Five Benefits of Using the Elliott Wave Principle to Make Decisions

By Elliott Wave International

While everyone searches for the Holy Grail of forecasting, which does not exist, there is one method of analysis that stands apart from the slew of momentum-based indicators, all of which by definition lag the market. The Elliott Wave Principle is based on the concept that crowd behavior is patterned and that these patterns are easily discerned in the prices of freely traded markets. This alone sets it apart in the world of technical analysis.

1. Identifies Dominant Trend in Any Timeframe

The Wave Principle identifies the direction of the dominant trend in any timeframe. A five-wave advance on a daily chart identifies the dominant trend as up on a daily basis. Looking at the same instrument on an hourly chart might reveal that the dominant trend on an hourly basis is down within the larger daily chart timeframe.

2. Identifies a Countertrend Move

The Wave Principle also identifies countertrend moves. The three-wave pattern is a corrective response to the preceding five-wave pattern. Knowing that a near-term move in price is merely a correction within a larger uptrend is valuable information.

3. Identifies the Maturity of a Trend

Elliott catalogued a finite number of patterns to which the markets adhere. Once a pattern is over, it's over. For example, if prices are advancing in the fifth wave of a five-wave advance, and the fifth wave has already completed four of its subwaves, one more subwave is all that is required to complete the pattern, which, by definition, will lead to a change of trend.

4. Identifies Price Targets

The Wave Principle also provides price targets based on common pattern relationships. When R.N. Elliott wrote about the Wave Principle in Nature's Law, he stated that the Fibonacci sequence was the mathematical basis for the Wave Principle. Elliott waves, both impulsive and corrective, frequently adhere to Fibonacci proportions, as illustrated in Figure 2-1.

5. Identifies Context

Perhaps most important, Elliott observed that wave patterns form larger and smaller versions of themselves. This repetition in form means that price activity is fractal, as illustrated in Figure 2-2. Wave (1) subdivides into five smaller waves yet is part of a larger five wave pattern. This process is occurring at every degree, all the time, and is the key to understanding what market probabilities are next.

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This article was syndicated by Elliott Wave International and was originally published under the headline Five Benefits of Using the Elliott Wave Principle to Make Decisions. 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 Going to Shock People!": Avi Gilburt and Bob Prechter Chat

By Elliott Wave International

"It's going to make 2008 look like child's play," says ElliottWave Trader's Avi Gilburt when discussing the precarious balance sheets of U.S. banks with Elliott Wave International's Robert Prechter.

In the just-released webinar "A Fireside Market Chat with Robert Prechter & Avi Gilburt," Gilburt shares the story of his year-and-a-half study of U.S. banks and said what he discovered "is going to shock people." You can learn the disturbing details of his findings by accessing the webinar for free.

Before I show you how to get free access, let me share a few nugget-sized insights about other topics from the webinar.

Prechter on Stocks: "The S&P is the most over owned thing in the entire world. When this thing unravels, it's going to be epic."

Gilburt also sees a "major, major top" in stocks ahead, yet you'll learn in the webinar why he may stick with the stock market for a time longer.

Gilburt on Treasuries: "Ultimately, I'm not a fan of holding anything long-term in Treasuries. You want to hold something short-term, that's great. Treasuries even have a certificate of indebtedness, I believe, but they pay no interest. It's just for the Treasury to hold it for you. I don't see a point in that because my fear is the rates are going to be rising because people are going to lose trust in the government's ability to pay their debts on time. When that happens, we run the potential, and I know nobody'll believe this is even possible. But when you look at where our general debt is and where you look at what the federal government can afford now, we're probably going to get to a point in time where the government can't afford to pay the interest on its debt."

Prechter on the Fed: "[Alan Greenspan] got frustrated because people were yelling at him for keeping their interest rate at zero for so long. He said, 'We didn't do that. The market did.' It's the first time a governor has ever spilled the beans and admitted that they just follow the market. It was awesome."

Also, get a specific outlook as Prechter and Gilburt discuss gold & silver.

You're in for a real treat as you watch the entire hour and forty-minute webinar with two of the most renowned Elliotticians on the planet. Follow this link to get free access to "A Fireside Market Chat with Robert Prechter & Avi Gilburt" now.

This article was syndicated by Elliott Wave International and was originally published under the headline . 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.

Deflation in China: Impossible to Ignore

Producer Price Index registers 22 straight months of decline

By Elliott Wave International

Deflation's grip on the world's second largest economy is getting tighter.

As Bloomberg noted on Sept. 9:

China's Deflationary Spiral Is Now Entering Dangerous New Stage

The demand for goods has been weakening. Wages are stagnant. And, in addition to declining property prices, corporate profits are down. Inventories at Chinese manufacturers swell.

China's central bank has unveiled a host of stimulus measures, but Chinese consumers have failed to respond.

As Elliott Wave International's October Global Market Perspective says:

No matter how low rates go, consumers refuse to buy "stuff" that is losing value.

China's Producer Price Index just registered it's 22nd straight month of decline.

This chart from EWI's October Global Market Perspective shows another broad measure of price change:

The GDP deflator is the difference between China's nominal and real GDP growth. By this measure, China entered deflation a year and a half ago. Deflation is already deeply ingrained in the Chinese economy.

China is not the only major global economy experiencing woes. The October Global Market Perspective also discusses "the swiftness of Germany's economic breakdown."

Get free access to highlights of EWI's Global Markets coverage. Just follow this link and select the Global Markets Highlights Issue..

This article was syndicated by Elliott Wave International and was originally published under the headline Deflation in China: Impossible to Ignore. 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.

Don't Count on Fed to Rescue Economy: Here's Why

By Elliott Wave International

The Fed's September lowering of the fed funds rate was greeted with widespread celebration on Wall Street. Yet, history shows that such moves by the Fed don't always translate into a glowing economy. Elliott Wave International's October Financial Forecast provides perspective:

The August 2 issue forecast the Federal Reserve's "approaching rate cut," saying "the Fed will lower the fed funds rate commensurately with the lower level of T-bills." On September 18, the Fed announced a 50-basis-point drop in the Fed Funds rate from 5.5% to 5.0%. By that time, the yield on the 3-month U.S. T-bill had slipped to 4.75%, and the yield on the 6-month U.S. T-bill was 4.50%. This week, the yields have declined to 4.61% and 4.40% respectively. So, the Fed Funds rate is still lagging the decline in market rates.

More important, the popularity of the Fed's "decision" continues to mushroom. In August, Financial Forecast discussed "the positive vibe surrounding" the potential rate cut, saying that it "simply confirms that a bigger peak foreshadows an even bigger economic contraction." The cut itself stoked the optimism. "50 bps...I will take it...BIG!" tweeted one of Wall Street's biggest TV commentators. On CNBC, a well-known investment banker "lauded the Federal Reserve for creating 'nearly perfect' economic conditions." Soaring hopes are a classic setup for the surprising failure called for in the August issue. At that time, we noted that it should be a repeat of September 2007's initial Fed-Funds rate cut, which came three months before the start of the Great Recession. As we also illustrated then, the Fed was behind the curve the whole way, cutting rates continually into the final quarter of the contraction. This time, the effect of a turn toward negative social mood will be greater.

When will social mood go from positive to negative? And what will that mean for major U.S. financial markets like stocks? Tap into all the insights of EWI's Financial Forecast and Elliott Wave Theorist at a special combo price by following this link.

If you'd like to learn the details of Elliott wave analysis, you may do so for free. Just follow this link to read the Wall Street bestseller: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Don't Count on Fed to Rescue Economy: Here's Why. 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.