We don’t have all the answers. But we do have 30-plus years of market experience on our side.
As the books were closed on 2015, the Chicago Tribune reported:
“After a dismal stock finish to 2015, your natural conclusion might be: Why did I bother?
“The Standard & Poor’s 500 finished the year down 0.73%… The DJIA suffered its worst year since the 2008 financial crisis, declining 2.2%… Only the Nasdaq ended the year up… 5.7%…
“…energy stocks as a group plunged 24%, and individually, many fell 30 or 40%. The energy plunge hurt unsuspecting retirees as master limited partnerships, or MLPs, dropped 36% — a shock since analysts previously claimed that pipelines and other infrastructure in MLPs would be immune to an energy crash. Another retiree favorite for dividends — utility funds — lost 9% in 2015, according to Morningstar.
“Bond funds weren’t comforting either. The average bond fund investing in a broad mix declined about 2% … …junk bond funds have declined 4% on average, according to Morningstar.”
We’re only a few trading days into 2016 — yet, so far, the new year isn’t looking any more promising. Right now, you may be scrambling to make sense of the DJIA’s huge tumble on Monday. (It was, in fact, the Dow’s worst intraday start to the year since 1932 and worst full first day start since 2008.) This excerpt from our December Elliott Wave Financial Forecast (published Dec. 4) may help:
“According to the consensus view, the thinking inside the Fed is that the economy is finally healthy enough to return borrowing costs to ‘more ‘normal’ levels.’ Such a move would actually be consistent with many of the most important market peaks in history, such as September 1929 and January 2000 when the Fed famously ‘pulled the punch bowl’ by increasing the Federal Funds rate as stocks reached the extremes of major advances. China did something similar in 2007, raising borrowing costs several times. The Shanghai Composite Index made its all-time high in October 2007.
“Of course there is one big difference: On each of those occasions, the central bank rate hike was part of a series that pushed rates through 6%. This time, the rise will be the first in more than six years, and it will come from a virtually non-existent level of 0.25%. With the economy so much weaker, some will view it as the straw that broke the back of the global economy.
“The truth is that the Fed is succumbing to the feel-good sentiment of a peak in positive social mood by doing what it has always done in the past; confidently raising interest rates just before the start of a major bear market.”
In the days to come, you may hear opinions that the stock market turmoil is the fault of the Fed. Note that the argument we make is more nuanced. We track and forecast Elliott waves, or waves of social mood, and there is a history of central banks acting confidently by raising rates just as the mood (as reflected by the stock market) hits a peak.
So, where does that leave us?
We don’t have all the answers. We do what we’ve done for more than three decades: Study the wave patterns, look at key sentiment indicators, compare them to previous tops and bottoms — and put it all together to give you a forecast and a unique perspective on how markets behave.
As of 2013, the daily trading volume in foreign exchange was more than $5 TRILLION a day. EWI’s currencies expert, Jim Martens, discusses the pros and cons of trading forex vs. trading stocks.
Who is Jim Martens?
Jim is one of the very few forex Elliott wave instructors in the world, and a long-time editor of EWI’s forex-focused Currency Pro Service. A sought-after speaker, Jim has been successfully applying Elliott since the mid-1980s, including two years at the George Soros-affiliated hedge fund, Nexus Capital, Ltd.
Vadim Pokhlebkin: Jim, many readers of elliottwave.com tell us that they want to make money trading the markets. Would-be speculators have lots of options. Your area is forex — the market which has been growning by leaps and bounds. Can you explain why I’d want to look at forex and not, say, the more “traditional” stock trading?
Jim Martens: A few reasons are immediately obvious.
1. Liquidity. Currency markets are much larger than equity markets. By most estimates, the daily volume in forex is as much as 10 times larger than the combined volume of ALL of the world’s stock markets. That makes it a very liquid market.
