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Elliott Wave International
Commentary Article(s)
Gold:
Best Supporting Role In Economic Downturns? Think Again
Gold's safe-haven status is based on hype, not history
By Nico Isaac
Everywhere you look, from the
Red Carpet to Wall Street, gold is definitely in "fashion."
As for why, one word comes to mind: safe-haven. See,
according to the mainstream financial experts, the more
unstable the global economy, the greater the appeal for
the precious metal. These two charts from EWI President
Bob Prechter offer another perspective. Read
more.
Wave
Principle Crash Course: There's No Going Back
Free video tutorial available to all Club EWI members
March 4, 2010
By Nico
Isaac
For over ten decades,
the mainstream financial world has embraced the view that external
news events drive trend changes in the markets. In less than ten minutes,
EWI's senior tutorial instructor Wayne Gorman shatters that very
idea into a fine dust, swept away into thin air.
In part one of his exclusive, three-part
Club EWI video series "Why
Use The Wave Principle," Wayne first assesses the
pitfalls of relying on macroeconomic models to forecast; namely: "An
investor is lured into the market at just the worst time, when
it's time to sell, and forced out just at the best time to buy."
As for real world examples of this
happening, Wayne spans three hundred years of financial history to
reveal how the most pivotal economic, political, and environmental
events failed to alter the course of their respective markets.
Here, the free video includes groundbreaking charts on these (and
more) well known episodes:
- The S&P 500 and Enron
from 2000-2002: The stock market ROSE and continued to proceed
upward AFTER the largest US corporate scandal and bankruptcy
ever (at the time).
- The Dow Industrials and GDP
quarterly data from 1970 to early 2000s: After the release of
major negative GDP numbers, the market for the most part ROSE,
just the opposite of what most market analysts and investors
expect.
- The Dow and profound
political events over the last 80 years: In the 1930s and
1940s, a series of negative incidents -- i.e. Hitler rising to
power, World War II, and the Holocaust -- preceded a powerful
uptrend in stocks all the way into the 1960s.
- Stock market charts of the five
countries most affected by the 2004 Indian Ocean Tsunami
(India, Indonesia, Malaysia, Sri Lanka, and Thailand). Four
out of the five ROSE after the natural disaster...
Believe it or not, we've only
scratched the surface. In his myth-busting, free video "Why
Use the Wave Principle," Wayne Gorman presents a total of
40 charts that capture failed fundamental
analysis of the world's leading financial markets. Wayne recalls
this expression from a famous, Nobel Prize winning economist:
"Economic reasoning will
be of no value in cases of uncertainty."
And he offers this response:
"But isn't that what we
have in financial markets: cases of uncertainty? We need a
different type of reasoning, one that will help us to avoid the
pitfalls shown on the previous charts. That's why the Wave
Principle is so important. It offers a unique
perspective and a market discipline of rules and guidelines that
help investors avoid buying at tops and liquidating at bottoms. It
helps to explain and understand trends before they happen."
The flaw in Economic 101,
cause-and-effect theory is one of the easiest things to prove. But
it's also one of the hardest things for many investors to accept.
Now is the time to do so. Watch the free "Why
Use the Wave Principle" video in its entirety today at
absolutely no cost. Simply sign on to join the rapidly expanding
Club EWI and take advantage of the amazing educational benefits
membership has to offer.
Nico Isaac
writes for Elliott Wave International, a market forecasting and
technical analysis firm.
What Does
NOT Move Markets? Examining 8 Claims of Market Efficiency
March 2, 2010
By Susan
Walker
If everyone says that shocks from
outside the financial system -- so-called exogenous shocks -- can
affect it for better or worse, they must be right.
It just sounds so darned logical,
right? Economists believe this trope to be true, mainly because
they believe that investors are rational thinkers who re-evaluate
their positions after every new bit of relevant information turns
up.
Beginning to sound slightly
impossible? Well, yes.
It turns out that logic is exactly
what's missing from this it-feels-so-right idea of rational
reaction to exogenous shocks. Read an excerpt from Robert
Prechter's February 2010 Elliott Wave Theorist to see how
Prechter deals with this widely held belief.
