What "Fear Index" VIX May Be Signaling

"Note the succession of higher closing low relative to higher highs in..."

By Elliott Wave International

First, just a quick basic fact about the CBOE Volatility Index (VIX) -- also known as the stock market's "fear gauge": the lower the reading, the higher the complacency among investors. Higher readings indicate increased investor nervousness.

With that in mind, let's look at a revealing chart from our Jan. 24 U.S. Short Term Update. As the thrice weekly Elliott Wave International publication notes:

The bottom graph shows the CBOE Volatility Index (VIX), which we have inverted to align with the S&P index at the top. The VIX made a closing low of 12.07 on December 12. Since then, note the succession of higher closing lows relative to higher highs in the S&P 500. Is this subtle sign of a loss in investor optimism a signal that the market is about to change trend?

Only time will tell, of course, but some recent headlines are already reflecting the message of the chart (CNBC, Jan. 16):

[Financial TV show host] says the market is ready for a pullback

The well-known pundit goes on to say that he's not a bear -- just that some stocks which have risen parabolically may be due for a correction.

So, yes, some worry is beginning to creep into some financial articles about the stock market. Yet, make no mistake, optimism is still largely dominant -- just not quite as dominant as it was during the first half of December.

As the Jan. 24 Elliott Wave Theorist Interim Bulletin notes:

The stock market continues to sport historically high valuations and elevated optimism, as recorded throughout dozens of sentiment and valuation indicators.

So, indeed, the VIX's succession of higher closing lows is a "subtle" indicator -- which by no means diminishes its value. By the time a stock market gauge becomes overwhelmingly obvious, well, damage to portfolios may have already occurred.

Here's what you need to know: Elliott Wave International's publications show dozens of market indicators which can put you ahead of the crowd.

As you might imagine, we also employ Elliott wave analysis. As Frost & Prechter's book, Elliott Wave Principle: Key to Market Behavior, notes:

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.

Would you like to read the entire online version of this Wall Street classic for free? You may do so by becoming a member of Club EWI -- the world's largest Elliott wave educational community. Membership is free.

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 What "Fear Index" VIX May Be Signaling. 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.

Make Bitcoin's Volatility Work for You

Here's a bullish forecast when a "crypto winter" was proclaimed

By Elliott Wave International

The price action of bitcoin has been the very epitome of volatility.

The good news for Elliott wave practitioners is that the greater the emotional swings in a financial market, the clearer the Elliott waves -- but not at every juncture along a market's price path.

In other words, Elliott wavers often have to exercise patience as the wave structure resolves itself. At these times, what is called an "alternate" wave count is usually considered. That is -- in addition to the preferred wave count, there's a second-best interpretation.

As Frost & Prechter notes in Elliott Wave Principle: Key to Market Behavior:

Because applying the Wave Principle is an exercise in probability, the ongoing maintenance of alternative wave counts is an essential part of using it correctly.

With that in mind, our January 2023 Global Market Perspective was considering both a bearish and bullish scenario for bitcoin -- with the bullish scenario being the preferred count. Here's the chart and brief commentary from that issue:

Under the bullish [scenario for bitcoin,] we're considering the Intermediate wave (4) correction to have ended at the 15,476 low of November 21.

Mind you, around the time the January 2023 Global Market Perspective published, bearish sentiment toward bitcoin was widespread. Here are some headlines:

• 'Crypto winter' has come. Will it become an ice age? (Washington Post, Dec. 18, 2022)
• Bitcoin's Price Targets for 2023 Are In -- and They Are Grim. Brace for a 50% Fall. (Barron's, Dec. 28, 2022)

However, bitcoin never breached that 15,476 level that was mentioned in our January 2023 Global Market Perspective.

That doesn't mean that Elliott wave analysis is always perfect, but it does offer context from which to forge a forecast.

Indeed, as of this writing, bitcoin is trading north of 40,000.

Is the rally over -- or is there a lot more upside to go?

You may want to check out our Global Market Perspective's latest analysis and wave count in our "Cryptocurrencies" section.

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

All waves are of a specific degree. Yet it may be impossible to identify precisely the degree of developing waves, particularly subwaves at the start of a new waves. Degree is not based upon specific price or time lengths but upon form, which is a function of both price and time. Fortunately, the precise degree is usually irrelevant to successful forecasting since it is relative degree that matters most.

Here's good news: You can read the entire book 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 investing and trading.

Just follow this link to become a Club EWI member: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Make Bitcoin's Volatility Work for You. 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.

S&P 500: What to Make of Fear Versus Greed

This sentiment index combines seven indicators into one useful trend measure

By Elliott Wave International

That is -- market participants generally go from feeling deeply pessimistic all the way to feeling highly optimistic -- and then back again.

These swings in investor psychology tend to produce similar circumstances at corresponding points in the Elliott wave structure of the main stock market indexes.