2. 24-hour-a-day trading. We are also talking about a market that trades around the clock. That means that if you are a short-term trader and the price spikes after hours, you can adjust your existing position or enter a new one without having to wait until the market reopens the next morning. Sometimes you can do that with stocks too, but typically the spreads (the bid/ask) in stocks after hours widen out, so you may have to pay extra to buy a stock that, for example, announced great earnings after the close of the stock exchange at 4 PM.
That’s not the case with forex. Liquidity stays plenty deep for most investors around the clock. Yes, there are moments when currencies are less liquid, but for most participants, liquidity is fine even then. Spreads stay tight, too — for example, for the euro-dollar exchange rate, or EUR/USD, they are typically 2 pips (points) or less, and they may go to 3 pips when liquidity is not as high. But rarely do we ever see a major widening in spreads.
3. Manageable number of trading choices. I think the ease of choosing a currency to trade is also a big advantage. How many stocks now trade around the world? Between the U.S., European and Asian stock markets, there are at least 40 industries, each with a number of sub-industries, and each one of those with 100+ stocks. So we’re talking about tens of thousands of stocks — and you have to choose the right one! Even in bull markets, while “the rising tide lifts all boats,” as the saying goes, it may not lift your particular “boat” — in fact, your stock may even decline if it’s not the best stock in its peer group, or if you’re in the wrong sector. Often, you see your sector or stock fall even as the general market rises, so you have to be very good — or lucky — at your stock picks.
The currency market has far fewer choices, and it’s a good thing, because that makes your job much easier. Most forex traders stick to the major pairs; in fact, the bulk of trading is between the U.S. dollar and euro — by some estimates, up to 70% of the total daily volume. Besides EUR/USD, we have 5 or 6 other major pairs — and by watching those, you are basically watching the entire world. In EWI’s Currency Pro Service, we track and forecast 11 most popular forex pairs, plus the U.S. Dollar Index.
Of course, you could expand your forex trading into cross rates — those are non-U.S.-dollar currency pairs, like EUR/GBP, for example. But even then we’re still talking about maybe two dozen most active markets versus tens of thousands of stocks. So currencies are just easier to follow in that regard.
4. Limited impact of financial news. Here is another advantage of trading forex. When you trade individual stocks, financial news plays a much bigger role: sector news, individual stock news like earnings, etc. With currencies, we focus on “the big story” instead. There are big economic data releases coming out of each country every week, but we watch economic data calendars and know when they are coming out — and they rarely surprise us. Instead, we spend more time watching forex markets’ technical indicators like Elliott wave patterns, momentum like RSI or MACD, Fibonacci price targets, and so on.
5. Easy long, easy short. Forex offers you the flexibility to go long and short with ease — something that stocks just don’t. When the broad stock market declines, most people are uncomfortable selling short — that is, selling a stock they don’t own in hopes of buying it back later, returning it at a lower price and capturing the spread. Most investors just don’t do that, even with some new avenues for doing so that became open in recent years: mutual funds, ETFs, etc.
In forex, it’s a whole different story. Whenever we quote a currency market — take EUR/USD, again — we are comparing one currency against the other; we are tracking the value of the euro against the value of the dollar. So even when we are selling one market, we are always buying another! We are always buying the base currency, which is the first one in name of the pair. In EUR/USD, the base currency is the euro. On the other hand, in dollar-Swiss franc (or USD/CHF) we track the value of the dollar relative to franc; the dollar is the base.
6. Volatility and trend-following. Forex markets have lots of volatility, too — good for aggressive traders. And if you’re a macro-trader, currencies are well-known for staying with the trend for a long time, too. Volatile at times, yes, but steadily trending.
So, there are several reasons why one might look at forex versus stocks.
Forex FreeWeek is one of our most-popular events and always gathers thousands of your fellow Elliott wave fans from around the globe.
During Forex FreeWeek you get unrestricted, 24/7 access to intraday, daily, weekly and monthly forecasts — including charts and videos — from our premium-grade Currency Pro Service. Whether or not you trade currencies, this is a great opportunity to learn more about Elliott wave and its application in real-time markets, free.
Sign up now and you can watch a new bonus video that illustrates how the Wave Principle helped guide subscribers through the recent 6-month EURUSD drop.