Find
out what really moves markets -- download the free 118-page
Independent Investor eBook. The Independent Investor eBook
shows you exactly what moves markets and what doesn't. You might
be surprised to discover it's not the Fed or "surprise"
news events. Learn
more, and download your free ebook here.
* * * * *
Excerpted from Prechter's February
2010 Elliott Wave Theorist, published Feb. 19, 2010
The Efficient Market Hypothesis (EMH)
argues that as new information enters the marketplace, investors
revalue stocks accordingly. … In such a world, the market
would fluctuate narrowly around equilibrium as minor bits of
news about individual companies mostly canceled each other out.
Then important events, which would affect the valuation of the
market as a whole, would serve as “shocks” causing investors
to adjust prices to a new level, reflecting that new information.
One would see these reactions in real time, and investigators of
market history would face no difficulties in identifying
precisely what new information caused the change in prices. …
This is a simple idea and simple to test. But almost no one ever
bothers to test it. According to the mindset of conventional
economists, no one needs to test it; it just feels right; it
must be right. It’s the only model anyone can think of. But
socionomists [those who use the Wave Principle to make social
predictions] have tested this idea multiple ways. And the result
is not pretty for the theories that rely upon it.
The tests that we will examine are not rigorous or statistical.
Our time and resources are limited. But in refuting a theory,
extreme rigor is unnecessary. If someone says, “All leaves are
green,” all one need do is show him a red one to refute the
claim. I hope when we are done with our brief survey, you will
see that the ubiquitous claim we challenge is more akin to
economists saying “All leaves are made of iron.” We will be
unable to find a single example from nature that fits.
* * *
In his February
2010 Elliott Wave Theorist, Prechter then goes on to show
charts that examine each of these claims that encompass both
economic and political events:
Claim #1: “Interest rates drive
stock prices.”
Claim #2: “Rising oil prices are bearish for stocks.”
Claim #3: “An expanding trade deficit is bad for a nation’s
economy and therefore bearish for stock prices.”
Claim #4: “Earnings drive stock prices.”
Claim #5: “GDP drives stock prices.”
Claim #6: “Wars are bullish/bearish for stock prices.”
Claim #7: “Peace is bullish for stocks.”
Claim #8: “Terrorist attacks would cause the stock market to
drop.”
To protect your personal finances,
it's important to think independently from the crowd, particularly
when the crowd buys into what economists say.
Find
out what really moves markets -- download the free 118-page
Independent Investor eBook. The Independent Investor eBook
shows you exactly what moves markets and what doesn't. You might
be surprised to discover it's not the Fed or "surprise"
news events. Learn
more, and download your free ebook here.
Susan C. Walker writes
for Elliott Wave International, a market forecasting and
technical analysis company.
Surviving
Deflation: First, Understand It
Deflation is more than just "falling prices."
Robert Prechter explains why.
By Editorial Staff
The most common
misunderstanding about inflation and deflation -- echoed
even by some renowned economists -- is the idea that
inflation is rising prices and deflation is falling prices.
General price changes, though, are simply effects.
Effects of what? Keep
reading to find out.
Use
Bar Chart Patterns To Spot Trade Setups
How a 3-in-1 chart formation in cotton
foresaw the January selloff
By Nico Isaac
For Elliott Wave International's
chief commodity analyst Jeffrey Kennedy, the single most
important thing for a trader to have is STYLE-- and
no, we're not talking business casual versus sporty
chic. Trading "style," as in any of the
following: top/bottom picker, strictly technical, cyclical,
or pattern watcher. Jeffrey himself is, and always has been,
a "trend" trader . Read
more .
More
Credit Default Swaps Means Trouble for European Debt
By
Editorial Staff
Government debt
is no longer just a problem for emerging countries.
Portugal, Spain, France and Greece (as we have seen in
recent weeks) are living in fear of credit default.
Consequently, the value of their credit default swaps is skyrocketing.
Read
More
Bob
Prechter Points Out The Many Signs Of Deflation
Yes, You Heard Us Right
February 18, 2010
By Nico
Isaac
Everywhere you look, the
mainstream financial experts are pinning on their "WIN
2" buttons in a show of solidarity against what they see as
the number one threat to the U.S. economy: Whip
Inflation Now.
