Elliott Wave Principles

the Credit Crisis and the U.S. Dollar

2012-02-02T11:13:00.001-05:00

How Does the Value of the U.S. Dollar Fit Into the Big Picture for the Economy?
Robert Prechter discusses his views on the credit crisis and the U.S. dollar
January 31, 2012

By Elliott Wave International

More credit is denominated in U.S. dollars than any other currency. What does this mean for the value of the dollar as the credit crisis continues its strangle-hold on the world economies?
Enjoy this video clip of Bob Prechter from an October interview with The Mind of Money host Douglass Lodmell, in which Bob discusses the debt implosion and the value of the U.S. dollar.
You can watch Prechter's full 45-minute interview here -- no sign up required!

Watch the full 45-minute interview FREE
Get even more valuable insights as Mind of Money host Douglass Lodmell interviews Elliott Wave International's President, Robert Prechter, about how to keep your money safe, the deflation versus inflation debate, and many more topics that are critical to your financial future.
Start watching the free 45-minute interview now -- no sign up required!

2012-01-16T16:59:00.000-05:00

New Year, New High Hopes for Stocks

January 11, 2012

By Elliott Wave International

You can probably relate: Every year, come January 1, I just can't help but feel that "every little thing is gonna be all right," as Bob Marley sang.
This year, the mainstream financial community is sharing the same sentiment. Here's how EWI's Steve Hochberg summarized it [emphasis added]:

At its conclusion, 2011 was marked by back-and-forth stock swings that resulted in essentially a flat market. My Bloomberg screen shows that the DJIA ended up 5.53% for the year, the S&P was flat...while the NASDAQ was down 1.80%. The broadest aggregate measure of stock market performance, the DJ Wilshire 5000, which includes nearly all stocks that trade, ended 2011 down 1%.
The Dow's action masks a strongly negative stock market performance overseas. For instance, in U.S. dollar terms, the Euro Stoxx 50 Index was down nearly 20% in 2011, with the FTSE down almost 6%, the French CAC off almost 20% and the German DAX down over 17%. Asian markets were also hit hard. The S&P Asia 50 lost over 15%, the Nikkei declined 13%, the Hang Seng was off 20%, the Shanghai Composite ended 2011 down over 18%, while Australia was lower by 14%. All were down in euro terms, too.
But not to worry: a recent USA Today article notes that a "quick survey of New Year's prognostications from investment strategists suggests stocks might deliver the double-digit gains that they have put up, on average, over the long term. A snapshot of 2012 year-end-price targets from five firms shows an average gain of 10.5% for stocks."

Very optimistic, indeed!
Except, when have we heard that kind of talk before?
Hochberg continues:

The "10.5%" forecasted gains for the coming year is interesting because it is almost exactly the average forecasted gains for stocks for 2011, as the subheading in the following Barron's cover story from December 2010 shows.

That's right. A year ago, forecasts for stocks in 2011 were just as optimistic as they are now for 2012 -- and largely for the same reasons: improving economy, recovering real estate and jobs markets, and a host of other "better fundamentals."
From an Elliott wave perspective, the reason 2011 mainstream financial forecasts fell flat was simple: Stocks don't follow the economy. It's the other way around: The economy follows stocks.
What's Really Ahead for 2012? There is a lot of optimism building around the stock market, but is it based on sound analysis or hope created by recent economic news reports? Elliott Wave International has released 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 help you see the "big picture" so you can position yourself for the years to come.
Download The Most Important Investment Report You'll Read for 2012 now.

Why you should Choose the Wave Principle

2012-01-09T10:48:00.000-05:00

Why Choose the Wave Principle?
Robert Prechter reveals why he embraced the Wave Principle.
January 4, 2012

By Elliott Wave International

Robert Prechter is the widely recognized authority on the Elliott Wave Principle.
Read how he learned about the Wave Principle and why he embraced it in the edited excerpt from his book Prechter's Perspective below (Q&A format):

--------------------

Question: What was it about Elliott that captured your attention?
Robert Prechter: I had seen some mentions of the Wave Principle in a few market newsletters and a couple of obscure books, and I decided that either this was someone's elaborate fantasy or it was an amazing discovery. I wanted to reject it from what evidence I could find or include it as part of my growing arsenal of technical analytical methods.
Q: How long did it take you to develop your "eye" for discerning these waves?
RP: About 30 minutes -- when I plotted my first hourly chart covering a few months. Apparently, there is such a thing as an eye for patterns. One person told me he had trouble finding the fives and threes. The key is to keep a chart. Most people have no trouble seeing the Principle at work. Q: You accepted it just like that?
RP: When you begin to see the five-wave impulses and the three-wave corrections unfold over and over, it does not take long for you to say either "I see, but I refuse to believe it," or "This is obviously what's happening; let's see how far it continues." It took about a year and a half of applying it until I knew that Elliott was absolutely right. I'm pretty hard-headed, and it takes substantial reason for me to accept a new idea. By that time, I decided I had seen what amounted to proof. I then said to myself, "This is unbelievable. How come no one is commenting on this? The market is pulling back to points he said it should pull back to in the patterns. It is rising up to levels he said it should, in ways he said it should."
Q: What was it that convinced you?
RP: The Wave Principle proves itself when you merely keep a chart. Once I did that, I recognized what was going on rather quickly. The wave patterns are repetitive and at times, over protracted periods, they are easily discernible.

--------------------

The basic Elliott wave pattern consists of impulsive waves (denoted by numbers) and corrective waves (denoted by letters). An impulsive wave is composed of five subwaves and moves in the same direction as the trend of the next larger size. A corrective wave consists of three subwaves and moves against the trend of the next larger size.
As the chart below shows, these basic patterns link to form five- and three-wave structures of increasingly larger size.

The Elliott Wave Principle helps to identify turning points in the trends of financial markets.
It does not provide certainty, yet the Wave Principle does provide a way to assess the probabilities of possible future paths of a given financial market.

Learn more in the free Elliott Wave Basic Tutorial
The Elliott Wave Basic Tutorial is a 10-lesson comprehensive online course with the same content you'd receive in a formal training class -- but you can learn at your own pace and review the material as many times as you like!
Get 10 FREE Lessons on The Elliott Wave Principle that Will Change the Way You Invest Forever

Your Working Helps Me .. My Working Helps You

2011-12-02T10:41:00.000-05:00

"Your Work Helps Me in a Very Practical Way"
Prechter talks with Mind of Money Host Doug Lodmell
November 09, 2011

By Elliott Wave International

Robert Prechter offers a broad overview of the Wave Principle in this interview clip with The Mind of Money host, Douglass Lodmell. As Bob explains, "The work we do is so different from what other people do." Enjoy listening to Bob explain how the Wave Principle differs from fundamental analysis and how it can help you to
anticipate important turns and changes in the markets.

Learn the Why, What and How of Elliott Wave Analysis
Financial media use news and economic events to explain market moves. Steer clear of this misguided approach. Learn what really moves the markets with The Elliott Wave Crash Course.
In this series of three FREE videos, Senior Tutorial Instructor Wayne Gorman 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.

