follow the link to get started right away: 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 London Stock Exchange... Stock: Predicting the Collapse of a "Parabolic Rise". 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 Usually Spells Trouble for the Stock Market (It's Happening Now)

"Even short term, diverging trends can signal an unhealthy market"

By Elliott Wave International

If you've been an investor for any appreciable length of time, no doubt you've noticed that all of the stock market indexes usually move in unison.

For example, when the Dow Industrials rally, the S&P 500 and NASDAQ usually do so too -- the same applies during a broad downtrend.

As the April 8 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which provides near-term forecasts for key U.S. financial markets, notes:

Think of the final days of [the big down wave] in March 2009, at the end of the Dow's 54% decline from October 2007. Nearly every stock index made a low within days of March 9, 2009 -- blue chips, technology, small caps, transports, secondary stock indexes -- and all rallied in unison thereafter.

However, when stock indexes begin to diverge, this is usually a sign that the existing trend is about to reverse.

As a case in point, let's return to that 2007-2009 bear market that was just mentioned. However, this time, let's look at its beginning.

This chart and commentary are from the Sept. 26, 2007 U.S. Short Term Update:

Here's the structure in the DJIA, which is the strongest of the blue-chip indexes. The pattern is similar in the S&P with the main difference being that the S&P did not push above last week's high ... leaving a short-term inter-market bearish divergence.

About two weeks after that analysis, the Dow and S&P topped -- kicking off a nearly year-and-a-half bear market.

Let's return to 2022 and additional commentary from the April 8 U.S. Short Term Update:

Even short term, diverging trends can signal an unhealthy market, depending of course on context.

Short term trends are diverging.

The very next trading (April 11), the Dow Industrials tumbled more than 400 points. And, as of this intraday writing on April 12, the Dow is down about 145 points.

As you might imagine, the Elliott wave model puts the recent, short-term diverging trends into context.

In other words, by reviewing the Elliott wave structures of the main stock indexes, you can get a good idea if those 400- and 145-point drops are part of a short-term correction or the start of a prolonged downtrend.

If you'd like to delve into the details of how to analyze financial markets using the Elliott wave model, you are encouraged to read Frost & Prechter's Elliott Wave Principle: Key to Market Behavior. Here's a quote from that book:

Every wave serves one of two functions: action or reaction. Specifically, a wave may either advance the cause of the wave of one larger degree or interrupt it. The function of a wave is determined by its relative direction. An actionary or trend wave is any wave that trends in the same direction as the wave of one larger degree of which it is a part. A reactionary or countertrend wave is any wave that trends in the direction opposite to that of the wave of one larger degree of which it is part. Actionary waves are labeled with odd numbers and letters. Reactionary waves are labeled with even numbers and letters.

Exciting news! You can read the entire online version of the book for free once you become a Club EWI member. In case you don't know, Club EWI is the world's largest Elliott wave educational community.

Don't worry about cost -- A Club EWI membership is free. More than that, members enjoy free access to an abundance of Elliott wave resources on financial markets, investing and trading -- without any obligation.

Just follow the link to get started: Elliott Wave Principle: Key to Market Behavior -- free and unlimited access now.

This article was syndicated by Elliott Wave International and was originally published under the headline This Usually Spells Trouble for the Stock Market (It's Happening Now). 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. Housing Prices May Be Set to Decline

Pending home sales provide a reminder of 2005-2006

By Elliott Wave International

Most everyone knows that the housing market has been booming in the U.S.

However, if history is a guide, expect U.S. home prices to significantly decline.

Why?

Well, pending home sales have slowed. And the trend in home sales tends to lead the trend in home prices.

As a case in point, after home sales fell by a more than expected 2.7% in October 2005, our December 2005 Elliott Wave Financial Forecast said:

The housing market is in the process of falling into an enormous crater.

Less than a year later, the U.S. housing market topped.

As you might imagine, our housing market analysis involves more than looking at home sales, yet it is a major indicator.

Fast forward to 2022.