There's just one problem: They're
primed to fight the wrong enemy. Fact is, despite ten rate cuts
by the Federal Reserve Board to record low levels plus $13
trillion (and counting) in government bailout money over the
past three years -- the Demand For and Availability
Of credit is plunging. Without a borrower or lender, the
massive supply of debt LOSES value, bringing down every
exposed investment like one long, toppling row of dominoes.
This is the condition known as Deflation.
And, in a special, expanded November
19, 2009 Elliott Wave Theorist,
Bob Prechter uncovered more than a dozen "value
depreciating" developments underway in the U.S. economy as
the two main engines of credit expansion sputter: Banks and
Consumers. Off the top of the Theorist's watch list are
these "Continuing and Looming Deflationary Forces":
- A riveting chart of Treasury
Holdings as a Percentage of US Chartered Bank Assets since
1952 shows how "safe" bank deposits really are. In
short: today's banks are about 95% invested in mortgages via
the purchase of federal agency securities. Unlike Treasuries,
IOU's with homes as collateral have "tremendous
potential" to fall in dollar value.
- Loan Availability to Small
Businesses has fallen to the lowest level since the interest
rate crises of 1980. In Bob Prechter's own words: "The
means of debt repayment [via business growth] are
evaporating, which implies further deflationary pressure
within the banking system."
- An all-inclusive close-up of
the Number Of Banks Tightening Their Lending Standards since
1997 has this message to impart: Since peaking in October
2008, lending restrictions have soared, thereby
significantly reducing the overall credit supply.
- Both residential and
commercial mortgages are plummeting as home/business owners
walk away from their leases at an increasing rate.
- The major sources of bank
revenue -- consumer credit and state taxes -- are plunging
as more people opt to pay DOWN their debt. Also, a
compelling chart of leveraged buyouts since 1995 shows a
third catalyst for the credit binge -- private equity -- on
the decline.
All that is just the beginning.
The November 2009 Elliott Wave Theorist includes 13
pages of commentary, riveting charts, and unparalleled insight
that make it impossible to ignore the deflationary shift
underway in the financial landscape. For that reason, we have compiled
the most timely insights from the entire, two-part Theorist in
a special article for Club EWI members. In our
opinion, this bundle of exclusive Theorist excerpts are
"the most important investment report you'll read in
2010."
Elliott
Wave International's latest free report puts 2010 into
perspective like no other. The Most Important Investment
Report You'll Read in 2010 is a must-read for all
independent-minded investors. The 13-page report is available
for free download now. Learn
more here.
Nico Isaac
writes for Elliott Wave International, a market forecasting and
technical analysis firm.
Same
Day. Same Event. Same Market. Different Story!
There is no group more subjective
than conventional analysts." -- Robert Prechter.
By Vadim Pokhlebkin
Elliott wave analysts sometimes
hear the criticism that patterns in market charts can be "open
to interpretation."
Does that happen? Absolutely. (Although, there are tools an
Elliottician can always employ to firm up the wave
count.) But here's the real question: What's the alternative?
Here's Bob Prechter's take on it. Read
More
Europe's Return to
Risky Investment
February 19, 2010
By Editorial Staff
Over 100 banks are opening soon, buying junk
bonds is gaining popularity and emerging markets are the trendy
investment. Sound familiar? Europe appears to be returning to
some bad investment habits.
The following is an excerpt from the February
issue of Global Market Perspective. For a limited time,
you can visit
Elliott Wave International to download the rest of the 100+ page
issue free.
Just as in 2007, huge bullishness in concert
with no fear is cropping up. Central and Eastern European (CEE)
debt markets, for example, are clearly back on investors’
radar. UniCredit of Italy plans to open 100 banks across the
region, while Erste Bank of Austria is preparing 70 more in
Romania. Raiffeisen International, also of Austria, is getting
ready to launch an internet-based banking system to serve the
region as well.
Likewise, the European junk bond market,
which effectively died after the financial crisis, has bounced
back to life along with the rally. At 70%, total returns on
western European junk bonds were more than double those on the
FTSE All Share Index in 2009. Moreover, the trend is
accelerating. The week of January 11 was the second largest
week ever seen in European junk bonds, according to the
Financial Times, as companies sold $11.7 billion worth of
high-yield debt. Predictably, bankers are ramping up their
expectations for 2010. Experts forecast about €50 billion in
new issuance in the coming year, a number that nearly doubles
what the market has produced in its best years. Says one
portfolio manager discussing the market: A “virtuous-circle
effect” will take place in 2010. “There was a time when
German companies, for example, would think it was a social
insult to be a junk bond, but now you are seeing [them] use
the market as a mainstream tool for financing."
