What Will Happen to That $30 Trillion in U.S. Home Equity?

"It's like someone turned off the faucet"

By Elliott Wave International

You probably remember the last big housing bust which began more than 15 years ago.

Elliott Wave International has observed that falling housing prices are generally preceded by a decline in home sales. The lag time may be some months, which was the case in the 2005-2006 timeframe.

Here's what I mean: The December 2005 Elliott Wave Financial Forecast, a monthly publication which covers major U.S. financial markets, noted:

In October, home sales fell a larger-than-expected 2.7%. "It's like someone turned off the faucet,"said a real estate agent.

The January 2006, Elliott Wave Financial Forecast provided an update:

Home sales are falling across the board now.

By mid-2006, U.S. home prices peaked, and a major housing bust followed.

Since the trough of that bust, U.S. home prices not only rebounded, but reached an all-time high in June 2022.

Yet, here in the late summer of 2023, homeowners may have a reason to worry. Here's an Aug. 22 news item from bankrate.com:

Existing-home sales fall but prices still near record highs
Existing-home sales in July fell 2.2 percent, according to the National Association of Realtors. It's a 16.6 percent decline from one year ago.

Given that prices are still near record highs, homeowners in the aggregate (at least for now) have a huge amount of equity.

As a Sept. 7 CNBC headline notes:

'House-rich' Americans are sitting on nearly $30 trillion in home equity. ...

But, as we learned from the prior housing bust, change can sometimes be dramatic.

As a reminder, here's a June 2011 news item (Cleveland.com):

Americans' equity in their homes near a record low
The average homeowner now has 38 percent equity, down from 61 percent a decade ago.

Is another major housing bust just ahead?

Well, as Elliott Wave International has noted, the stock market and the housing market tend to be correlated.

So, if you're wondering what's ahead for housing, keep an eye on the main stock indexes.

An ideal way to do that is by performing Elliott wave analysis.

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

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.

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.

If you'd like to read the entire online version of Elliott Wave Principle: Key to Market Behavior, 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.

Join 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 What Will Happen to That $30 Trillion in U.S. Home Equity?. 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.

"Climbing Oil Prices Bearish for Stocks"? It's a Myth!

Oil and stocks sometimes trend together. Other times, they don't.

By Elliott Wave International

There's a widespread belief that rising oil prices are bearish for the main stock indexes and falling oil prices are bullish for stocks.

That belief is reflected in this Sept. 5 CNBC headline:

Dow closes nearly 200 points lower as rising oil prices drag down stocks ...

But wait a minute, the broad stock market rallied in July as the price of crude oil was also climbing.

Getting back to the same financial website, an Aug. 1 headline said (CNBC):

Oil joined the July stocks rally ...

Going further back this year, an April 14 Barron's headline noted:

Oil Prices and Stocks Have Rallied ...

These cases here in 2023 are by no means the first time that the behavior of the oil and stock markets have defied conventional wisdom.

Here's a chart and commentary from Robert Prechter's landmark book, The Socionomic Theory of Finance:

The July 25, 2006 issue of The Elliott Wave Theorist offered [this chart], showing the preceding three-year market environment. Examine it and see if you can discern any indication whatsoever that lower oil prices make stocks rise or vice versa. As I said at the time, "Oil and stocks have trended mostly in the same direction for more than three years.

And, as you can see from this next chart, stocks and oil also crashed together for much of 2008 going into 2009. And then rose together -- again, with crude oil tripling in value as the S&P 500 index doubled in value.

So, maybe rising oil prices do not "make" stocks fall after all (and vice versa.)

Every market has its own investor psychology that drives it. You may want to look to the Elliott wave model for a high-confidence ascertainment of the oil and stock markets independently from each other.

If you want to delve into the details of Elliott wave analysis, an ideal 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.

Here's good news: You can access 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 with about 500,000 worldwide members.

Club EWI 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's analysts.