Editor’s note: The following article originally appeared in a special September-October double issue of Robert Prechter’s Elliott Wave Theorist, one of the longest-running financial letters in the business.
It piques our interest when a person or company makes the front page of a magazine or newspaper. On August 15, USA Today ran an article with a chart on the share-price performance of Warren Buffett’s company, Berkshire Hathaway. The Guardian and other papers covered the news, too, which was that the stock had cleared $200,000/share.
The stock (symbol BRK-A) has returned a 19.7% compounded annual return to shareholders since 1965, the year Buffett turned a failing textile company into an investment company. It has returned 22.8% annualized since 1977. Let’s just say that the stock has produced about 20% per year compounded.
The above figure shows that the stock has just met a 16-year resistance line on arithmetic scale. The next figure shows that it is still a bit shy of that line on log scale.
As you can discern from the second figure, the stock enjoyed a persistently steep rise until early 1998. In 1996, the stock was getting a little expensive for the average investor at $30,000/share, so Buffett created a “Class B” stock, a smaller share selling at a fraction of the price of the “Class A” stock. It began trading in May of that year. So, the public was given this opportunity two years before the steep rise ended on June 1, 1998.
Since then the stock has still been beating the market but at a slower pace. To put the difference in perspective, the stock rose 2100 times from the 1974 low of 40 to the 1998 high of 84,000 and only 2.5 times from there to now, which is 1/840th of the multiple in two-thirds the time. Loosely stated, the latter rate of rise is 1/560th of the former.
Buffett’s return is amazing, but what makes it more amazing is that he started his investment empire the very year the U.S. domestically went off hard money and one year before the Dow made a major top in terms of real money (gold), which it is well below today. The era of rubber finance has goosed investment compounding, and Buffett’s style was made for it.
We could be wrong, but we think the era of inflationary finance is ending. Its time is due, the price is right, and the Fed is so far out on a limb with leverage that QE-infinity seems unlikely. It will be interesting to see how BRK-A does when the monetary environment fundamentally changes from expansionary to contractionary. Even if it continues to outperform most other funds in the bear market, it is still likely to succumb to its biggest setback ever.
Showing (in our opinion) continued acumen, Berkshire Hathaway “currently has $50-billion-plus in free cash, the biggest cash hoard ever.”
Naturally, “(Buffett) is still bullish and still looking [for buys].” (USA Today, 8/15/14) Things could hardly seem better. But often that’s a good time to sell.
It’s difficult to lean against the crowd and doing so doesn’t automatically mean that you’ll be right. There are never guarantees. But the odds are in your favor.
Please know that EWI does not recommend defying the crowd for its own sake. To be sure, a contrarian can get trampled during the strongest parts of bull markets, or mauled during the worst part of bear markets.
A prudent investor looks at the best available evidencebefore deciding how, when and if to act.
Be assured, dear reader: Your risk-free review will likely be one of the most important investments you make at this juncture.
To that end, EWI offers you a no-obligation education in Elliott Wave analysis. See below for details.
The Elliott Wave Crash Course is a series of three FREE videos that demolishes the widely held notion that news drives the markets. Each video will provide a basis for using Elliott wave analysis in your own trading and investing decisions.
Robert Prechter: “Charts tell the truth. Let’s look at some charts.”
During QE3, the latest round of the Fed’s quantitative easing, the stock market rose. We all know that.
But did you also know that commodities fell?
That’s right: QE3 had zero effect on commodities — or maybe even a negative effect. In fact, an unbiased observer of the trend might conclude that the Fed drove commodity prices down.
That, of course, would be heresy to investors who believe that the Fed’s actions have been inflating all financial markets.
What should you make of the fact that commodities have failed to respond to the massive, historic, unprecedented central-bank stimulus? We see it as a red flag.
What’s more, you may be surprised to know that not one of the Fed’s stimulus programs — QE1, QE2 and QE3 — pushed up commodity prices.