That’s on the corporate side. On the
sovereign side, shaky debtors and giddy investors are also
fully recommitted. For the first time ever, Moody’s upgraded
JP Morgan’s Emerging Market Sovereign Bond Index from
“junk” to “investment grade.” January’s upgrade
occurred in spite of the sovereign default risk growing in
countries like Greece, Spain, and Italy (see Secondary Markets),
but that’s not stopping yield-starved investors from buying.
Barings Asset Management and HSBC are
reportedly increasing their exposure to emerging markets. So
is bond giant, Pimco, which calls emerging-market debt an
“asset class on the upward path.” Its portrayal, however,
merely describes the last 10 months of market action. The
index shown on the previous page tracks emerging-market bond
yields in their local currency. Just like trader sentiment
numbers, yields are firmly back to pre-crisis levels. But
extrapolating the last 10 months forward may be one of the
most dangerous bets around. When the financial community
recklessly returns to play with the loaded firearms from the
prior mania, it’s a tell that a bear-market rally is ending.
Most will again shoot themselves in the foot.
Read the rest of this issue now free! You'll
get 100+ pages of insights about:
- World Stock Markets
- Global Interest Rates
- International Currency Relationships
- Metals and Energy
- Social Trends and Observations
- More
Visit
Elliott Wave International to download your free 100+ page issue.
Black
Monday: Ancient History Or Imminent Future?
By Nico Isaac
What does the U.S. stock market now have in common with the famous
crash of 1929? This news excerpt and chart from some of Bob Prechter’s latest analysis
reveals startling.
Read More
Earnings:
Is That REALLY What's Driving The DJIA Higher?
The idea of earnings
driving the broad stock market is a myth.
By Vadim Pokhlebkin
With so much emphasis on
earnings, this may come as a shock: The idea
of earnings driving the broad stock market is a myth. --
Read
More

Earnings don’t drive
stock prices. We’ve said it a thousand times and
showed the history that proves the point time and
again. But that’s not to say earnings don’t
matter. When earnings give investors a rising sense of
confidence, they can be a powerful backdrop for a downturn
in stock prices. This was certainly true in 2000, as
the chart shows. Peak earnings coincided with the
stock market’s all-time high and stayed strong
right through the third quarter before finally
succumbing to the bear market in stock prices. Investors
who bought stocks based on strong earnings (and the
trend of higher earnings) got killed.
So if earnings don't
drive the stock market's broad trend, what does? The
Elliott Wave Principle says that what shapes stock
market trends is how investors collectively feel
about the future. Investors' mood -- or social mood --
changes before "the fundamentals" reflect that
change, which is why trying to predict the markets by
following the earnings reports and other "fundamentals"
will often leave you puzzled. The chart above makes that
clear.
Get Your FREE 8-Lesson
"Conquer the Crash Collection" Now! You'll get
valuable lessons on what to do with your pension plan,
what to do if you run a business, how to handle calling
in loans and paying off debt and so much more. Learn
more and get your free 8 lessons here.
Gold:
What's REALLY Behind the Record Rise, Bull or Bubble?
October 20, 2009
By Nico Isaac
When prices in a
financial market go from Sea Level to Outer Space in a
relatively brief time, two scenarios are at work -- and
they both start with the letters “B-U.”
When a precious metal
goes from being a popular long-term investment of
buy-and-holders to the quick, get-away “vehicle” of
day-traders, two scenarios are at work -- and they both
start with letters “B-U.”
And when the majority of
mainstream pundits see a "new paradigm" in
which prices continue to rise indefinitely, two
scenarios are at work – and, you guessed it, they both
start with the letters “B-U.”
Enter: the recent Gold
Rush of 2009, when ALL of the above conditions apply.
Everyone from hedge funds to housewives now hustle to
hitch their asset wagon to the rising gold star. Which
begs this question: Which of the possible two scenarios
are at work: B-U-ll
--- Or B-U-bble?