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 "Climbing Oil Prices Bearish for Stocks"? It's a Myth!. 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 Leader"? Here's a Prime Candidate

This stock market sector has failed to recover since the Dow's Q1 correction

By Elliott Wave International

As you may know, in every bull or bear market, some stocks or sector lead while others follow. So, the "leadership" in the stock market works both ways -- in uptrends and down.

The rally in stocks since last November has been led by a relatively few big cap tech names, like Nvidia, Microsoft, Apple, Alphabet and Meta.

As you may also know, history shows that stocks which lead on the upside often lead on the downside after a market turn occurs. That's why in our publications we're keeping a close eye on the tech sector right now.

Another prime candidate as a bear market leader is the banking sector.

Indeed, the August Elliott Wave Theorist, a monthly publication which covers major financial and social trends, shows this chart and says:

Bankers are bullish on investments, but investors are not bullish on banks. Bank stocks turned weak during the Dow's Q1 correction and have failed to recover with it since. While all the major stock market indexes rose into July-August, bank stocks stayed down on the year.

Besides sinking stock prices, banks are also grappling with an extraordinarily weak commercial real estate market.

As a June headline in The Financial Times noted:

US banks prepare for losses in rush for commercial property exit

As the article notes, some banks plan to sell off property loans at a discount even though borrowers have been making their payments on time. The reason for this is that banks fear more delinquencies in commercial real estate down the road.

U.S. banks hold about $2.9 trillion in commercial real estate loans, which prompted the Wall Street Journal to pose this question in July:

Is the Banking Crisis Over? We Are About to Find Out

As you might imagine, some banks are more vulnerable than others. And Elliott Wave International has emphasized time and again that it's important for depositors to make sure they do business with only financially sound banks. Because even during a severe economic downturn, some banks will not only survive, but thrive.

As a 2022 Elliott Wave Theorist said:

The first edition of Conquer the Crash noted that depositors would become concerned about bank risks and move their money from weak banks to strong banks, making the weak banks weaker and the strong banks stronger. This is just what happened in 2008-2009.

The next financial crisis may be just around the corner.

Realize that major economic downturns generally follow severe downturns in the stock markets, so it's important to keep an eye on the Elliott wave structure of the main stock indexes.

If you're unfamiliar with Elliott wave analysis or simply need a reminder, read the definitive text on the subject, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter. Here's a quote from this Wall Street classic:

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.

Know that the online version of this Wall Street classic is available to you free once you sign up for a Club EWI membership. Club EWI is the world's largest Elliott wave educational community and membership is also free with zero obligations. Members enjoy complimentary access to a wealth of Elliott wave resources on financial markets, trading and investing.

Just follow this link to get started: 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 "Bear Market Leader"? Here's a Prime Candidate. 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: From 0% to Above 5% -- to ...?

"The lines in the chart will turn up, and no policy will stop it"

By Elliott Wave International

As you're probably aware, many people who want to borrow to make a major purchase like a house or a car are bemoaning higher interest rates.

It wasn't so long ago that 3-month T-bill rates were around zero, and at least one prominent figure at the Federal Reserve said rates needed to stay super low for a good while.

Indeed, let's go back to this June 18, 2021 headline (CNBC):

Fed's Kashkari opposed to rate hikes at least through 2023

Well, as Elliott Wave International has said time and again, the market determines the trend of bond yields (and interest rates), not the Fed. The Fed merely follows the bond market.

Nearly a month after that Fed official called for a continuation of very low rates, the July 13, 2021 Elliott Wave Theorist offered its own perspective via this chart and commentary (The Elliott Wave Theorist is a monthly publication which provides insights into major financial and social trends):

Rates at Zero, but Not for Long

[The chart] shows that U.S. Treasury bill rates have edged closer and closer to zero .... Nonexistent T-bill yields are due to one thing: historically elevated social mood. ... When optimism and complacency finally melt like popsicles in the sun, the lines in [the chart] will turn up, and no policy will stop it.

Fast forward to the just-published August 2023 Elliott Wave Theorist, which provides an update on that July 2021 call with this chart:

As you can see, since our forecast, the 3-month T-bill rates have climbed from around zero to north of 5%. The black arrow points to the juncture at which the July 2021 Theorist made that noteworthy forecast. Mind you, Elliott Wave International was almost alone in making such a call.