This

a Deflationary Depression ahead

2011-11-25T17:49:00.000-05:00

America's First Deflationary Depression: Is a Bigger One Ahead?
Social psychology precipitates economic depressions
November 07, 2011

By Elliott Wave International

Don't blame Martin Van Buren for America's first deflationary depression. Social mood rode higher in the saddle than did our 8th President, who only stood 5' 6".
Elected in 1836, by the time Van Buren assumed office in March 1837 a speculative bubble had burst and a banking crisis was at hand (sound familiar?) -- the national mood had turned south and the "Panic of 1837" followed. Van Buren was known as "The Little Magician," but he could not pull an economic recovery out of the hat. He met defeat seeking a second term.
America's first deflationary depression lasted until 1842. Van Buren blamed over-zealous business practices and a credit bubble (sound familiar 2x?). The panic precipitated bank failures; many speculators who bought land to capitalize on railroad expansion lost everything. The depression worsened as Van Buren continued Andrew Jackson's economic policies. Businesses failed and unemployment was widespread. There were even "food riots" in several cities.
(Author's note: Because of substantial revenue inflows into the Treasury during the boom of the early 1830s, the United States government became debt free in 1835. Ironically, this was the very year the depression began. Stock prices fell sharply despite the federal government paying off all of its debt. Conventional wisdom would have us believe reducing the national debt, or paying it off entirely, would lift stock prices. It didn't happen in 1835, so there must be something else at work. That "something else" is social mood.)
The 1837-1842 deflationary depression comprised Supercycle Wave II, the end of which saw the beginning of the biggest economic expansion in history -- Supercycle wave III! The 1929-1933 Great Depression still grabs more attention, but in fact the earlier Supercycle Wave II decline set the stage for the United States becoming the greatest economic and military power the world has ever known.
President Herbert Hoover held office during the 1929 Crash and onset of the Great Depression, a.k.a. Supercycle Wave IV. Yet no U.S. President has thus far been at the helm during a Grand Supercycle market decline. The last decline of that degree had its origin in the South Sea Bubble in 1720, when Great Britain's King George I was on the throne. The rampant speculation of the time spread beyond the financial class, such that porters and ladies' maids had enough money to buy their own carriages. Members of the clergy took part in the mania. Poof! Life savings were wiped out. England's Postmaster General committed suicide. Hundreds of members of Parliament lost money. As for the directors of the South Sea Company itself, they were forced to give up their property and arrested to boot.
Martin Van Buren led the nation during our country's first Supercycle depression -- as President he was powerless to stop it. Who will occupy the Oval Office when the next Grand Supercycle depression develops? This we believe: That individual will be powerless to prevent it. He or she will only be a President.
What is more powerful than a President of the United States? The answer is "social mood." How is this powerful force shaping the economy?
Discover the answer in the 90-page Free Report called the Deflation Survival Guide.

Now is the time to prepare for a deflationary depression. Start by reading the 90-page free eBook, Deflation Survival Guide, which includes Robert Prechter's most important analysis and forecasts regarding deflation. This guide will help you survive a major deflationary trend, and even equip you to prosper.
Download your free eBook, the Deflation Survival Guide, now >>

These are the Best Technical Indicators for Trading

2011-11-21T13:57:00.000-05:00

What Are the BEST Technical Indicators for Successful Trading?
8 technical analysis tools that give any trader an edge
November 14, 2011

By Elliott Wave International

You may have seen a TV ad where "traders" describe their strategies, and one says, "I trade on fundamentals." That sounds very reassuring -- except that, on any given day, "fundamentals" are a mixed bag:

You might have a good U.S. employment report...but bad news from Europe
A positive Fed statement...but a negative housing number
Strong earnings...but slowing consumer spending

And so on. Which "fundamental" factor trumps the other? Which one carries more weight in your forecast? Your guess is as good (or bad) as anybody's.
Your alternative is technical analysis, which forecasts the markets' short- and long-term moves based on objective metrics, not guesses.
Here at EWI, we've always strived to help our readers learn to think for themselves. So we've put together for you a free 8-lesson report, "Best Technical Indicators for Successful Trading" that teaches you how to use these technical tools:

The Personality of Elliott Waves
Head and Shoulders Pattern
Fibonacci Retracements
Advance-Decline Line
Sentiment
Volume
Trendlines
Momentum Analysis Using MACD

Here's a small preview of this free 8-lesson report.

Trendlines

A trendline represents the psychology of the market; specifically, the psychology between the bulls and the bears. If the trendline slopes upward, the bulls are in control. If the trendline slopes downward, the bears are in control.

Moreover, the actual angle or slope of a trendline can determine whether or not the market is extremely optimistic, as it was in the upwards sloping line in Figure 1-1 or extremely pessimistic, as it was in the downwards sloping line in the same figure.

Now we're on to the fun part -- drawing trendlines. You can do this several different ways...

Finish Reading This 8-Lesson Report Today, FREE
In this free report, you will learn some of the most effective tools of the trade from analysts at Elliott Wave International, the world's largest technical analysis firm.
Find out which technical indicators are best for analyzing chart patterns, which are best for anticipating price action, even which are best for spotting high-confidence trade setups -- plus how they all complement Elliott wave analysis.
Download your "Best Technical Indicators" report now >>

the Myth of Corporate Earnings being a Market Driver

2011-11-05T13:24:00.000-04:00

Earnings: Stock Market's Brightest False Beacon
"Earnings estimators are too pessimistic at bottoms and too optimistic at tops," explains EWI's president Robert Prechter
November 03, 2011

By Elliott Wave International

Four times a year, investors and Wall Street watch the quarterly corporate earnings reports, trying to anticipate the trend in stocks. Another earnings season is upon us right now, so read this excerpt from our free Club EWI report, "Market Myths Exposed."

"Myth No. 1 -- 'The bottom line is earnings drive stock prices' -- Investopedia.com.

"It's simply not true. The flawed notion that profits drive stock prices is something that EWI has discussed numerous times over the years. For one thing, quarterly earnings reports announce a company's achievements from the previous quarter. The trends in earnings and stock prices sometimes even move in opposite directions, such as in the 1973-74 bear market when S&P earnings rose every quarter as the S&P declined 50%. More recently, earnings have been cycling with stocks, but that still leaves the problem of reporting delays, which leave investors eating the market's dust when the trend changes.

"To try to get around this, pundits use analysts' estimates of future earnings as a guide. In doing so, however, they are subject to the same herding impulses as investors. As [Robert Prechter's] Conquer the Crash puts it, 'Earnings estimators are too pessimistic at bottoms and too optimistic at tops, just when you most need the indicator to tell the truth.'"

The S&P earnings hit a new record in Q2 of this year. This chart from our September 2011 Elliott Wave Financial Forecast puts them next to the Dow. Observe when the previous high in earnings took place:

Market Myths Exposed, a FREE ebook from Elliott Wave International, uncovers 10 of the most common misconceptions about the markets that can affect your investment decisions. Learn the truth about inflation and deflation, the FDIC, diversification, speculation and more in this 33-page eBook.
Get valuable insights you won't find anywhere else. Download your free eBook >>

Evaporation of Wealth

2011-09-23T15:12:00.000-04:00

Evaporation of Wealth on a Vast Scale
How $1-million can disappear
September 19, 2011

By Elliott Wave International

The bursting of the "debt bubble" which started in 2008 is far from over.

It's the financial story of our age and it's happening before our eyes. The full scope is hard to keep up with because it's unfolding at various levels.

The top level is the sovereign debt crisis:

National governments: Several in Europe and even the U.S.
State and local governments: services slashed; vendors waiting to get paid.
Corporations: financial institutions at home and abroad remain in questionable health. PIMCO Chief tells Bloomberg (9/13) "We're getting close to a full-blown banking crisis in Europe." And CNBC reports (9/14) "Moody's Investors Service said...it downgraded the credit ratings of Societe Generale and Credit Agricole."
Individual Households: "under-water" mortgages; "new conservatism" toward spending.

As the credit bubble continues to deflate, the evaporation of vast wealth may follow on a historic scale. Please read this excerpt from the second edition of Conquer the Crash (pp. 94-95):

"...a lender starts with a million dollars and the borrower starts with zero. Upon extending the loan, the borrower possesses the million dollars, yet the lender feels that he still owns the million dollars that he lent out. If anyone asks the lender what he is worth, he says, 'a million dollars,' and shows the note to prove it. Because of this conviction, there is, in the minds of the debtor and the creditor combined, two million dollars worth of value where before there was only one. When the lender calls in the debt and the borrower pays it, he gets back his million dollars. If the borrower can’t pay it, the value of the note goes to zero. Either way, the extra value disappears...