Here’s the difference:
A genuine bull market is driven by a self-sustaining
internal dynamic that's reflected by a host of technical
indicators. A Bubble, on the other hand, is the result
of untenable psychology that could shift at any moment
and bring prices plummeting down.
For
long-term forecasts and more in-depth, historical
analysis for precious metals, download
Prechter’s FREE 40-page eBook on Gold and Silver.
It goes without saying into which category the
mainstream experts put Gold: namely, a new bull market
that has years, if not decades more to soar. “Gold
Will Hit $2,000 an ounce,” reads an October 8 Market
Watch. And
-- “Gold Has More Upside… The metal’s bull run
is just getting started,” adds a same day Barron’s.
I found hundreds of news
items which agree about the long-term potential for
gold’s uptrend. But not a single one could tell me why
the rally would continue, other than because the
experts say so.
To know whether a diamond is real, it must cut glass.
And, to know whether the bull market in gold is real, it
must encompass at least one of these FOUR traits:
- A surge in demand that
outpaces supply
- A falling stock market,
which raises the “safe haven” appeal of precious
metals.
- A real (not imagined)
threat of inflation
- An increase in value
relative to major foreign currencies
Right now, the
Gold market can NOT check off a single one of these
items. Case in point:
Supply:
Demand for gold from jewelry makers – which comprises
60%-70% of the market – has plummeted to its lowest
level in 20 years.
“Safe haven”
appeal: From its March 2009 bottom, the U.S.
stock market has soared 50% right alongside rallying
gold prices.
Inflation:
As the October 2009 Elliott Wave Financial Forecast
(EWFF) notes: An increase in money supply is only
inflationary if it is used to RAISE the total amount of
credit. This is NOT happening, as both bank credit and
consumer credit levels are contracting for the first
time since World War II.
A gold rally in
other currencies: Again, the October 2009 EWFF
presents the following close-up of Spot Gold prices
VERSUS Gold denominated in foreign currencies such as
the Canadian dollar, the Australian dollar, the euro,
franc, pound, and yen since 2007.

The major
non-confirmation between these two markets is clear, as
is the overlying message: IF demand for gold truly
outweighed supply, then its value as measured in other
currencies would increase.
The rise in gold is
primarily the result of speculation and a falling U.S.
dollar. These are exactly the “untenable” forces
that contribute to a Bubble, not a genuine Bull market.
The difference is only a matter of time.
For long-term forecasts and more in-depth, historical
analysis for precious metals, download
Prechter’s FREE 40-page eBook on Gold and Silver.
Robert Prechter,
Chartered Market Technician, is the world’s foremost
expert on and proponent of the deflationary scenario.
Prechter is the founder and CEO of Elliott Wave
International, author of Wall Street best-sellers
Conquer the Crash and Elliott
Wave Principle and editor of The
Elliott Wave Theorist monthly market letter since
1979.
How
to Prepare for the Coming Crash and Preserve Your Wealth
By Susan Walker
As was widely reported in the
dark days of late February and early March 2009, Robert
Prechter called for the start of the biggest stock market
rally since the 2007 high. Since then, the S&P has
soared more than 60 percent in just six months to reach
his target zone of 1000-1100. -- Read
More
Q&A
With Robert Prechter: Why Technical Analysis Beats Out Fundamental Analysis
October 5, 2009
By
Elliott Wave International
As the major
stock markets turned down in late 2007 and then started to
rally in March 2009, many people who believed in
fundamental analysis have begun to question its validity.
Famed
technical analyst and Elliott wave expert Robert Prechter
has long called for the bear market we are now in the
midst of. (He views the rally of 2009 to be a bear-market
rally not the beginning of a new bull market.) But over
the years, his methods of technical analysis have been
criticized. Here are his most succinct arguments as to why
wave analysis outdoes competing forms of analysis.
Learn
the Wave Principle and Other Forms of Technical Analysis.
Elliott Wave International has just released The Ultimate
Technical Analysis Handbook. This FREE 50-page ebook is
dedicated solely to teaching reformed fundamentals
followers to incorporate technical analysis into their own
investing decisions. Learn
more and download your free copy here.
*****
Excerpted from
Prechter's Perspective, re-issued 2004
Question:
Suppose everyone agreed, "The Wave Principle is not
always right, but it really is the answer"?