Is the rise in interest rates over?

Well, at least one observer says "no." This Aug. 18 Fox Business caption captures the view of a contributor to a news and opinion website:

[Financial and economics editor]: Interest rates will go higher than Americans think

This is in stark contrast to a recent Reuters poll of economists, the majority of whom say that interest rates have plateaued.

Who's right?

You may want to check out a chart of bond yields and its Elliott wave structure.

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

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.

If you'd like to find out about "Elliott's highly specific rules," you can do so by reading the online version of Elliott Wave Principle: Key to Market Behavior for free.

That's right -- Elliott Wave International has made this definitive text on Elliott wave analysis available to Club EWI members for free. A Club EWI membership is also free and members enjoy free access to a wealth of Elliott wave educational resources.

Join the approximately 500,000 Club EWI members who are already gaining insights into trading and investing from an Elliott wave perspective by following this link: Elliott Wave Principle: Key to Market Behavior(get free access now).

This article was syndicated by Elliott Wave International and was originally published under the headline Interest Rates: From 0% to Above 5% -- to ...?. 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.

Stock Market's Character Has Changed -- Here's How

We're watching the VIX or "fear index" to see what's next

By Elliott Wave International

Stock market investors naturally want to know the closing numbers for the main stock indexes at the end of each trading day.

Yet, it's also good to dig deeper.

Let me show you some examples of how the U.S. Short Term Update, a thrice weekly Elliott Wave International publication which covers near-term trends of key U.S. financial markets, does just that.

Let's start off with a quote from the Aug. 21 issue:

NYSE down volume outpaced up volume 52.7% to 47.3%. Internally, today's rally in the S&P and NASDAQ was meek.

Here's a review of a revealing indicator from the Aug. 16 U.S. Short Term Update:

The NYSE a/d ratio has closed negative or flat for seven straight days. It's the longest streak in nearly a year, since August 26, 2022 to September 6, 2022. The 10-day NYSE a/d ratio closed yesterday (Aug. 15) at .80, which is the most negative also since September 2022.

Another observation of the market's internal dynamics was mentioned by the Aug. 9 U.S. Short Term Update:

The VIX made a closing low on June 22 and failed to confirm the S&P's higher price extremes. That was an initial warning sign that market participants were becoming a bit more fearful and expecting a pickup in market volatility.

So, it appears the character of the stock market has changed.

These negative indicators are in stark contrast to measures of stock market sentiment during the past several weeks, some of which reached bullish extremes.

For example, consider the Advisor and Investor Model (AIM) from SentimenTrader.com. That's a blend of over 50 sentiment readings from five different sources, including Market Vane and Consensus Inc., two of the oldest services.

The August Elliott Wave Financial Forecast, a monthly publication which analyzes major U.S. financial markets, provides some insights:

This comprehensive model hit a new 3½-year extreme of 0.99 on July 25. The extreme during the topping process was a reading of 0.96 on April 16, 2021, which occurred as the most speculative issues completed their tops.

Indeed, as recently as Aug. 14, none other than Nasdaq.com had this headline:

Reasons to Still Believe In This New Bull Market

In Elliott Wave International's view, the S&P 500 index never entered a "new bull market" since the January 2022 top and the subsequent downturn. Yes, there's been a rally since that first leg down, but the January 2022 peak has not been breached.

The stock market's Elliott wave structure puts that rally into context.

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

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.

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.

It doesn't cost anything to join Club EWI. Even so, members enjoy free access to Elliott wave resources on financial markets, investing and trading. New resources are regularly added and some videos and articles are from Elliott Wave International's analysts. All the while, Club EWI members are under no obligations whatsoever. So, you have nothing to lose and a world of Elliott wave education to gain!

Elliott Wave International stands ready to welcome you as a new Club EWI member. Just follow this link and you're on your way: 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 Stock Market's Character Has Changed -- Here's How. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.