As Robert Prechter, the president of Elliott Wave International, wrote in his November 2013 Elliott Wave Theorist, “Charts tell the truth. Let’s look at some charts.” These four charts and analysis that he published in May, July, and November 2013 tell the story:
(Robert Prechter, July 2013 Elliott Wave Theorist)
The CRB index of commodities has been losing ground for more than two years, as shown in Figure 3. Notice the four short arrows on the chart. Based on their positions, you might think they would mark the timing of accurate sell signalsgenerated by a secret indicator. But there’s no secret indicator. These happen to be the times at which the Fed launched its inflationary QE programs!
Investors almost universally take news at face value rather than paradoxically as they should. So they believed the Fed’s QE actions would be bullish for commodities. But — ironically yet naturally — every launch of a new QE program provided an opportunity to sell commodities near a high.
The first time the Fed bought a slew of new assets (QE0) was in 2008, and commodities went straight down during the entire buying spree.
QE1 (see below) was just a swapping of assets, not new buying, so it wasn’t inflationary; ironically, commodities rose during this time.
Commodities rose a little bit after the inflationary QE2 started but ultimately went lower. Since QE3 and QE4 — the two most aggressive programs of inflating the Fed has ever initiated — commodity prices have been trending lower as well.
Are commodities just late and poised to soar? I don’t think so. Figure 4 shows a chart of the CRB index published inThe Elliott Wave Theorist back in May 2011.
It shows a three-step, countertrend rally … inside of a parallel trend channel … at a [Fibonacci] 62% retracement … thus giving three reasons to expect a peak at that time. [Indeed] the CRB index has trended moderately but persistently lower since then.
Prechter gave another update in his November 2013 Elliott Wave Theorist:
Commodities are in a bear market. Figure 1 proves that the Fed’s feverish quantitative easing (QE) — i.e. record fiat-money inflating — is not driving overall prices of goods higher.
The bear market in commodities began two months before the Fed’s massive asset-buying program began. Despite the Fed’s inflating at a 33% rate annually for five straight years, commodities are still slipping lower.
Prechter’s final point from the November 2013 Elliott Wave Theorist summarizes it best:
None of the believers in omnipotent monetary authorities and their pledges to inflate saw any of those changes coming. Meanwhile, we couldn’t see how it could turn out any other way.
The largest inverted debt pyramid in the history of the world is the reason that QE won’t work. The future is already fully mortgaged.
15 Hand-Picked Charts to Help You See What’s Coming in the Markets
Prepare for 2014 with a complimentary issue of Robert Prechter’s Elliott Wave Theorist
Have you ever seen price charts that tell a story clearly? Prechter chose 15 charts to explain to his subscribers where the financial markets are headed in 2014. They cover markets like the S&P 500, NASDAQ, the Dow, commodities, gold, and mutual funds. With this information, they are now prepared to be on the right side of the financial markets. You can be, too, because, in a rare opportunity, we can offer you a look at the whole issue — FREE.
Prechter says that “charts tell the truth.” Here is your chance to see what truths these charts are telling. If a picture is worth a thousand words, then this latest publication is like reading more than 15,000 words of his market analysis.
Sometimes technical analysis and stock price charts help you identify trading opportunities. There is no guarantee. But it can help turn the odds in your favor. We discuss one such opportunity here to serve as an example. Alcoa (NYSE:AA) and aluminum futures prices have “come into critical price areas.” November 30, 2012
By Elliott Wave International
The editor of Elliott Wave International’s Metals Specialty Service,
Mike Drakulich, has just recorded a new, free video forecast:
“Aluminum and Alcoa: Exciting Juncture (Nov. 29,
Says Mike (excerpt):
“This is the first video of what is going to be a series of
videos on the industrial metals markets, as they come into critical price areas
that may tell us the big [moves] I’ve been talking about in my daily analysis
are getting underway — or, in fact, are underway.”