"The dynamics of value expansion and contraction explain why a bear market can bankrupt millions of people. At the peak of a credit expansion or a bull market, assets have been valued upward, and all participants are wealthy -- both the people who sold the assets and the people who hold the assets. The latter group is far larger than the former, because the total supply of money has been relatively stable while the total value of financial assets has ballooned. When the market turns down, the dynamic goes into reverse. Only a very few owners of a collapsing financial asset trade it for money at 90 percent of peak value. Some others may get out at 80 percent, 50 percent or 30 percent of peak value. In each case, sellers are simply transforming the remaining future value losses to someone else. In a bear market, the vast, vast majority does nothing and gets stuck holding assets with low or non-existent valuations. The 'million dollars' that a wealthy investor might have thought he had in his bond portfolio or at a stock’s peak value can quite rapidly become $50,000 or $5000 or $50. The rest of it just disappears. You see, he never really had a million dollars; all he had was IOUs or stock certificates. The idea that it had a certain financial value was in his head and the heads of others who agreed. When the point of agreement changed, so did the value. Poof! Gone in a flash of aggregated neurons. This is exactly what happens to most investment assets in a period of deflation."

Now is the time to prepare for a deflationary depression by reading the 90-page Free Report titled Deflation Survival Guide. This eBook is now updated with Robert Prechter's most important analysis and forecasts regarding deflation.
You can read this free financial guide right away as a Club EWI Member (membership is free). Joining Club EWI is easy and just takes moments. See the Deflation Survival Guide on your screen by following this link>>

How to Find Potential Trade Setups

2011-07-27T07:09:00.000-04:00

How to Find and "Hook" Potential Trade Setups
A Free Lesson on How to Combine Technical Indicators with Elliott Wave Analysis
July 11, 2011

By Elliott Wave International

Trading using technical indicators -- such as the MACD, for example, Moving Average Convergence-Divergence -- can do one of two things: help you or hinder you.
Using them as a forecasting method alone can be about as predictable as flipping a coin. But when you combine them with other forms of technical analysis (i.e. the Wave Principle), the same MACD can be your new best friend.
Technical indicators are meant to do exactly what the name implies: "indicate" that a buy or sell signal may be in place. (Don't confuse "indicate" with "guarantee": They are not called "technical guarantors" for a reason.)
Elliott Wave International's Futures Junctures editor Jeffrey Kennedy shows you how he uses technical indicators to his advantage in his FREE eBook,The Commodity Trader's Classroom:

"Rather than using technical indicators as a means to gauge momentum or pick tops and bottoms, I use them to identify potential trade setups."

Jeffrey goes on to describe his favorite indicator, the MACD:

"Out of the hundreds of technical indicators I have worked with over the years, my favorite study is the MACD [which] uses two exponential moving averages (12-period and 26-period). The difference between these two moving averages is the MACD line. The trigger or Signal line is a 9-period exponential moving average of the MACD line."

Figure 10-1 gives you an example of the MACD indicator in Coffee futures.

One of the signals of a potential trade setup that the MACD often introduces is what Jeffrey refers to as the Hook. Here's another quote from the free eBook:

"A Hook occurs when the MACD line penetrates, or attempts to penetrate, the Signal line and then reverses at the last moment. In addition to identifying potential trade setups, you can also use Hooks as confirmation. Rather than entering a position on a cross-over between the MACD line and Signal line, wait for a Hook to occur to provide confirmation that a trend change has indeed occurred. Doing so increases your confidence in the signal, because now you have two pieces of information in agreement."

Figure 10-4 gives you an example of the Hook at work in live cattle futures.

"A Hook should really just be a big red flag, saying that the larger trend may be ready to resume. It’s not a trading system that I follow blindly. All I'm looking for is a heads-up that the larger trend is possibly resuming."

Learn more about other technical indicators that you can use to your advantage, as well as the other important lessons in the FREE 32-page eBook, The Commodity Trader's Classroom. It is filled with actionable lessons you can apply to your trading strategy. Download it right now, instantly, when you create your free Club EWI profile.

DOW Jones Industrials Below 12,000 !!

2011-06-15T09:19:00.000-04:00

Six Straight Weeks of Decline Take DJIA Below 12,000: What Now?
Before blaming falling stocks on the most recent weak economic reports, let's check some dates
June 14, 2011

By Elliott Wave International

As of June 10, the Dow has suffered the "longest losing streak since the fall of 2002. The market's last seven-week stretch of losses began in May 2001, as the dot-com bubble deflated," reports The Associated Press.
As for why stocks are falling, most observers agree: Blame "weaker hiring, industrial output, and a moribund housing market." The economic reports from the past two weeks made that clear.
But wait a minute. The DJIA didn't top in the past two weeks -- it topped on April 29. At the time:

U.S. unemployment benefit applications had been trending down/flattening. In fact, "The unemployment rate fell last month in more than 80% of the nation's largest metro areas," said an April 27 AP report.
U.S. industrial output was up. In fact, "both the Philly and N.Y. Fed reports show[ed] improving manufacturing and business conditions." (Reuters, April 15)
As for the U.S. housing market, it officially entered the "double-dip recession" zone only on May 31, a month after the Dow's April 29 peak.

This is not to say that unemployment, manufacturing and real estate were peachy in April. But the worst of the reports from those areas of the economy only came after the stock market had already entered the decline. The most recent weak economic reports hardly explain why stocks topped when they did.
If you're looking for a better explanation, consider an Elliott wave perspective: The economy doesn't lead the stock market -- it's the stock market that leads the economy.
Skeptical? Then think back to 2007. "Goldilocks economy," strong corporate earnings, unemployment at 4.4% -- nothing but blue skies ahead. The Dow rallies to an all-time high above 14,000 in October 2007 -- and over the next 18 months goes on its biggest losing streak in 70+ years, falling 54% and ushering in "the Great Recession."
Now fast forward to March 2009. The Dow has crashed below 6,500; unemployment has more than doubled; the desperate Fed has dropped interest rates to 0%; foreclosures; bailouts; consumer confidence at an all-time low; general state of near-panic. The Dow bottoms on March 6, 2009, and stages a powerful two-year rally above 12,000.
By conventional logic, you'd have to agree that, paradoxically, "the good economy" of 2007 prompted the deflationary crash, while "the bad economy" of 2009 sent stocks flying.
But here's an explanation that actually makes sense: Broad market trends are not created by the economic conditions -- social mood is what creates them. Social mood doesn't depend on what Ben Bernanke had for breakfast -- it changes for endogenous reasons, and those changes follow the Elliott wave model. Stocks lead the economy because they are quicker to register changes in social mood.

Before you make investment decisions based on the latest economic report, be sure to read the 2011 edition of The Independent Investor eBookby Elliott Wave International. You will see example after example of the fallacy to the belief that economic conditions direct the moves in the stock market. Download your free 50-page Independent Investor eBook now.

Walking the Ridge

2011-05-29T16:51:00.000-04:00

Walking the Ridge

Fractals and the Stock Market

2011-05-28T16:28:00.000-04:00

What Does a Fractal Look Like?
And What Does It Have to Do with the Stock Market?
May 26, 2011

By Elliott Wave International

If the word 'fractal' comes up at all in conversation, that conversation is probably being held in a mathematics department. However, anyone who is interested in the Wave Principle and how it applies to the stock market may have stumbled across the phrase "robust fractal." If you want to know more about what it means in that context, here's an excerpt from Elliott Wave International's primer on fractals that explains the connection.