Robert Prechter:
Well, let me begin my answer with a quote from a national
financial magazine dated October 1977. "Over the last
few years, the Wave Principle has gathered too much of a
following and, therefore, it has less value today. Almost
invariably, you can write off a technique when it gets too
much of a following." How does this statement
look in light of the decade that followed it?
"Elliott" had one of its greatest successes.
Like the Energizer Bunny, it keeps going and going. And I
believe its next success will be its biggest ever. The
Principle itself is undoubtedly on an upward spiral of
acceptance: three steps forward and two steps back.
Now let's suppose that a
large number of educated people accepted the Wave
Principle, which is not an impossible idea for, say, a
thousand years from now. There would still be room for
differences of opinion on the market and the future. And
there are countless other factors. Even people who
practice the craft don't necessarily take action when they
get a signal. Unconscious doubt and worry often foil
people's actions. Very few traders have the emotional
strength to turn even good analysis into profits.
Q: The Wave
Principle is intrinsically contrarian. Does it have some
built-in defense against becoming the consensus?
RP: I
think so. The Wave Principle is a description of natural
human behavior. This is what human beings are; this is
part of their nature -- how they behave. In order for
markets to continue to go through these stages, a part of
human nature must be to believe that such theories of mass
psychology are incapable of being true -- that is,
something not worth examining. They must be primed to
accept bullish arguments at tops and bearish arguments at
bottoms. That means they have to be ever open to bogus
theories of market behavior. How else will they create the
patterns that fear, greed and hope produce?
Q: How
big is the pool of analysts who rely on the Wave Principle?
RP: I
think there are quite a few people who are proficient in
applying Elliott to past and present markets, say, perhaps
1% of all technical analysts, which is a pretty good
number of people, I suppose. A lot of those are my
subscribers, and they learned it through studying the Theorist.
However, as far as the number of people proficient at
applying the Wave Principle for forecasting
market turns, which is significantly more difficult than
applying it in real time, I think there are very few.
Q: This has
been the basis of some criticism. To quote one critic,
"relying on arcane methods does have one advantage.
Interpreting the linear squiggles is left in the hands of
the major heir to Elliott's work." How do you respond
to those who contend that the complexity of the theory is
a cover that allows you to retain the Wave Principle as
your personal theory?
RP: With
regard to any supposed self-serving secrecy, not only did
I co-author a book on how to apply the Wave Principle, as
well as reprint Elliott's writings against protest from
practitioners, but also I continually go into great --
some might say excruciating -- detail in each issue of The
Elliott Wave Theorist explaining exactly what I think
the market has done and will do, and why I think it. If
there is any market letter that has educated potential
competitors, it is mine. The reason is that the study of
markets is more important to me than exclusivity, secrecy
or power.
Q: Another
common approach critics take when they try to dismiss
Elliott as bunk is to refer to you as a mystic or a
numerologist.
RP: A
mystic believe in things for which there is no evidence,
only desire. I do not consider myself to be a mystic at
all. My approach is objective. The empirical basis of
Elliott's discovery speaks to that fact. So do the results
of the trading competition [Editor's note: Bob
Prechter won the Trading Championship in options in 1984
with a stunning 444% gain. The next closest competitor
showed an 84% gain.] Not once during any month since the
independent rating services have been following market
timers has a timer using a numerological approach such as
"Gann" analysis ever placed in the top 10
rankings. Just as would be expected, such methods don't
work!
The true mystics are those
who believe, for instance, that current economic
performance is a basis upon which to predict stock market
prices. There is no evidence for it. They just feel
comfortable with the idea, so they espouse it.
Q: So you say
that the challenge to validity is on the other side?
RP: You're
darn right, it is. I am no longer at the point where I
feel that I have to justify the objectivity of the Wave
Principle. I think the results have done that. Technical
analysis is entirely rational and has proved itself. If
someone goes back and looks at the record of Elliott wave
writers over the decades, he will find a track record of
forecasting success that is well beyond a random result of
chance. If you can do that, the ball is in the other guy's
court. It's up to him to show that this is luck or
something. What's more, the only challenge to a theory is
a better theory, and I haven't seen a contender yet.
Q: You don't
feel that you have been effectively challenged by any
fundamental approaches?