ALUMINUM: The video starts off by showing you “the big
picture from 2008-2009 bottom.” Mike Drakulich walks you through the Elliott
wave pattern since then and shows you how, off the recent high, the price has
come down in a familiar ABC pattern. Moreover, the decline has retraced 62% of
the previous rally — a key Elliott wave signature and important Fibonacci
Here is an abridged version of the aluminum chart from the new video:
What’s more, the price action in aluminum has just penetrated two key moving
averages, the 50-day and the 200-day.
ALCOA (NYSE:AA): The second half of the video gives you a
detailed look at Alcoa stock. Mike shows you that, going back to the same
2008-2009 period, AA has followed the price of aluminum very closely. You get a
detailed view of Alcoa’s recent drop below a key support price level, plus the
analysis of an important trendline the stock has been “flirting” with — which,
if broken, should “open the gates” to a rare opportunity.
Mike Drakulich ends the video by saying:
“Bottom line, we have some really nice action in aluminum and
Alcoa, and this is being seen across the board in many of the industrial
Market has been going up for a while now in a trend channel. It looks like stock indexes may eventually reach all time high. But how far can it go? Is it a good time to invest? Or should we be waiting this one out on the sidelines?
Anyone who enjoys eating fruit knows there’s a fine line between ripe and over-ripe.
If it sits in the fruit bowl too long, over-ripe turns rotten.
As experienced investors know, the stock market goes through similar phases. An overbought, or over-ripe, market can spoil quickly. And markets fall faster than they rise, thus it is easy to get caught in a quick slide that wipes out profits, or brings losses, sometimes huge.
Take a look at this chart for example (wave labels removed), and ask yourself, is the stock market on the verge of spoiling?
The Aug. 10 Financial Forecast Short Term Update provides commentary to go with the chart.
[An] indicator that has moved to an overbought condition is 10-day NYSE Trin (advance/decline ratio divided by the up/down volume ratio). Wednesday’s close [Aug. 8] was .937, which was the most overbought level since March 26, when 10-day Trin closed at .900 (see gray vertical line). That was five days prior to the April 2 S&P top. It’s certainly possible that Trin becomes even more overbought prior to a market high, but it doesn’t have to. Current levels are the exact opposite of those that attended the August, October and November 2011 lows, as marked on the left side of the chart.
EWI also looks at several other internal measures.
A healthy bull market sports broad participation among different sectors and indexes. Up days are consistently accompanied by high volume; momentum is strong.
The indicators EWI watches suggest this market is indeed overbought and still ripening.
What does the true state of the economy mean for your investments?
EWI’s free report, The Economic Rot Beneath, reveals important economic numbers that you are not currently reading in the mainstream headlines – but you should be.
For instance, did you know stocks priced in real money (gold) are down 87%? Or that U.S. manufacturing jobs are half of what they were in 1979? Or that housing starts per capita are back to 1922 levels?
Here’s what Elliott wave analysis is all about: You study charts to find
non-overlapping 5-wave moves (trend-defining) from overlapping 3-wave ones
With that in mind, please take a look at this chart of the S&P 500, which
our U.S. Intraday Stocks Specialty Service (FreeWeek
is on now) posted for subscribers at 9:37 AM June 14:
Immediately, you can see that the S&P 500 has been moving sideways in a
choppy, overlapping manner. That’s the definition of a correction — i.e., that
is NOT the trend. The trend, as the U.S. Intraday Stocks Specialty
Service editor Tom Prindaville said in the morning market overview, was
higher — at least in the short-term:
…sideways-to-up over the very near term will be expected.
Simply put, overall higher near-term remains the intraday call
— to complete a corrective second wave.
And here’s a chart of the S&P 500 at the close of the market that the Service posted at 3:34 PM on the same day:
To make this bullish forecast, the Service editor Tom Prindaville
was simply following the Elliott wave model of market progression. The model
called for a completion of the developing wave 2 — in this case, “higher
Market corrections — the sideways, choppy moves you see in both charts above
— are notoriously hard to forecast. And not every Elliott wave forecast works
out. But you do get a real, practical roadmap
of the expected market action.
There were few “fundamental” reasons to be bullish on U.S. stocks on Friday
morning (June 15).