* * * * *

Excerpted from The Human Social Experience Forms a Fractal
by Robert R. Prechter
In the 1930s, Ralph Nelson Elliott discovered that aggregate stock market prices trend and reverse in recognizable patterns. In a series of books and articles published from 1938 to 1946, he described the stock market as a fractal. A fractal is an object that is similarly shaped at different scales.
Although Elliott came to his conclusions fifty years before the new science of fractals blossomed, he took a step that current observers of natural processes have yet to take. He explained not only that the progress of the market was fractal in nature but discovered and described the component patterns. The patterns that Elliott discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated and defined a number of patterns, or "waves," that recur in market price data. He named and illustrated the patterns. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns at the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle….
The Stock Market as a Robust Fractal
A classic example of a self-identical fractal is nested squares. One square is surrounded by eight squares of the same size, which forms a larger square, which is surrounded by eight squares of that larger size, and so on.
A classic example of an indefinite fractal is the line that delineates a seacoast. When viewed from space, a seacoast has a certain irregularity of contour. If we were to drop to ten miles above the earth, we would see only a portion of the seacoast, but the irregularity of contour of that portion would resemble that of the whole. From a hundred feet up in a balloon, the same thing would be true.

Scientists today recognize financial markets' price records as fractals, but they presume them to be of the indefinite variety. Elliott undertook a meticulous investigation of financial market behavior and found something different. He described the record of stock market prices as aspecifically patterned fractal yet with variations in its quantitative expression. I call this type of fractal, which has properties of both self-identical and indefinite fractals, a robust fractal. Robust fractals permeate life forms. Trees, for example, are branching robust fractals, as are animals, circulatory systems, bronchial systems and nervous systems. The stock market record belongs in the category of life forms since it is a product of human social interaction.
How Is the Stock Market Patterned?

Figure 1 shows Elliott's idea of how the stock market is patterned. If you study this depiction, you will see that each component, or "wave," within the overall structure subdivides in a specific way by one simple rule: If the wave is heading in the same direction as the wave of one larger degree, then it subdivides into five waves. If the wave is heading in the opposite direction as the wave of one larger degree, then it subdivides into three waves (or a variation). These are called motive and corrective waves, respectively. Each of these waves adheres to specific traits and tendencies of construction, as described in Elliott Wave Principle (1978).
Waves subdivide this way down to the smallest observable scale, and the entire process continues to develop larger and larger waves as time progresses. Each wave's degree may be identified numerically by relative size on a sort of social Richter scale.

Want to Know More About Fractals and the Stock Market? Then read the whole special report, called "The Human Social Experience Forms a Fractal." It's free of charge, so long as you are a member of Club EWI, which gives you access to many free reports that explain Elliott wave analysis and the Wave Principle.

Use Bar Patterns to Spot Trade Setups in any Stock or Futures Market

2011-04-17T15:29:00.000-04:00

Learn How to Use Bar Patterns to Spot Trade Setups
Bar chart patterns often introduces sizable moves in price
April 14, 2011

By Elliott Wave International

To many novice investors, chart patterns might as well be tea leaves. Can they really tell you anything reliable? And even if they can, how in the world do you know what to look for?
Experienced traders know that the answer to the first question is a resounding "yes." As for the second one, we at EWI are all about recognizing chart patterns. To help you get started on this path, we've put together a free Club EWI resource called How to Use Bar Patterns to Spot Trade Setups.
It's a collection of lessons in trading and pattern recognition by one of EWI's top trading seminar instructors, Jeffrey Kennedy (who is also the firm's senior commodities analyst).
Enjoy this quick excerpt -- and for details on how to read this report in full, free, look below.
Chapter 1: How To Use Bar Patterns To Spot Trade Setups
Double Inside Bars
While many of my co-workers jog, bicycle or play in bands for a hobby, I amuse myself by looking through old price charts of stocks and commodities. Let’s look at a bar pattern that I call a “double inside day.”
Many of you who subscribe to my Daily Futures Junctures have seen me mention this bar pattern. I think everyone should be familiar with it. Why? Because it often introduces sizable moves in price -- always a good reason for a trader to pay attention.
So let’s begin with a basic definition: A double inside day, or bar, occurs when two inside bars appear in a row. An inside bar is simply a price bar with a high below the previous high and a low above the previous low.

Notice that the range of price bar number two encompasses price bar number one, and price bar number three encompasses price bar number two.

Figures 11-2 (Wheat) shows an example of double inside days and the price moves that followed. (Continued.)

Read the rest of this 15-page report online now, free! All you need is to create a free Club EWI profile. Here's what else you'll learn:

How To Use Bar Patterns To Spot Trade Setups
How To Make Bar Patterns Work For You
How To Use An Outside-Inside Reversal to Spot Trade Setups

Keep reading this free report now -- all you need to do is create a free Club EWI profile.

Popular Music and the Stock Market

2011-03-14T08:04:00.000-04:00

How Punk Rock and Pop Music Relate to Social Mood and the Markets

March 10, 2011

By Elliott Wave International

We can now add the recent uprisings in North Africa and the Middle East to the category of life imitating art -- specifically, music lyrics. Those who lived through the 1980s might be forgiven for hearing an unbidden snatch of music run through their heads as they watched first Hosni Mubarak and now Moammar Gadhafi try to hold onto power -- "Should I Stay or Should I Go" by The Clash. In Libya, where Gadhafi has used air strikes and ground forces against the rebels, The Clash's other huge hit from 1981, "Rock the Casbah," describes the current situation so well it's almost eerie:
The king called up his jet fighters
He said you better earn your pay
Drop your bombs between the minarets
Down the Casbah way
Punk rock played by bands like The Clash, X, The Ramones, and the Sex Pistols had that in-your-face, defy-authority attitude that crashed onto the scene in Great Britain and the United States in the '70s and '80s. It's interesting that the lyrics can still ring true 30 years later, but even more trenchant is how the prevailing mood is reflected by the music of the times, as seen in this chart that Robert Prechter included in a talk he gave last year.

Popular culture reflects social mood, and the stock market reflects that same social mood. That's why we get loud, angry music when people are unhappy with their situation; they want to sell stocks. We get light, poppy, bubblegum music when they feel happy and content; they want to buy stocks. In a USA Today article about music and social moods in November 2009, reporter Matt Frantz made clear the connection that Elliott Wave International has been writing about for years:

The idea linking culture to stock prices is surprisingly simple: The population essentially goes through mass mood swings that determine not only the types of music we listen to and movies we watch, but also if we want to buy or sell stocks. These emotional booms and busts are followed by corresponding swings on Wall Street.
"The same social elements driving the stock market are driving the gyrations on the dance floor," says Matt Lampert, research fellow at the Socionomics Institute, a think tank associated with well-known market researcher Robert Prechter, who first advanced the idea in the 1980s. [USA Today, 11/17/09]

In the talk he gave to a gathering of futurists in Boston, Prechter explained how the music people listen to relates to social mood and the stock market:

When the trend is up, they tend to listen to happier stuff (see chart). Back in the 1950s and ‘60s, you had doo-wop music, rockabilly, dance music, surf music, British invasion — mostly upbeat, happy material. As the value of stocks fell from the 1960s into the early 1980s, you had psychedelic music, hard rock, heavy metal, very slow ballads in the mid-1970s, and finally punk rock in the late ’70s. There was more negative-themed music. [excerpt from Robert Prechter’s speech to the World Future Society's annual conference, 7/10/10]

Which brings us right back to punk rock. Although there's lots of upbeat music in the air now, we can assume that after this current bear market rally, we will hear angrier music on the airwaves as the market turns down. It might be a good time, then, to pay attention to what the markets were doing the last time punk rock blasted the airwaves. Here's an excerpt from "Popular Culture and the Stock Market," which is the first chapter of Prechter's Pioneering Studies in Socionomics.