Let's now consider the opposing mindsets of fear and greed and see what they reveal at this juncture in the S&P 500's price pattern.

This chart and commentary are from the January Elliott Wave Financial Forecast, a monthly publication which covers major U.S. financial markets:

The Fear and Greed Index (CNN.com) ... combines seven different indicators into a sentiment measure. As shown, levels of Extreme Greed have occurred at or shortly before highs in the S&P 500 over the past year.

And this headline from Jan. 12 shows that even those at the top of the investment food chain are exhibiting no caution whatsoever -- nor are they encouraging others to do so (Moneywise):

'I'm more optimistic than ever': Billionaire [CEO of Major Investment Firm] says investors should be 100% in equities if they can handle it

A year or two from now the current sentiment of this CEO and other optimistic investors may turn out to have been spot on.

Presently, the S&P 500 does hover near its record high. Yet, yet you may want to check out what the Elliott wave model reveals. In our view, it's very much worth your immediate attention.

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

By knowing what Elliott rules will not allow, you can deduce that whatever remains is the proper perspective, no matter how improbable it may seem otherwise. By applying all the rules of extensions, alternation, overlapping, channeling, volume and the rest, you have a much more formidable arsenal than you might imagine at first glance. Unfortunately for many, the approach requires thought and work and rarely provides a mechanical signal. However, this kind of thinking, basically an elimination process, squeezes the best out of what Elliott has to offer and besides, it's fun! We sincerely urge you to give it a try.

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

All that's required for unlimited free access is a Club EWI membership. Club EWI is the world's largest Elliott wave educational community (approximately 500,000 members) and allows you complimentary access to a wealth of resources on investing and trading from an Elliott wave perspective. Club EWI is free to join.

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 S&P 500: What to Make of Fear Versus Greed. 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. Real Estate: A 24% Problem
"...24% of U.S. single family homes are owned by investors."

By Elliott Wave International

A big reason that U.S. home prices have skyrocketed is that big investors like corporations did a lot of buying.

As a Redfin.com headline noted nearly two years ago (Feb. 16, 2022):

Real Estate Investors Are Buying a Record Share of U.S. Homes

Redfin defined an "investor" as any institution or business which purchases residential real estate.

As Elliott Wave International has said, when houses are treated like stock certificates instead of shelter, prices can rise and fall just like with the stock market.

The February 2023 Elliott Wave Theorist, a monthly publication which provides analysis of noteworthy financial and social trends, explained that what occurred with the housing boom 15-20 years ago has been happening again:

Today, real estate prices have reached absurdly high prices because corporate investors have taken over the housing market from individuals in a program encouraged, once again, by the federal government.

Robert Prechter's book, The Socionomic Theory of Finance, drives the point home in a nutshell:

When the bulk of participants in the market are consumers who think of houses as shelter, prices are stable. When a significant portion of participants in the market are speculators who think of houses as investment items, prices soar and crash.

So, we know that prices have already soared. Is a crash just around the corner?

Here's a chart which shows the portion of U.S. home purchases made by landlords with 1,000 or more houses and commentary from our December Elliott Wave Financial Forecast, a monthly publication which offers analysis of major U.S. financial markets:

The chart [reveals] the percentage of U.S. homes purchased by landlords who own more than 1,000 homes [and] shows the unrivaled extent to which homes became financial assets. ...

The sharp decline from 2.5% of all home purchases to less than 0.4% represents another light-switch decline for the economy. At this point, ATTOM Data Solutions, a provider of U.S. property data, notes that 24% of U.S. single family homes are owned by investors. If 10% went on the market in the next year, 2.4 million homes, the inventory of homes for sale would triple from current levels.

One thing we do know is that the median price for new homes sold in the U.S. is beginning to decline.

This is not surprising because history shows that a slackening off of home sales generally precedes a drop in prices, and the peak in new home sales occurred in August 2020. Here's the latest headline on that front (Reuters, Dec. 22):

US new home sales fall to one-year low in November

What's also important to keep in mind is that real estate prices typically follow the stock market. Both are governed by the trend in social mood, which expresses itself as Elliott wave patterns on price charts. That's why, if you're looking to buy or sell a home, or simply want to get a high-confidence idea of whether the value of your home will be higher or lower in the months and years ahead, you may want to keep an eye on the stock market trends.

If you're unfamiliar with Elliott wave patterns, read Frost & Prechter's definitive text on the subject, Elliott Wave Principle: Key to Market Behavior. Here's a quote from that book:

Any dedicated student can perform expert Elliott wave analysis. Those who neglect to study the subject thoroughly or apply the tools rigorously give up before really trying. The best learning procedure is to keep an hourly chart and try to fit all the wiggles into Elliott wave patterns while keeping an open mind for all the possibilities. Slowly the scales should drop from your eyes, and you will be continually amazed at what you see.