If anything, the news that the U.S. unemployment rose in 18 states in May
sounded downright bearish. But stocks rallied anyway — for a seemingly unlikely
reason, explained the pundits: Because all the bad news lately makes it likely
that the Fed will step in again.
(Just as a side note, how many times did the Fed “step in” in
2007-2009 while the DJIA was dropping from over 14,000 to below 6,500? But hey,
that’s ancient history, and besides — “it’s different this time,”
From an Elliott wave perspective, there was another reason for the June 15
rally: the S&P 500 had some unfinished technical business on the upside.
Here’s what the editor Tom Prindaville wrote on Friday morning in EWI’s U.S.
Intraday Stocks Specialty Service (try
it free now):
S&P 500 (Intraday) Posted On: Jun 15 2012
9:30AM ET / Jun 15 2012 1:30PM GMT Last Price:
Trade pushed beyond the 1319.74 level yesterday…[which] is significant
because it implies that, minimally, the S&P wants to take a closer, more
deliberate look at 1338, and the overall proportionally of the recent Elliott
wave action backs that up. For today, persistence atop 1319.74 is needed to see
the very near-term trend up with a minimum upside target of 1338.32.
The S&P 500 closed trading on June 15 at 1342.84, exceeding the bullish
price target U.S. Intraday Stocks Specialty Service gave on Friday
morning by 4 points.
Are you nervous when you trade? Trigger happy? Can you not take the volatility well? These will hinder your trading success. Copy the tiger when stalking and capturing a “pounce-ready” trade.
Tigers know the prey they covet is elusive: they show great patience and care when stalking the target.
I came across this description of the tiger’s technique:
“When hunting, this cat…may take twenty minutes to creep over ground which would be covered in under one minute at a normal walk…the tiger will sometimes pause…move closer and so lessen that critical attack distance…before finally raising its body and charging.
“…they wait until a victim comes close and spring up…This ambush method of hunting uses less energy and has a greater chance of success.”
You must “ambush” high confidence trades. Long-time professional trader and teacher Dick Diamond says patience is vital before the ambush.
I talked to Diamond about his famous 80/20 trade, which he means literally — he says it has at least an 80 percent chance of success. It’s the only trade set-up Diamond will take.
Q: Could you tell me about the 80/20 trade?
Diamond: The 80/20 trade is based on indicators that create a specific trading set-up. A trader must act on this set-up immediately. You must wait, and then pounce like a cat when the opportunity presents itself. Then you set stops. In shorter time frames, like trading from a five minute chart, the 80/20 set up may come along a few times a day. If you’re trading a longer time frame, like off of a 120 minute or 240 minute chart, the 80/20 will come along less frequently, but when it does, the opportunity will be bigger. The 80/20 trade can be especially rewarding for position traders. Sometimes the indicators reveal what I call 90/10 or even 95/5 trades.
Q: What emotional factors do students need to work on the most?
Diamond: Traders must be calm and confident. You can’t be a Nervous Nellie and succeed at trading. Calmness comes from learning the proper trading techniques.
Q: What’s different about trading today vs. when you started out in the 1960s?
Diamond: When I started trading, execution took up to five minutes — now it takes less than a second. Time is money, so computers provide a great advantage to today’s trader compared to pre-computer days. At the same time, while computers allow the trader to see multiple indicators on the screen, one must avoid indicator overload. One must learn to narrow down the number of indicators.
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Stock market has topped in 2011 and we had our first 5 wave decline according to elliott wave theory. It appears that a major decline is in it’s early stages already. Is it a buying opportunity or will the stock market fall further in 2012?
Every year or two Elliott Wave International (EWI) publishes analysis with a message so critical that they decide to share it, FREE.
They have just released The Most Important Investment Report You’ll Read for 2012, a free report to help you navigate the markets and prepare for what’s ahead. You’ll get hard facts, 25 eye-opening charts and 14 pages of straightforward commentary that will put the volatile market action of the past months into perspective within the “big picture” to help you position for the years to come.