This March 25 Bloomberg headline reveals how this indicator is relevant now:

U.S. Pending Homes Sales Unexpectedly Decline ...

Specifically, pending home sales dropped by 4.1% in February. That's in contrast with economist's expectations, which was a 1% rise.

The April Elliott Wave Financial Forecast, a monthly publication which offers analysis of major U.S. financial markets, provided its take with this chart and commentary:

The arrow on the chart of new and existing U.S. home sales marks the August 2006 top for median home prices, which was $216,686. The span from the peak in sales in July 2005 to the peak in prices in August 2006 was 13 months. At this point, peak sales in new and existing homes occurred in October 2020, 17 months ago. After rebounding somewhat with the rally in stocks through the end of 2021, home sales fell "unexpectedly" in January and February. Pending homes sales, which tend to lead actual sales, have been weaker still.

The recent decline in home sales does not mean that home prices will follow the exact path as they did during the prior housing bust. However, this time-tested indicator is something to keep in mind.

Another housing indicator to watch is the stock market. In other words, the housing market and the stock market tend to trend together.

With that in mind, the Elliott Wave Financial Forecast is keeping tabs on the Elliott wave structure of the stock market.

If you're new to Elliott wave analysis and want to learn the rules and guidelines, read Frost & Prechter's Elliott Wave Principle: Key to Market Behavior.

Here's a quote from the book:

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.

Here's good news: You can access the entire online version of the book for free.

That's right -- all that's required for free access to this Wall Street classic 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 financial markets, investing and trading -- with zero obligation.

Just follow the link for instant access: Elliott Wave Principle: Key to Market Behavior.

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

What a Brutal Bear Market Brings Besides Crashing Stock Prices

"When social mood is negative, rallies, marches and protests become common events"

By Elliott Wave International

Sure, it's highly important to get out of value-losing risk assets before the onset of a big bear market.

No analytical method offers a guarantee; however, our experience shows that if you follow the message of the Elliott wave model, you'll have a good chance of protecting your wealth during the next financial downturn.

Having said that, there's more to a severe bear market than collapsing investment prices. Keep in mind that the shift from a positive to a negative social mood -- which brings on a financial bear market -- also brings on an array of societal problems.

Here’s what Robert Prechter says in his March Elliott Wave Theorist, a monthly publication which provides analysis of financial markets and social trends:

The main social influence of negative social mood is to cause society to polarize in countless ways. That polarization shows up in every imaginable context -- social, religious, political, racial, corporate and by class. The change is a product of the anger that accompanies negative mood, because each social unit seems invariably to find reasons to be angry with and to attack its opposing unit.

With that in mind, Robert Prechter urges Theorist readers to make plans to protect one's physical safety.

This might seem to be an overly dramatic step, but keep in mind that in the wake of every major bear market, major social unrest developed.

A historical example is the worst bear market of the past 100 years -- the one that occurred in the early 1930s. By the way, other financial downturns also occurred later in the 1930s and 1940s. As a result, communists and fascists challenged political institutions. The negative actions which are prompted by an extremely negative social mood usually take time to play out and World War II eventually erupted.

Returning to the latest Theorist, Robert Prechter also mentions the financial downturn of the 1970s, which up to that time, was the worst bear market since the one which started in 1929:

During the 1970s bear market, students challenged police, and blacks challenged whites. In both eras, labor challenged management, and fringe political parties challenged the status quo. When social mood is negative, rallies, marches and protests become common events.

Now, here's what you need to know: If Elliott Wave International's read of the Wave Principle is correct, the next bear market could rival the one of the early 1930s.

If you’d like to delve into the details of the Wave Principle, you are encouraged to read 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.

You can read the entire online version of the book once you become a Club EWI member.

Club EWI is the world’s largest Elliott wave educational community and is free to join. Members enjoy free access to a wealth of Elliott wave resources on investing and trading.