RP: I
think there's a place for fundamental analysis of
individual companies, but I am firmly convinced that you
can make a very rational argument showing that fundamental
analysis applied to overall market timing is like reading
the entrails of goats. In fact, I presented such a
critique in The
Wave Principle of Human Social Behavior. If you
think my ideas as presented here are controversial, just
read Chapter 19 of that book.
Learn
the Wave Principle and Other Forms of Technical Analysis.
Elliott Wave International has just released The Ultimate
Technical Analysis Handbook. This FREE 50-page ebook is
dedicated solely to teaching reformed fundamentals
followers to incorporate technical analysis into their own
investing decisions. Learn
more and download your free copy here.
Robert Prechter,
Chartered Market Technician, is the world’s foremost
expert on and proponent of the deflationary scenario.
Prechter is the founder and CEO of Elliott Wave
International, author of Wall Street best-sellers Conquer
the Crash and Elliott
Wave Principle and editor of The
Elliott Wave Theorist monthly market letter since 1979
The Bounce Is Aging, But The
Depression Is Young
August 20, 2009
By Bob Prechter
The following is an excerpt
from Robert Prechter's Elliott Wave Theorist.
Elliott Wave International is currently offering Bob's
recent Elliott
Wave Theorist, free.
On February 23, EWT called
for the S&P to bottom in the 600s and then begin a sharp
rally, the biggest since the 2007 high. The S&P bottomed
at 667 on March 6. Then the stock market and commodities
went almost straight up for three months as the dollar fell.
On March 18, Treasury bonds
had their biggest up day ever, thanks to the Fed’s
initiating its T-bond buying program. The next day, EWT
reiterated our bearish stance on Treasury bonds. T-bond
futures declined relentlessly from the previous day’s high
at 130-15 to a low of 111-21 on June 11.
That’s when there were
indications of impending trend changes. The June 11 issue
called for interim tops in stocks, metals and oil and a
temporary bottom in the dollar. The Dow topped that day and
fell nearly 800 points; silver reversed and fell from $16 to
$12.45; gold slid about $90; and oil, which had just doubled,
reversed and fell from $73.38 to $58.32. The dollar
simultaneously rallied and traced out a triangle for wave 4.
Bonds bounced as well. As far as I can tell, our scenarios
at all degrees are all on track.
Corrective patterns can be
complex, so we should hesitate to be too specific about the
shape this bear market rally will take. But from lows on
July 8 (intraday) and 10 (close), the stock market may have
begun the second phase of advance that will fulfill our
ideal scenario for a three-wave (up-down-up) rally. In
concert with rising stocks, bonds have started another
declining wave, and the dollar appears to have turned down
in wave 5 (see chart in the June issue), heading toward its
final low. Although commodities should bounce, their wave
patterns suggest that many key commodities will fail to make
new highs this year in this second and final phase of
partial recovery in the overall financial markets.
Meanwhile, our forecast for a
change in people’s attitudes to a less pessimistic outlook
is proceeding apace. Here are some of the reports evidencing
this change:
More than 90 percent of
economists predict the recession will end this year. [The]
vast majority pick 3rd quarter as the time. (AP, 5/27)
Manufacturing and housing reports this week may offer
signs that the recession-stricken U.S. economy is within
months of hitting bottom, economists said. (USA,
6/15)
Fewer people say they’ve
prospered over the past year than in decades, a USA TODAY/Gallup
Poll finds. Over the past two months, however,
expectations for the future have brightened significantly
amid rising optimism about a stock market rebound and
economic turnaround. “I think the administration is
going in the right direction,” says… Now 36% of those
surveyed in the Gallup-Healthways well-being poll say the
economy is getting better. That’s not exactly
head-over-heels exuberance, but it is double the number
who felt that way at the beginning of the year and a
notable spike in the nation’s frame of mind.
Thirty-three percent say they’re satisfied with the way
things are going in the United States; in January, just
13% did. (USA, 6/23/09)
If only to confirm the
socionomic causality at work, an economist quoted in the
article above muses, “The one anomaly in the puzzle is
that people shouldn’t be feeling better because the jobs
market is so terrible and unemployment is likely to keep
rising.” Of course it would be an anomaly, and people
should not feel better, if mood were exogenously caused. But
it is endogenously regulated, and it precedes social actions,
which produce events such as job creation and elimination.