The most extreme musical development of the mid-1970s was the emergence of punk rock. The lyrics of these bands' compositions, as pointed out by Tom Landess, associate editor of The Southern Partisan, resemble T.S. Eliot's classic poem "The Waste Land," which was written during the 'teens, when the last Cycle wave IV correction was in force (a time when the worldwide negative mood allowed the communists to take power in Russia). The attendant music was as anti-.musical. (i.e., non-melodic, relying on one or two chords and two or three melody notes, screaming vocals, no vocal harmony, dissonance and noise), as were Bartok's compositions from the 1930s.
It wasn't just that the performers of punk rock would suffer a heart attack if called upon to change chords or sing more than two notes on the musical scale, it was that they made it a point to be non-musical minimalists and to create ugliness, as artists. The early punk rockers from England and Canada conveyed an even more threatening image than did the heavy metal bands because they abandoned all the trappings of theatre and presented their message as reality, preaching violence and anarchy while brandishing swastikas.
Their names (Johnny Rotten, Sid Vicious, Nazi Dog, The Damned, The Viletones, etc.) and their song titles and lyrics ("Anarchy in the U.K.," "Auschwitz Jerk," "The Blitzkrieg Bop," "You say you've solved all our problems? You're the problem! You're the problem!" and "There's no future! no future! no future!") were reactionary lashings out at the stultifying welfare statism of England and their doom to life on the dole, similar to the Nazis backlash answer to a situation of unrest in 1920s and 1930s Germany.
Actually, of course, it didn't matter what conditions were attacked. The most negative mood since the 1930s (as implied by stock market action) required release, period. These bands took bad-natured sentiment to the same extreme that the pop groups of the mid-1960s had taken good-natured sentiment. The public at that time felt joy, benevolence, fearlessness and love, and they demanded it on the airwaves. The public in the late 1970s felt misery, anger, fear and hate, and they got exactly what they wanted to hear. (Luckily, the hate that punk rockers. reflected was not institutionalized, but then, this was only a Cycle wave low, not a Supercycle wave low as in 1932.)
In summary, an "I feel good and I love you" sentiment in music paralleled a bull market in stocks, while an amorphous, euphoric "Oh, wow, I feel great and I love everybody" sentiment (such as in the late '60s) was a major sell signal for mood and therefore for stocks. Conversely, an "I'm depressed and I hate you" sentiment in music reflected a bear market, while an amorphous tortured "Aargh! I'm in agony and I hate everybody" sentiment (such as in the late '70s) was a major buy signal.

Popular Culture and the Stock Market. Read more about musical relationships to social mood and the markets in this 40-page-plus free report from Elliott Wave International, called Popular Culture and the Stock Market. All you have to do to read it is sign up to become a member of Club EWI, no strings attached. Find out more about this free report here.

Is Your Bank Safe ??

2011-01-16T22:41:00.000-05:00

Is Your Bank on the "100 Safest" List? Maybe You Should Find Out
Close to Collapse: Bailed-Out Banks Facing Bankruptcy
January 4, 2011

By Elliott Wave International

We want to trust in the financial stability of our bank. After all, most of us have money in these institutions.

In spite of our wishful thinking, the tide of bank failures has not stopped. And these failures are occurring well after the heart of the financial crisis -- and even after some of these banks received bailouts.

"Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing.
The total, based on an analysis of third-quarter financial results by The Wall Street Journal, is up from 86 in the second quarter, reflecting eroding capital levels, a pileup of bad loans and warnings from regulators.
The 98 banks in shaky condition got more than $4.2 billion in infusions from the Treasury Department under the Troubled Asset Relief Program."

Wall Street Journal (12/26)

Seven of the 98 small banks mentioned have already failed.

In the U.S. so far this year, 157 banks have failed -- that's the highest number since 1992.

More failures are likely because many banks are burdened by questionable "assets" and bad real estate loans.

"...your money is only as safe as the bank's loans. In boom times, banks become imprudent and lend to almost anyone. In busts, they can't get much of that money back due to widespread defaults.
If the bank's portfolio collapses in value, say, like those of the Savings & Loan institutions in the U.S. in the late 1980s and early 1990s, the bank is broke, and its depositors' savings are gone."

Conquer the Crash, 2nd edition, pp. 175-176

Yes, the Federal Deposit Insurance Corporation (FDIC) insures depositors, but the question is: Does the FDIC have the wherewithal to "make whole" alldepositors if scores of banks go under at the same time? Here at Elliott Wave International, we do not recommend that you count on the FDIC. Here's why:

"...did you know that most of the FDIC's money comes from other banks? This funding scheme makes prudent banks pay to save the imprudent ones, imparting weak banks' frailty to the strong ones.
When the FDIC rescues weak banks by charging healthier ones high 'premiums,' overall bank deposits are depleted, causing the net loan-to-deposit ratio to rise.
The result, in turn, means that in times of bank stress, it will take a progressively smaller percentage of depositors to cause unmanageable bank runs."

Conquer the Crash, 2nd edition, p. 177

Are some banks safer than others? We think so.

"Hope is not a strategy." If you plan to have money on deposit at a bank, we suggest reading our FREE report, "Discover the Top 100 Safest U.S. Banks." This 10-page bank safety report is available to you after you become a Club EWI member. Inside the revealing free report, you'll discover:

The 100 Safest U.S. Banks (2 for each state)
Where your money goes after you make a deposit
How your fractional-reserve bank works
What risks you might be taking by relying on the FDIC's guarantee

Please protect your money. Download the free 10-page "Safe Banks" report now.
Learn more about the "Safe Banks" report, and download it for free here.

Robert Prechter Explains The Fed, Part I

2010-11-22T23:09:00.000-05:00

Robert Prechter Explains The Fed, Part I
The world's foremost Elliott wave expert goes "behind the scenes" on the Federal Reserve
November 19, 2010

By Elliott Wave International

The ongoing financial crisis has made the central bank's decisions -- interest rates, quantitative easing (QE2), monetary stimulus, etc. -- a permanent fixture on six-o'clock news.

Yet many of us don't truly understand the role of the Federal Reserve.

For answers, let's turn to someone who has spent a considerable amount of time studying the Fed and its functions: EWI president Robert Prechter. Today we begin a 3-part series that we believe will help you understand the Fed as well as he does. (Excerpted from Prechter's Conquer the Crash and the free Club EWI report, "Understanding the Federal Reserve System.") Here is Part I.