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

This article was syndicated by Elliott Wave International and was originally published under the headline What a Brutal Bear Market Brings Besides Crashing Stock Prices. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Here's a More Reliable "Recession Indicator" Versus an Inverted Yield Curve

"The lead time between past inverted curves and economic contractions is widely variable"

By Elliott Wave International

Longer-dated bonds generally yield more than shorter-dated bonds to compensate an investor for assuming the greater risk of tying up money for a longer time.

As examples, 30-year government bonds have historically offered investors a higher yield than 10-year notes, and 10-year notes generally provide a higher yield than 2-year notes.

However, there are times when the yield on a shorter-term bond is higher than a longer-term bond. This is known as an inverted yield curve, and many market observers view this occurrence as a signal that a recession may be just around the corner.

For example, a March 28 CNBC headline said:

5-year and 30-year Treasury yields invert for the first time since 2006, fueling recession fears

The next day, on March 29 and then again on April 1, the yield on 2-year U.S. treasury notes climbed above the yield on 10-year U.S. treasury notes -- prompting more potential recession talk. A key reason why is that a yield inversion has preceded every U.S. recession since at least 1955.

However, here are some important insights from our just-published April Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets:

The lead time between past inverted curves and economic contractions is widely variable ... and usually does not occur until after the curve un-inverts. Since stock prices lead the economy, it is more reliable to monitor equities to estimate when the onset of an economic contraction may occur.

Indeed, here's some historical evidence of that from Robert Prechter's landmark book, The Socionomic Theory of Finance, which says:

It is important to understand that socionomic causality does not predict that each stock market decline will produce an official recession as defined by the National Bureau of Economic Research; it predicts that stock market declines and advances will reliably lead rather than follow whatever official recessions and recoveries do occur.

So, keep an eye on the stock market's Elliott wave pattern for a clue about what's ahead for the economy.

If you're new to Elliott wave analysis, or simply need a refresher on the topic, you are encouraged 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.

You may be interested in knowing that you can read the entire online version of Elliott Wave Principle: Key to Market Behavior for free.

You can get that free access by joining Club EWI, the world's largest Elliott wave educational community.

Club EWI membership is free and allows you complimentary access to a wealth of Elliott wave educational resources on investing and trading without any obligation.

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

This article was syndicated by Elliott Wave International and was originally published under the headline Here's a More Reliable "Recession Indicator" Versus an Inverted Yield Curve. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

What to Make of the Bullish Resilience of Bitcoin

"A corrective pattern is countertrend to the larger trend in force"

By Elliott Wave International

Every time an obituary is written for Bitcoin, the granddaddy of cryptocurrencies manages to resurrect.

As a Jan. 25 CNBC headline noted:

Investors fear 'crypto winter' is coming as bitcoin falls 50% from record highs

The day before that headline published, Bitcoin had briefly dipped below $33,000, far below its November high of nearly $69,000. At that time, the entire crypto market had shed roughly $1 trillion in value since that all-time high in Bitcoin. Also around that time, Russia's central bank had proposed banning the use of cryptocurrencies.

So, many observers were highly pessimistic about Bitcoin -- just as they were around the lows of December 2018, March 2020 and June / July 2021.

However, Elliott Wave International Crypto Pro Service forecaster Tony Carrion looked at the Elliott wave pattern of Bitcoin and said this in the February Global Market Perspective, an Elliott Wave International monthly publication which provides coverage of 50-plus worldwide financial markets (Feb. 4):

The [declining] pattern is clearly corrective. A corrective pattern is countertrend to the larger trend in force.

In other words, the main Bitcoin price trend was upward.

Keep in mind that two Elliott wave corrective patterns were mentioned as alternatives at the time. Put another way, our analysis did not offer certainty about the future price path of Bitcoin. No analytical method of financial markets can promise an exact forecast. However, Tony did indicate a high degree of confidence that Bitcoin's slide from its all-time high was countertrend (or corrective.)

As you probably know, since then, the price of Bitcoin has risen.

Indeed, on March 28, another CNBC headline said:

Bitcoin surges above $48,000, turns positive for 2022

The big question for crypto investors is: Is Bitcoin (and other cryptos) at the beginning, in the middle or near the end of a bullish run?