That people feel better is evident in our rising sociometer,
the stock market. If the rally continues, economists will
soon agree that the Fed’s “quantitative easing” and
Congress’ massive spending are “working.” Those
predicting more inflation and hyperinflation will have the
last seeming confirmation of their opinions. Then, a few
months from now, some economists will probably express
similar puzzlement when the stock market starts plummeting
again despite the fact that the economy has improved.
But all of these
considerations are temporary. Conditions are relative, and
behind the scenes, the depression has been, and still is,
grinding away.
For more information,
download the FREE 10-page issue of Bob Prechter’s recent Elliott
Wave Theorist. It challenges current recovery hype
with hard facts, independent analysis, and insightful charts.
You’ll find out why the worst is NOT over and what you can
do to safeguard your financial future.
Robert Prechter,
Chartered Market Technician, is the founder and CEO of
Elliott Wave International, author of Wall Street
best-sellers Conquer
the Crash and Elliott
Wave Principle and editor of The
Elliott Wave Theorist monthly market letter since 1979.
A Road Map To SENSEX 100,000
June 15, 2009
By Mark Galasiewski
This article was originally published as a special Interim Report of EWI's Asian-Pacific Financial Forecast on March 23, 2009. Since then the SENSEX has risen as much as 65%. For a limited time, Elliott Wave International is offering a full 10-page issue of the Asian Pacific Financial Forecast, Discover The Bull Markets You’re Missing, free.
**********************************************
Prices in India’s SENSEX have just broken above a downtrend line, imitating a pattern from 2004 that led to a strong rally. This interim report updates our wave count for India, since its wave pattern in particular may offer investors a rewarding long-term opportunity.
In the March 2009 issue of The Asian-Pacific Financial Forecast, we showed how pattern, price, time and sentiment considerations were pointing to the end of multi-month, five-wave declines in most major Asian-Pacific indexes by late March. In most cases, those lows have likely been achieved.
Although we have looked for a fifth wave down to below the October low in the SENSEX, it has failed to materialize. That failure plus the recent sharp reversal rally prompts our return to an earlier wave count. The daily SENSEX chart shows how the decline since the 2008 high can be counted as three waves. A three-wave decline opens the possibility of a rally back to near the 2008 highs. But there is reason to set our sights even
higher.
Perhaps the best argument for a bull market in Indian stocks is the potential fractal relationship we identified in the
November 2008 issue, published just four days after the October low. The weekly chart below is an updated
version of the one we showed at that time. Here is our analysis from the November issue:

“The Wave Principle teaches that the stock market is a self-similar fractal. That means that some pieces of its price record—which Ralph Nelson Elliott called waves—resemble other pieces elsewhere in that record. The weekly chart of India’s SENSEX shows just such an example.Notice how the up-down sequence labeled Intermediate waves (1) and (2) (in the small red box) is a microcosm of the larger up-down sequence from the 2003 low to the present (i.e., waves and , in the large black box). In both cases, the wave-two correction retraced approximately 50% of the wave-one advance. (We have calculated those retracements using the same logarithmic scale shown in the chart: logarithmic charting displays equal percentage moves proportionally).
“If we have identified this “nested fractal” relationship correctly, it means that Indian stocks are about to begin Primary wave of the bull market that began in 2003. Waves and lasted more than four times the duration of waves (1) and (2). If that same proportion holds going forward, the SENSEX may continue advancing for 15 years before reaching the end of wave .”
Since then, the analogy to the 2004 period (“The 2004 Analog”) has become even more interesting.
Just as then, prices have broken down from an apparent triangle, and then reversed and broken out above the downtrend line. In 2004, prices never looked back after the breakout. As long as prices do not fall back below the low of today’s breakout bar, we will assume that the 2003-2008 bull market will continue to provide a road map to the future of India’s stock market.
For more information emerging opportunities in Asian markets, download Elliott Wave International’s
free
10-page issue of the Asian Financial Forecast.
--------------------------------------------------------------------------------
Mark Galasiewski is the editor of Elliott Wave International’s Asian-Pacific Financial Forecast and member of EWI’s Global Market Perspective team covering Asian stock
indexes.
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