Money, Credit and the Federal Reserve Banking System
Conquer the Crash, Chapter 10
By Robert Prechter
An argument for deflation is not to be offered lightly because, given the nature of today’s money, certain aspects of money and credit creation cannot be forecast, only surmised. Before we can discuss these issues, we have to understand how money and credit come into being. This is a difficult chapter, but if you can assimilate what it says, you will have knowledge of the banking system that not one person in 10,000 has.
The Origin of Intangible Money
Originally, money was a tangible good freely chosen by society. For millennia, gold or silver provided this function, although sometimes other tangible goods (such as copper, brass and seashells) did. Originally, credit was the right to access that tangible money, whether by an ownership certificate or by borrowing.
Today, almost all money is intangible. It is not, nor does it even represent, a physical good. How it got that way is a long, complicated, disturbing story, which would take a full book to relate properly. It began about 300 years ago, when an English financier conceived the idea of a national central bank. Governments have often outlawed free-market determinations of what constitutes money and imposed their own versions upon society by law, but earlier schemes usually involved coinage. Under central banking, a government forces its citizens to accept its debt as the only form of legal tender. The Federal Reserve System assumed this monopoly role in the United States in 1913.
What Is a Dollar?
Originally, a dollar was defined as a certain amount of gold. Dollar bills and notes were promises to pay lawful money, which was gold. Anyone could present dollars to a bank and receive gold in exchange, and banks could get gold from the U.S. Treasury for dollar bills.
In 1933, President Roosevelt and Congress outlawed U.S. gold ownership and nullified and prohibited all domestic contracts denoted in gold, making Federal Reserve notes the legal tender of the land. In 1971, President Nixon halted gold payments from the U.S. Treasury to foreigners in exchange for dollars. Today, the Treasury will not give anyone anything tangible in exchange for a dollar. Even though Federal Reserve notes are defined as “obligations of the United States,” they are not obligations to do anything. Although a dollar is labeled a “note,” which means a debt contract, it is not a note for anything.
Congress claims that the dollar is “legally” 1/42.22 of an ounce of gold. Can you buy gold for $42.22 an ounce? No. This definition is bogus, and everyone knows it. If you bring a dollar to the U.S. Treasury, you will not collect any tangible good, much less 1/42.22 of an ounce of gold. You will be sent home.
Some authorities were quietly amazed that when the government progressively removed the tangible backing for the dollar, the currency continued to function. If you bring a dollar to the marketplace, you can still buy goods with it because the government says (by “fiat”) that it is money and because its long history of use has lulled people into accepting it as such. The volume of goods you can buy with it fluctuates according to the total volume of dollars -- in both cash and credit -- and their holders’ level of confidence that those values will remain intact.
Exactly what a dollar is and what backs it are difficult questions to answer because no official entity will provide a satisfying answer. It has no simultaneous actuality and definition. It may be defined as 1/42.22 of an ounce of gold, but it is not actually that. Whatever it actually is (if anything) may not be definable. To the extent that its physical backing, if any, may be officially definable in actuality, no one is talking. ...

Do you want to really understand the Fed? Then keep reading this free eBook, "Understanding the Fed", as soon as you become a free member of Club EWI.

Search Amazon.com for The Federal Reserve

Which Way is Gold Going ??

2010-09-22T22:05:00.000-04:00

Gold: What Is The Economy Usually Doing When It Goes Up?
Research proves wrong the idea that gold reliably rises during recessions, says EWI President Robert Prechter.September 21, 2010

By Elliott Wave International

...If gold isn’t going up when the economy is contracting, when is it going up? Table 4 (see chart on p. 24 of this free Club EWI report -- Ed.) answers the question: All the huge gains in gold have come while the economy was expanding. This is true of the three most dramatic gold gains of the past century:

(1) Congress changed the official price of gold from $20.67 to $35 per ounce in 1934, during an economic expansion. The gain against the dollar was 69 percent.
(2) The entire bull market from 1970 to 1980 occurred during an economic expansion... [Of] the $815 per ounce that gold rose from 1970 to 1980, $725 worth of it came while the economy was expanding.
(3) The entire bull market from 2001 to the present occurred during an economic expansion... [Of] the $748 per ounce that gold has risen since February 2001, $726 worth of it has come while the economy was expanding.

Even lesser rises in gold, such as the two big rallies during the 1980s, came during economic expansions. So the biggest gains in gold, by far, have occurred while the economy was in expansion, not contraction.

Why is such the case? Simple: During expansions, liquidity is available, and it has to go somewhere. Sometimes it goes into stocks, sometimes it goes into gold, and sometimes it goes into both. During times of extreme credit inflation, such as we have experienced over the past three decades, the moves in these markets during economic expansions are likewise extreme. When recession hits, liquidity dries up, and investors stop buying. During depressions, they sell assets with a vengeance.

Of course, we socionomists do not believe in the external causality of investment price movements. Recessions and expansions do not make investment prices move up and down. Fluctuations in social mood propel the economy, liquidity and movements in investment prices. So the only reason we bother with studies like this is to de-bunk various commonly held views of financial causality. Now we know: The idea that gold reliably rises during recessions and depressions is wrong; in fact, like most such passionately accepted lore, it’s backwards.

Finish reading this 16-chapter paper online now, free! Download Robert Prechter's FREE 40-Page Gold and Silver eBook.Here's what else you'll learn:

Why Gold Is Still Money
What Long Term Analysis of Gold Stocks Shows
Study: Does Gold Always Go Up in Recessions and Depressions?
True or False: Gold Is Better Than Stocks During Expansions
What’s Next for Gold?
Elliott Waves in the Silver Market
MORE

Keep reading this free report now -- Download Robert Prechter's FREE 40-Page Gold and Silver eBook.

This article was syndicated by Elliott Wave International and was originally published under the headline Gold: What Is The Economy Usually Doing When It Goes Up?. 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.

the Hindenburg Omen . . is a Crash coming?

2010-09-02T21:10:00.000-04:00

The Hindenburg Omen -- Omen-ous or Not?
Elliott Wave International Chief Market Analyst Steve Hochberg Sheds Light on a Feared Technical IndicatorAugust 24, 2010

By Elliott Wave International

On Aug. 12, volatile market action coincided with a technical signal called the Hindenburg Omen, whereby a relatively high number of new highs and lows in individual stocks occur at the same time.

This indicator instantly gained an enormous amount of media attention. So we sat down with Steve Hochberg, EWI's chief market analyst and close colleague of Robert Prechter, to ask him about the now-infamous Hindenburg Omen.

EWI: Steve, recently a market indicator called the Hindenburg Omen has been in the news, what is going on?

Steve Hochberg: Discussion of this indicator certainly has been everywhere. Someone emailed us and said they even saw it mentioned on the front page of the Drudge Report! Look, headline-grabbing names grab headlines. Essentially it measures the fractured nature of market action. Over the years, we've discussed numerous times in our publications how a fractured market is oftentimes an unhealthy market. The multiple non-confirmations registered at the recent August 9 stock high, which we talked about in the Short Term Update, are another manifestation of this bearish behavior. The message is consistent with how we view the Elliott wave structure.

EWI: Why are people interested in this particular indicator?

SH: That's a good question, and it speaks to a broader issue, viz., the "re-emergence" of technical analysis into the mainstream consciousness of market participants. In Prechter's Perspective, Robert Prechter discusses the timing of the popularity of technical analysis, of which Elliott waves, or pattern recognition, is the highest form:

"In long term bull markets, no one really needs market timing because the market is always going up. This was true during the 1950s and 1960s, a period of market strength. And it has been mostly true since 1982. From 1966 to 1982, though, the market was very cyclic, so investors couldn't sleep like babies with a buy-and-hold blanket like they do today."

The S&P 500 has a negative return over at least the past 12 years, so investors are naturally questioning the "broadly diversified, buy and hold" stance advocated by 90%+ of investment advisors. EWI subscribers are way ahead of the mass of investors because as the bear market progresses, the media should show increased focus on technical analysis, including patterns such as head-and-shoulders as well as trendlines, moving averages and, yes, even Elliott waves, just as they did during the last great bear market from 1966 to 1982. It will be an exciting time for those with even a cursory knowledge of the technicals.

EWI: So, what are you seeing now?

SH: Obviously we cannot give away our analysis, but the wave structure is clear, the myriad indicators we keep offer compelling confirmation and the market is accommodating our forecast. If readers have any interest in what this means for not only the stock market, but also all other markets, please give us a read to see if our work might be useful in helping to formulate your investment portfolio. We think it will be a worthwhile endeavor.

Read some of the latest nuggets directly from Elliott Wave International President Robert Prechter's desk -- FREE. Click here to download a free report packed with recent analysis and forecasts from Prechter's Elliott Wave Theorist.

a massive Head and Shoulders Pattern in the Market

2010-08-20T11:58:00.000-04:00

Slicing the Neckline: A Classic Technical Pattern Agrees with the Elliott Wave Count

In the August issue of his Elliott Wave Theorist, market
forecaster Robert Prechter alerted readers that the U.S. stock
market was slicing the neckline of a classic head-and-shoulders
pattern in technical analysis, and that this may send the market
into critical condition.
Prechter said that when the Elliott wave count and a head-and-shoulders
pattern are saying the same thing about the stock market, it's
best to pay attention.