Elliott wave analysis continues to offer a major clue.

If you're new to Elliott wave analysis, you may wonder why such a strong emphasis is placed on this method for analyzing financial markets, including cryptocurrencies.

Here's why (Elliott Wave Principle, Frost & Prechter):

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. [bold emphasis added]

Again, "predictive value" does not mean "guarantee." Having said that, Elliott Wave International knows of no other method that surpasses the utility of the Elliott wave model.

Yet, make no mistake, learning the details of the Elliott wave model does take time and effort. However, as another quote from Elliott Wave Principle suggests, it's worth it:

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.

Good news! You can access the entire online version of this Wall Street classic for free.

All that's required for free access to Elliott Wave Principle: Key to Market Behavior 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 an abundance of Elliott wave resources on investing and trading.

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

This article was syndicated by Elliott Wave International and was originally published under the headline What to Make of the Bullish Resilience of Bitcoin. 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.

Interest Rates: How This 1000% Increase Will Overwhelm… Everything?

2-Year U.S. bond: Look at this dramatic rise in yield in just six months

By Elliott Wave International

The era of rock-bottom interest rates (or bond yields) appears to be coming to an end and the consequences will be excruciating for many.

Remember, the world is awash in outstanding corporate, student, government and personal debt.

The ability to service that debt will be seriously hindered by rising interest rates.

At this juncture, let's look at one measure of how much rates (or bond yields) have already risen. This is a chart of the yield on the U.S. 2-Year bond:

As you can see, in just the last six months, two-year interest rates in the U.S. have risen from .2% to more than 2%. That's a TENFOLD increase.

Here's what that means: Suppose a company must borrow money to keep the business operating -- let's say a billion dollars. Six months ago, that debt would cost $2 million to service. Now -- it costs $20 million a year to maintain. As a colleague put it, "that's a lot of snacks in the breakroom."

Also imagine all the public debt at every level of government. That debt must also be serviced. Of course, it's the beleaguered taxpayer who will be on the hook. The average interest rate paid on the national debt in 2021 was approximately 1.5%. That's a very low percentage historically, yet it amounted to $562 billion. Imagine if rates rise significantly from here!

The headline of a Jan. 25 article in The Hill asks:

Can our nation afford higher interest rates with the current national debt?

That national debt now exceeds $30 trillion.

The silver lining around this cloud is that the financially conservative who put their money into savings accounts will finally have something to smile about.

The question is: How high will interest rates or bond yields rise?

Elliott wave analysis of the bond market offers a big clue.

If you'd like to learn how the Elliott wave method can help you forecast widely traded financial markets, you are encouraged to read Frost & Prechter's 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.

Get more insights into the Wave Principle by reading the entire online version of this Wall Street classic for free.

You can get this free access by joining Club EWI, the world's largest Elliott wave educational community. Club EWI membership is free and allows your complimentary access to a wealth of Elliott wave resources on investing and trading.

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

This article was syndicated by Elliott Wave International and was originally published under the headline Interest Rates: How This 1000% Increase Will Overwhelm… Everything?. 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.

Traders: Are You Set Up for Success? Well, There's No Time Like the Present

Our brand-new FREE report ($49 value) reveals the "Top 5 Set-ups" for nailing market reversals. #4 helped us catch a huge turn in Apple Inc.

By Elliott Wave International

Think about the last time you watched a great athlete perform an extraordinary feat of strength, agility or artistry.

What part do you remember most?

Chances are, it's not the running back and forth on the court mid-game, the 100 sit-ups on the side of the pool waiting one's turn, or the silent scanning of the billiard table layout.

No, the parts that stick in your mind are the slow-motion replay of the ball soaring 23 feet mid-air from the 3-point line and then, SWOOSH! clean into the basket. It's the last heart-pounding step off the diving board into a triple twist only to breach the water with a pebble-sized splash. And it's the 8-ball ricocheting off the sides of the table, zig then zag then right into the corner pocket.