You can read the entirety of the online version of Elliott Wave Principle: Key to Market Behavior for free.

All that's required is a Club EWI membership, which is also free. Club EWI is the world's largest Elliott wave educational community with approximately 500,000 members. Members enjoy complimentary access to a treasure trove of Elliott wave insights into financial markets, trading and investing.

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

This article was syndicated by Elliott Wave International and was originally published under the headline U.S. Real Estate: A 24% Problem. 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.

SoftBank: A Possible Omen for What's Ahead

Here's what happened to the once most valuable U.S. startup

By Elliott Wave International

SoftBank, the multinational holding company which is heavily involved in the technology sector, has had a tough go of it.

Its stock price has been in a steady decline for the past few years and one has to wonder if this is a preview of what may be ahead for many other firms, especially those in the technology sector.

The December Global Market Perspective, a monthly Elliott Wave International publication which covers 50-plus global financial markets, showed this chart and said:

SoftBank's stock price followed the tech sector higher until February 2021, then reversed and underwent a three-year nosedive of nearly 60%. For investors, the regret phase is now coming on fast. Last month, the Financial Times published an image showing the lifetime performance of 25 SoftBank-funded stocks, including former market darlings like Alibaba, Uber, DoorDash and Fitbit. Just three of the 25 companies showed a positive return since their IPOs, and 12 of them were down more than 50%.

And here's a headline from Nov. 9 (AP):

Japan's SoftBank hit with $6.2B quarterly loss as WeWork, other tech investments go sour

Notably, SoftBank's WeWork -- once the most valuable U.S. startup -- filed for Chapter 11 bankruptcy protection in early November.

The Financial Times called WeWork "one of the worst venture capital investments in history."

By contrast, the FANG+ index approximately doubled in value in 2023. However, the group performance of the well-known big cap tech names early in 2024 has been a different story (Markets Insider, Jan. 4):

It's been a bleak start to 2024 for the Magnificent 7 tech stocks after crushing the market last year

And, as you may be aware, those Magnificent 7 stocks have mainly been holding up the entire market.

In other words, if those big cap tech names crater, the main indexes are likely going to crater too.

At this juncture, you may want to keep a close eye on the stock market's Elliott wave pattern.

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 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.

Club EWI members can access the online version of the book for free!

In case you're unfamiliar with Club EWI, it's the world's largest Elliott wave educational community (about 500,000 worldwide members and growing rapidly). Club EWI is free to join and allows members complimentary access to a wealth of Elliott wave resources on financial markets, investing and trading.

You can have the book on your computer screen in just moments 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 SoftBank: A Possible Omen for What's Ahead. 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: Check Out These Striking Sentiment Gauges

This survey just reached its most extreme since August 2021

By Elliott Wave International

The extent of today's upbeat mood toward the U.S. stock market is captured in these two headlines:

• Wall Street's Stock-Market Optimism Isn't Stopping (Wall Street Journal, Dec. 20)
• American households are invested in the stock market like never before. ... (Marketwatch, Dec. 22)

This goes way beyond the typically positive bias around the holiday season. It's much closer to optimism on steroids.

Indeed, the Dec. 20 U.S. Short Term Update, an Elliott Wave International publication which provides near-term forecasts for key U.S. financial markets, discussed two specific sentiment gauges. Here's the first chart along with the associated commentary:

The Bullish Percent in the weekly Investors Intelligence Advisors' Survey is 75.9%, the most extreme since August 2021.

This second chart -- along with comments -- reveal another extreme.

The Bullish Percent in the weekly American Association of Individual Investors poll is 60.14%, the most extreme since April 2021, which coincided with the peak in SPACs, meme stocks, IPOs and the front edge of the top in the craze for electric vehicle stocks.

Also be aware that the Dow's RSI (Relative Strength Index) closed on Dec. 19 at 86.86, the highest level since January 2018.

And here's another item -- this one from the Dec. 22 U.S. Short Term Update:

The Exposure Index compiled by the National Association of Active Investment Managers ... represents the average exposure to U.S. equities reported by the organization's members, who are active money managers. At 97.32%, active managers are essentially fully invested in stocks.

This brief review of just a few sentiment gauges only scratches the surface of what we are currently examining.

Our technical analysis of the market -- including, of course, Elliott wave analysis -- is another factor that we believe you'll want to consider as you make decisions about your portfolio.

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

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. ...

The market's progression unfolds in waves.

You can read the entire online version of the book for free by becoming a member of Club EWI, the world's largest Elliott wave educational community (approximately 500,000 members). Club EWI is free to join and allows you complimentary access to a wealth of Elliott wave resources on financial markets, investing and trading.

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

This article was syndicated by Elliott Wave International and was originally published under the headline Stocks: Check Out These Striking Sentiment Gauges. 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.