Stocks for the past 10 years have moved up and down and have reached no where after much heartache. Was it worth to take the risk? Was the stress worth it? What should we do next? Will the stocks embark on the next bull market if we sit on the sidelines? What is the risk? Or is it going to be another decade of lackluster results?
The phrase originally applied to Japan’s stock market. Yet in terms of depth and scale, it more accurately describes today’s markets and economy in the United States.
This became clearer than ever September 21, when CNNMoney ran an article titled “A Rough 10 Years for the Middle Class.” Given the data it reported, somebody’s rose-colored glasses must have substituted the word “rough” for the more honest “dreadful.”
Just when investors thought the stock market’s 50% drop in 2007-2009 was behind them, wham, the Dow dropped 2000 points within a short two-week period this summer. And since then, it’s a daily guessing game as to which way the market will go and how large the swings will be.
What does all this mean for you and your investments?
Bob Prechter has just released a FREE report — with urgent analysis from his August and September 2011 Elliott Wave Theorist market letters. It will help you put these uncertain markets into perspective so that you’ll be better positioned to both protect your investments when needed and prosper when opportunities arise.
Bob’s 30-plus years of market experience, in both bull and bear markets, can be an invaluable resource when the markets are volatile and investors are most vulnerable. This report offers is a unique opportunity for you to see what Prechter’s subscribers see.
Don’t wait! Prepare yourself today with Bob Prechter’s current market analysis.
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Mainstream media is trying to rationalize the stock market decline tying it to the economic woes, news and events. But have not have these problems for some years now? Why rally for years on the same news and then suddenly turn south losing 500 points a day every other day? Could the reason fo market decline be something else? Something subtle yet obvious to the alert eyes? Something that mainstream media does not want to say? In the May 2008 issue of his monthly Elliott Wave Theorist, Robert Prechter showed this chart of the Dow Jones Industrials. As you can see, prices go back to the 1970s.
Please note that on the day this chart published (May 16), the Dow closed at 12,987 — barely eight percent below the Dow’s all-time high of the previous October.
Yet, as you can also clearly see, Prechter labeled the white space below the May 2008 price level as “Free Fall Territory.”
At the time, no one else dared to publish such a bearish forecast. This was before the Lehman bankruptcy, the bailout binge, the home foreclosure crisis, and certainly before the worst of the stock market collapse.
In his June 2011 Theorist, Prechter published an update to the chart above, and here’s the major difference: The updated chart “telescopes out” by one full degree of trend. Prices go back to the 1930s. The scale of the white space surrounding this chart’s “free fall territory” label will show you what Prechter truly means.
His commentary in that issue also observed that
“the March-April  rally was one of the most passionate bouts of stock buying I have ever witnessed.”
Bob Prechter made this observation not in admiration, but as a warning.
In the past three weeks, the Dow Industrials have plummeted nearly 2,000 points. Most investors are confused and scared. How far down will the decline travel? Will it end tomorrow or go on for years?
The answers to these questions are crucial to your financial health. You can still get ahead of the trend, but only if you prepare now. Read EWI’s long and near-term forecast. Get it in one comprehensive package — and stay ahead of the crowd.
And — get Bob Prechter’s August Elliott Wave Theorist. It includes “many dozens” of charts. Bob will also record this Theorist as a rare “video issue” — you’ll be able to watch and listen as Prechter himself presents all the content.
Also — as part of the same package, you get the August issue of our Elliott Wave Financial Forecast — you’ll see and read about the latest big picture in stocks, dollar, gold and more.
The Dow has plummeted over 2000 points in the past weeks and it seems like volatility is here to stay.
Yet, market volatility doesn’t have to bring confusion and fear when you’re prepared with the necessary market analysis. For example, here’s what Robert Prechter had to say about market volatility in his May 2009 Elliott Wave Theorist market letter:
Market volatility makes most investors less certain about market trends. Elliott waves, however, become clearer the more intense the market’s behavior.
When social mood is changing dramatically, non-mood-related short-term noise has a minimal impact, so even waves of small degree adhere more closely to textbook forms. The five-wave decline from October 2007 to March 2009 was quite beautiful, as were most of its sub-waves.