Read
some of the latest nuggets directly from Robert Prechter's desk -- FREE. Click
here to download a free report packed with recent quotes directly from Prechter's Elliott
Wave Theorist.

Here's how the August issue of the Elliott Wave Financial
Forecast, the sister publication to Prechter's Theorist, described
the head and shoulders pattern unfolding in the stock market:
"The weekly Dow chart [below] shows the development
of an intermediate-term, head-and-shoulders pattern from the
January high at 10,729.90 to the present. The January high
marks the left shoulder, the April 26 high at 11,258 is the
head, and the right shoulder is now ending. The April [Theorist]
discussed the pertinent characteristics that Edwards and Magee
used to define this technical pattern ... all apply to the
current formation. Observe how weekly stock trading volume
has contracted during the development of the right shoulder,
a necessary trait of this pattern. The downward-sloping neckline
-- exactly as on the big ten year pattern -- displays market
weakness, which is consistent with our interpretation of the
wave structure."
This chart shows the head-and-shoulders pattern.

Here's what Robert Prechter himself said in a recent Elliott
Wave Theorist:
"Generally, when the neckline slopes downward, the right
shoulder does not rise to the level of the left shoulder ..."
Please look at the chart again -- then re-read Prechter's quote.

Read
some of the latest nuggets directly from Robert Prechter's desk -- FREE. Click
here to download a free report packed with recent quotes from Prechter's Elliott
Wave Theorist.

Technicals vs. Fundamentals

2010-07-29T19:56:00.000-04:00

Technicals vs. Fundamentals: Which are Best When Trading Crude Oil and Natural Gas?

July 26, 2010

If "fundamentals" drive trend changes in financial markets, then shouldn't the same factors have consistent effects on prices?

For example: Positive economic data should ignite a rally, while negative news should initiate decline. In the real world, though, this is hardly the case.

On a regular basis, markets go up on bad news, down on good news, and both directions on the same news -- almost as if to say, "Talk to the hand cuz the chart ain't listening."

Unable to deny this fly in the fundamental ointment, the mainstream experts often attempt to reconcile the inconsistencies with phrases like "shrugged off," "defied" or "in spite of."

That begs the next question: How do you know when a market is going to cooperate with fundamental logic and when it won't? ANSWER: You don't.

Get FREE access to Elliott Wave International's most intensive forecasting service for the global Energy markets. Now through noon Eastern time July 28, you can get timely intraday charts, forecasts and analysis for Crude Oil and Natural Gas. You'll also get daily, weekly and monthly analysis and forecasts for all major Energy markets and Energy ETFs. Access FreeWeek now.

Take, for instance, the first three news items below regarding the July 22 performance in crude oil, versus the fourth headline, which occurred on July 23:

Crude prices surge nearly 4% in their sharpest one-day percentage gain since May. The rally was "aided by fears that Tropical Storm Bonnie will enter the Gulf of Mexico over the weekend and disrupt oil production." (Wall Street Journal)
"Oil Prices Soar As Gulf Storm Threat Looms" (Associated Press)
"The storm should keep oil prices bubbling if it continues to strengthen and remain on track." (Bloomberg)

vs.

"Oil Slips From Surge Despite Storm Threats" (Commodity Online)

Unlike fundamental analysis, technical analysis methods don't rely on the news to explain or predict market moves. They look at the markets' internals instead.

'Day of Reckoning' Looms

2010-07-23T19:04:00.000-04:00

Quadrillion Dollar Debt: 'Day of Reckoning' Looms
What Will Happen as $1,000,000,000,000,000 in Global Debt Winds Down?July 22, 2010

By Elliott Wave International

The biggest balloon in the world is deflating.

This balloon had been inflated with a quadrillion (10¹⁵) dollars, which is to say: This balloon was filled not with air but with debt from around the globe.

What will happen as this global debt winds down? In two words: Deflationary Depression -- the likes of which could be unprecedented in history.

Want to Know How to Prosper in a Deflationary Depression?
If you haven't yet given Robert Prechter's deflation argument your full attention, you should know now that yesterday was the best time to do so. Download Prechter's 60-Page Guide to Understanding Deflation here.

A thousand trillion in debt can't be wished away or swept under the rug. No one can "forgive" the debt. The consequences of unwinding this debt could be as massive as the dollar figure itself.

We've heard plenty about the debt problems of Greece, Spain, Portugal and Italy.

But how about the world's second largest economy? Consider this fact reported in the Japan Times (July 8):

"Japan's government debts are the highest the world has ever seen, at 219 percent of gross domestic product, according to the International Monetary Fund."

Then there's the world's sixth largest national economy. In January 2009, Robert Prechter wrote this in theElliott Wave Theorist:

"British banks have amassed $4.4 trillion worth of foreign liabilities, twice Britain's annual GDP. ... England, moreover, 'has not defaulted since the Middle Ages.' The possibility that it may do so again is yet another indication that the bear market is of ... (larger) degree, exactly as Elliott wave analysts have predicted all along."

Remember, Japan and Great Britain are major world economies. Imagine what the debt totals would look like in a line-item analysis of other nations, regions, states, provinces and municipalities around the world, including the U.S.

De-leveraging will likely lead to a deflationary crash -- a "day of reckoning."

How can you prepare for a deflationary crash?

To start with, keep your money safe. As Bob Prechter mentions in the June 2010 Elliott Wave Theorist:

"Investors should be primarily in greenback cash and Treasury bills."

He also describes holdings which should be strictly avoided.

Want to Know How to Prosper in a Deflationary Depression?If you haven't yet given Robert Prechter's deflation argument your full attention, you should know now that yesterday was the best time to do so. Download Prechter's 60-Page Guide to Understanding Deflation here.

Slope of Hope

2010-07-19T20:49:00.004-04:00

Understanding Robert Prechter's 'Slope of Hope'

July 19, 2010

By Elliott Wave International

Almost everybody who follows financial markets has heard about climbing the "wall of worry": the time when prices head up bullishly, but no one quite believes in the rally, so there's more worry about a fall than a rise.

What's the opposite condition in the market?

Bob Prechter named it the "slope of hope," meaning that as prices head down, no one wants to believe the market really has turned bearish, so there's more hope for a rise than fear of a fall.

The market has been rising recently, following a bearish decline from late April through the end of June, which makes now the perfect time to learn more about the slope of hope.

* * * * *

Excerpted from The Elliott Wave Theorist by Robert Prechter, published June 18, 2010

According to polls, economists are virtually unanimous in the view that the “Great Recession” is over and a recovery is in progress, even though “full employment will take time,” etc. Yet mortgage writing has just plunged to a new low for the cycle (see Figure 1), and housing starts and permits just had their biggest percentage monthly drop since January 1991, which was at the end of a Primary-degree recession. But the latest “recession” supposedly ended a year ago. How can housing activity make new lows this far into a recovery? The answer is in the subtitle to Conquer the Crash, which includes the word depression. The subtleties in economic performance continue to suggest that it “was” not a “recession.” It is a depression, moving forward, in punctuated fashion, slowly but inexorably.

Despite this outlook, keep in mind what The Elliott Wave Theorist said last month: “Even though the market is about to begin its greatest decline ever,the era of hope is not quite finished.” For as long as another year and a half, there will be rallies, fixes, hopes and reasons to believe in recovery. Our name for this phase of a bear market is the Slope of Hope. This portion of the decline lasts until the center of the wave, where investors stop estimating upside potential and start being concerned with downside potential. Economists in the aggregate will probably not recognize that a depression is in force until 2012 or perhaps beyond. That’s the year the 7.5-year cycle is due to roll over (see April 2010 issue). Stock prices should be much lower by then, but optimism will still dominate, and it will show up in the form of big rallies and repeated calls of a bottom.

the Long Decline Ahead: 20 Questions with Robert Prechter

2010-07-05T10:13:00.001-04:00

20 Questions with Robert Prechter: Long Decline Ahead

July 2, 2010

By Elliott Wave International

The following article is an excerpt from Elliott Wave International’s free report, 20 Questions With Deflationist Robert Prechter. It has been adapted from Prechter’s June 19 appearance on Jim Puplava’s Financial Sense Newshour.