But here's the thing. The years of training that shape these unforgettable triumphs aren't about what comes after the throw, leap, or strike into thin air. It's about the mental and physical discipline that comes before in the countless hours spent designing and redesigning the most likely winning lay-up until all you have to do when your turn is up is...

...release.

This is exactly what it means to become a successful trader as well, though you wouldn't know it from the popular financial media. Like their sportscasting counterparts, the main focus tends to be on the size of the winning shot or stock (as is their case), and not on what goes into ensuring that shot is made.

On March 15, this Barron's headline exclaimed:

"Amazon, Alphabet, and 8 Other Beaten-Up Growth Stocks Set to Soar"

Okay. But why? Because they did it before; because "Wall Street loves" them; because they're so battered down the only way to go is up?

Those arguments only see the shot. When in fact, these growth stocks will soar when, and only when, a clearly defined bullish technical set-up develops on their charts.

QUESTION: Would you recognize such a set-up if it did?

Well, our new free report ensures you can do just that. In "5 Easy-to-Spot Chart Set-ups to Help You Nail Market Reversals," three of Elliott Wave International's experienced technical analysis instructors have joined forces to create a masterclass in identifying and implementing these high-confidence arrangements.

One such set-up from the report is the contracting triangle Elliott wave pattern, pictured below in a bull and bear market.

Again, the real action of this pattern occurs behind the scenes, in a lengthy sideways move. It's 90% set-up and 10% shot, or as EWI's chief market analyst and "5 Easy-to-Spot Chart Set-ups" instructor Jeffrey Kennedy says, it's a "ready, aim, aim, aim some more, and then fire!" kind of opportunity.

How this plays out in real time is captured best in the performance of Apple Inc.

- How 'Bout Them Apples? -

2020-2021 saw Apple Inc. stock stuck in a multi-year long consolidation. Mainstream bulls were dropping like flies out of boredom. The May 28, 2021 Barron's article showcased a slew of analyst downgrades from "neutral" to "sell," forecasting a "30% drop" in Apple stock "if iPhone sales continue to slow."

Added the June 1 Bloomberg article: "Once Tech's Golden Child, Apple Loses Its Luster as Scrutiny Grows."

The very thing that convinced mainstream analysts of Apple's rot -- i.e., sideways price action -- was the same thing that bolstered our confidence in the stock's upside. Namely, that price action was the hallmark of an Elliott wave contracting triangle.

On June 8, in his Trader's Classroom video lesson, editor Jeffrey Kennedy showed this bullish set-up in Apple and said:

"I don't think there's an Elliott wave pattern more frustrating than the triangle.

"I think the most important aspect of a triangle is that it acts as a harbinger of a change in trend... If you see a triangle taking shape, understand that the party is almost over. Triangles always precede the final move in a sequence, so pay attention next time you see one."

"Once complete, you can count on price to thrust to a new extreme."

From there, AAPL thrust out of its triangle and soared into the $150 zone. Then, on September 8, Trader's Classroom revisited Apple to confirm that the stock's upside was still very much intact.

And, as this final chart shows, AAPL continued to rally right up to Jeffrey's initial target.

It's easy to remember the winning shot. But as this exmaple shows, the time to pay closest attention to market action is in the quiet build up long before the triumphant swoosh!

Now you understand why the contracting triangle was included in our "5 Easy-to-Spot Chart Set-ups to Help You Nail Market Reversals, and why Jeffrey Kennedy was the chosen instructor for that video lesson.

In it, Jeffrey leaves no questions about contracting triangles unanswered, including:

• Where they can occur
• How to recognize them on a price chart
• And how to calculate a potential price objective for the thrust following its completion

In turn, each of the five lessons from this free report are in the best possible hands. And so, you too will be.

35-plus minutes. 3 esteemed EWI instructors. 5 game-changing set-ups for every market on every time frame.

Become part of our rapidly growing Club EWI community and get instant access to the complete "5 Easy-to-Spot Chart Set-ups to Help You Nail Market Reversals" report.