It is an ironic aspect of wave application that when others are more confused wave analysts tend to be less so.
Get a glimpse into Robert Prechter’s current outlook on these volatile markets when you read his recently released FREE report. It includes an 84-year study of stock values that will help you understand and prepare for today’s critical market juncture.
Prechter describes the once in a lifetime stock market opportunity that is ahead of us. He is expecting a major crash that is a great short opportunity. According to Prechter, the bottom of the deflationary depression will be the greatest buying opportunity of a life time if you can hold cash until then.
Robert Prechter Discusses Market Forecasts on CNBC Closing Bell
“The problem is deeper than just a minor recovery
or a minor recession.”
Robert Prechter joins CNBC hosts Bill Griffeth and Maria Bartiromo on Closing
Bell to talk about the still-unfolding forecasts presented in his New York
Times bestseller Conquer the Crash.
We invite you to watch the interview below. Then download Prechter’s
free report that uses an 84-year study of stock market values to help
you prepare for and understand today’s critical market juncture.
Download Robert Prechter’s Free Report To Discover How You Can
Prepare For Today’s Critical Market Juncture
we’re sure you’re reading countless articles and analysis about the market’s
recent volatility, if you’re not reading what EWI’s subscribers read, you’re
missing the valuable, prescient perspective contained in each issue of Robert
Prechter’s market letter, TheElliott Wave Theorist.
Access Robert Prechter’s free report and read in-depth analysis — including
an 84-year study of stock values — that will help you prepare for and understand
today’s critical market juncture.
Should Stock Market Investors “Fret Over the Economy”? No ! See Chart to Understand Why The idea that the economy leads the stock market is false
As the DJIA fell 2% to close below 12,000 on August 2, 2011, one theme rang across major financial websites. This CNN headline summarizes it:
Stocks sink as investors fret over the economy (Aug. 2)
The belief that the economy drives the stock market is common knowledge; it’s Investing 101; the idea gets pounded into investors’ heads, over and over again, by various pundits, daily.
But please allow us to suggest this: Belief that the GDP and other economic measures drive stock market trends is completely and utterly false.
The strength or weakness of the economy does not lead the stock market higher or lower. The economy follows the stock market.
“Stocks lead the economy, normally by months,” writes EWI president Robert Prechter; he has studied this subject in-depth. Here’s an excerpt from our Club EWI resource, the free 50-page 2011 Independent Investor eBook, which quotes one of Prechter’s research papers.
Suppose that you had perfect foreknowledge that over the next 3¾ years GDP would be positive every single quarter and that one of those quarters would surprise economists in being the strongest quarterly rise in a half-century span. Would you buy stocks?
If you had acted on such knowledge in March 1976, you would have owned stocks for four years in which the DJIA fell 22%. If at the end of Q1 1980 you figured out that the quarter would be negative and would be followed by yet another negative quarter, you would have sold out at the bottom.
Suppose you were to possess perfect knowledge that next quarter’s GDP will be the strongest rising quarter for a span of 15 years, guaranteed. Would you buy stocks?
Had you anticipated precisely this event for 4Q 1987, you would have owned stocks for the biggest stock market crash since 1929. GDP was positive every quarter for 20 straight quarters before the crash and for 10 quarters thereafter.
But the market crashed anyway. Three years after the start of 4Q 1987, stock prices were still below their level of that time despite 30 uninterrupted quarters of rising GDP. Figure 10 shows these two events.
It seems that there is something wrong with the idea that investors rationally value stocks according to growth or contraction in GDP. (…continued)
If you found this insight eye-opening, keep reading the2011 Independent Investor eBook, an educational, powerful and FREE 50-page eBook to help you think independently.Thousands of investors have downloaded the Independent Investor eBook, and it has changed the way they think forever. Now YOU can get this important eBook packed with insightful analysis from 2010 and 2011 Elliott Wave Theorist and Elliott Wave Financial Forecast. — all you need is a free Club EWI password.