Jim Puplava: I want to come back to government spending, but first I want to move onto the stock market. In your last two Elliott Wave Theorist issues, you laid out a scenario that would put the Dow and S&P, which in your opinion may have peaked on April 26, as the top from here. You feel that this top is the biggest top formation of all time, a multi-century top and we could head straight down in a six-year collapse that would end in 2016 that could see a substantial portion of the S&P and the Dow wiped out in a similar way that we saw between 1929 and 1933. Let's talk about that and the reasoning behind it.

Editor’s Note: The article you are reading is just one small excerpt from Elliott Wave International’s FREE report, 20 Questions With Deflationist Robert Prechter. The full 20-page report includes even more of Prechter’s insightful analysis on fiat currency, gold, the Fed, the Great Depression, financial bubbles, and government intervention. You’ll learn how to protect your money -- and even profit -- in today's environment. Read ALL of Prechter's candid answers for FREE now. Access the free 20-page report here.
RP: Yes, you're exactly right. I did a lot of work on technical forms, cycle forms and Elliott wave forms in April and May and put them in a double issue. Let’s talk about the cycles first.
The 7¼-year cycle has been quite regular since the first bottom in 1980. The next bottom was at the crash in October 1987. The next one was November 1994, which is when the economy went through four years with lots of layoffs; it was a recessionary period throughout until that cycle bottomed. The next one was between September 2001, which was the 9/11 attack, and the October 2002 bottom. And the latest one was at the low in March 2009. All those periods are 7¼ years apart, so we are in the uptrend portion of the 7¼-year cycle.
However, notice for example that in 1987, the market went up until August of that year and then bottomed in October, just a couple of months later. So the decline occurred very, very late in the cycle. This time it occurred a little bit earlier in the cycle, topping in '07 and bottoming in '09. In the current cycle, prices should peak the earliest of all of them. It's what we in the cycle prediction business call “left-hand translation.” The market’s already gone up for about a year, and I think that's just about enough. I think we're going to spend most of the cycle going down. But the important thing to note is that the next bottom is due in 2016. That means I think we're going to have a repeat of what happened between 1930—which was the top of the rally following the 1929 crash—and the July 1932 low. Instead of taking two years, it's going to take about six years.
It's going to be a very long decline. It's going to be interrupted by many, many rallies, just as the decline from 1930 to 1932 was. And every time it bottoms and rallies, people are going to say “OK, that's enough; it's over.” But it won't be over. It's just going to be a long, long process. I think you and I will probably be talking a few times during this period. One of the interesting aspects of this process is that optimism should actually remain dominant through the first three years of the cycle. That will carry us into 2012. Even though prices will be edging lower, most people are going to think it's a buy, and you shouldn't get out of your stocks, and recovery is just around the corner, probably for the next three years. And then, for the final half of the cycle, the final three years, that's when you'll get the capitulation phase when everyone finally gives up.

Editor’s Note: The article you are reading is just one small excerpt from Elliott Wave International’s FREE report, 20 Questions With Deflationist Robert Prechter. The full 20-page report includes even more of Prechter’s insightful analysis on fiat currency, gold, the Fed, the Great Depression, financial bubbles, and government intervention. You’ll learn how to protect your money -- and even profit -- in today's environment. Read ALL of Prechter's candid answers for FREE now. Access the free 20-page report here.

This article, 20 Questions with Robert Prechter: Long Decline Ahead,was syndicated by Elliott Wave International. EWI is the world's largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

The Biggest Baddest Call Of Them All

2010-06-05T21:46:00.001-04:00

EWI called the uptrend in stocks "out" back in April 2010



By Nico Isaac Fri, 04 Jun 2010 16:00:00 ET	Email	BOOKMARK AND SHARE IT!

Even non-sports fans have heard by now about the recent debacle known as "Baseballgate" -- with two outs in the ninth inning, the first base umpire called "SAFE" when the runner was clearly "OUT." The missed call cost Detroit Tiger pitcher Armando Galarraga a perfect game.

And as the blogosphere flooded with memories of other historic slip-ups that cost "so and so" star "this and that" honor, demands for the Commissioner of Baseball to reverse the bad call grow louder by the hour.

And it was indeed a very bad call. But the Biggest, Baddest Call of all was not made on a sports field. It was made in the field of finance -- specifically on the stock market. To wit: The mainstream "umpires" of finance stood near first base, and in April made this emphatic call for the uptrend in stocks:

"SAFE!!"

In case you missed the event, here's an instant replay:

"Stocks Remain In A Powerful Bull Market." (April 10 Bloomberg)
"Stocks Haven't Lost Their Appeal As The Market Goes Up, Up, And Away." (April 21 US News & World Report)
"You can use any number of words to describe this bull market. Frothy is not one of them. This market is reasonably priced." (April 21 AP)
"US Stocks Post Longest Winning Streak Since 2004. The recovery should be sustainable and that will drive the market." (April 24 Bloomberg)
"All the economic reports are pointing up... despite lingering worries over debt problems in Greece. Right now, there is virtually no evidence of a top." (April 30 USA Today)

Yet from its April 26 peak, the DJIA turned down in a jaw-dropping 1000-plus point selloff. The market suffered its worst May since 1940.

(The Market's Next Big Play: The June 2010 Financial Forecast Service reveals whether the US stock market will hit prices out of the park -- or strike out -- in the days, weeks, and months to come. Get the full play-by-play today.)

The markets have no Commissioner to reverse the bad call of the financial mainstream. But at least one team of analysts remained ahead of the most game-changing moves in the world's leading stock market, including a forecast that called the rally "OUT" in April 2010. Consider the following insight from EWI president Robert Prechter:

On April 16, Prechter published his April Elliott Wave Theorist titled ""Deadly Bearish Picture." Notice the dates!

"We can project a top...between April 15 and May 7, 2010. It is rare to have technical indicators all lined up on one side of the ledger. They were lined up this way -- on the bullish side -- in late February-early March of 2009. Today, they are just as aligned, but on the bearish side."

April 26 marks the high for the DJIA, followed by the devastating drop on May 7 -- exactly within the date range Prechter's forecast called for.

Find out what the next big play for stocks is today. Click on the link and follow the fast and easy steps to begin.

TAGS: DOW, DOW JONES INDUSTRIAL AVERAGE, US STOCKS, BULL, BASEBALL, BAD CALL

One Week Left: Download Prechter's free 10-page market analysis

2010-05-29T21:18:00.000-04:00

There’s only one week left to download Robert Prechter’s free 10-page market letter. Our friends at Elliott Wave International are featuring the free download through June 7.

The free issue, titled “A Deadly Bearish Big Picture,” contains recent research and market analysis that goes beyond the news headlines to give you urgent, independent market forecasts. Prechter’s market outlook has changed dramatically since February of 2009 when he informed hisElliott Wave Theorist subscribers to turn bullish.

The markets have turned more and more volatile by the day, with huge market swings spanning hundreds of points! It’s time to prepare yourself.

Get your FREE copy of Prechter's latest research through June 7 -- Download the Theorist now.

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EWI called the uptrend in stocks "out" back in April 2010

TAGS: DOW, DOW JONES INDUSTRIAL AVERAGE, US STOCKS, BULL, BASEBALL, BAD CALL

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