It is a Mistake to Follow the Crowd

We’ve seen it time and again: The investment crowd often hops aboard a financial trend just as it’s about to end.

Government itself is actually a case in point. Here’s what the August 2007 Elliott Wave Financial Forecast said:

[In July], The Elliott Wave Financial Forecast discussed governments’ knack for committing to a trend when it is finally ending. A front page article in the July 24 issue of The Wall Street Journal titled, “Governments Get Bolder in Buying Equity Stakes,” confirms the strength of this very dependable sell signal.

Just two months later (October 2007), the stock market registered its historic high.

Overseas buyers are another major chunk of the investment crowd. That group was also ramping up their purchases of U.S. stocks back in late 2007.

Corporations are likewise part of the herd.

Let’s fast forward to 2015, and read what our August 14 Short Term Update had to say just before the worst part of the recent selloff:

Selling pressure was exhausted on Wednesday (Aug. 12), when stocks declined sharply early in the session but rallied to erase all or most of the early-day losses. The most astounding aspect of that day was [that] much of the stock being bought was not by individual investors or by institutions, but by companies themselves. A unit of Goldman Sachs that executes share buybacks for clients had its busiest day since 2011. … Companies are bad market timers.

Indeed, our independent analysis indicated that the stock market rally was ending. Here’s a chart that the August 14 Short Term Update showed [wave labels available to subscribers]:

By the end of the week that followed, the Dow and S&P were down nearly 6%, while the NASDAQ was down nearly 7%.

Here’s a weekly S&P 500 chart from August 21:

But even as the selloff was underway, still another group was hopping aboard what they thought would be a continued uptrend.

Millionaires may be richer — but they aren’t any better at predicting stock market moves than the rest of the population.

The latest Millionaire Investor Confidence Survey, from Spectrem Group, shows that millionaires became more bullish on the economy and markets just before stocks fell into correction territory in late August.

According to the survey, which was conducted between Aug. 14 and Aug. 20, millionaire confidence during the month rose to its highest level in 11 months … .

CNBC, September 2

As we know, the market timing of these millionaires could not have been worse.

Read our free report: Pandemonium in the Stock Market
Updated with new charts and analysis

No longer is extreme volatility contained to Greece or China. The massive waves are here in the States, just as our analysts predicted. Learn what’s behind the recent market chaos. Read excerpts and see eye-opening charts from Robert Prechter’s Elliott Wave Theorist, The Financial Forecast and our Short Term Update.

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This article was syndicated by Elliott Wave International and was originally published under the headline Stocks: Why Following the Crowd is Often a Big Mistake. 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.

Free Elliottwave Theorist

With the market action during the last few weeks, many investors have been operating in panic mode; subscribers to Robert Prechter’s Elliott Wave Theorist haven’t. Why?

Because they were prepared. Elliott Wave International prepared them for the 2007-2009 crisis, and they did it again. In fact, in the calm of Aug. 18, Bob wrote a sharp critique of the U.S. stock market in his newest Elliott Wave Theorist, in which he said to expect market “pandemonium.” (His commentary was published the following day.)

“as shown in this issue, time and price factors call for an immediate end to this dream state. When the alarm goes off and the dreamers awake, it will be pandemonium in the stock market. As the next few charts show, time and price have run out of room. Together, these time and price events seem finally to have cleared the way for a stunning decline in US stock prices.”

That’s just a taste of what Bob predicted in this critical issue. You need to see the rest for yourself, and now you can.

Our friends at EWI have given us permission to share Bob’s FULL August issue of TheTheorist. Free. Read all 10 pages and see all 15 charts!

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DOW Falls 1000 Points in a week

Markets are crashing around the world. US is no exception. After a long bull run, 50 and 200 day averages are breached by the sharp decline in S&P 500. 50 day average may soon cross below 200 day for the first time  after a many years in many of the market indices.

This week’s stunning sell-off sent the Dow 1,000 points lower. Other markets have surprised investors lately, too:

  1. Crude oil just fell below $40 a barrel
  2. Gold just broke above $1160 an ounce
  3. The U.S. dollar is enjoying the strength not seen in years

Almost every step of the way, Elliott wave price patterns have guided our friends at Elliott Wave International and their subscribers:

  1. On July 24, EWI said to turn bullish on gold — the exact day of the intraday lows in gold and silver after four years of decline
  2. Crude oil has followed its Elliott wave script since 1998, including the all-time high near $150 in 2008 and the more recent secondary peak — one from which oil fell below $40 a barrel this week
  3. Wave patterns warned EWI and their subscribers of the huge declines in commodities and the huge rally in the U.S. dollar — both against nearly universal disagreement

The credit goes to the Elliott wave method. For the past 80 years, waves have warned thousands of investors like you about risks — and new opportunities! — at countless market junctures.

This week’s #1 story is the 1,000-point sell-off in the Dow. To show you what they’ve been saying about the markets, Elliott Wave International just put together a new, free 2-page Special Report with most relevant excerpts from their flagship publications: Elliott Wave Theorist andElliott Wave Financial Forecast.

It’s the kind of report a well-informed investor shouldn’t go without.

Read this Special Report now — instantly, and 100% free — to see for yourself the evidence markets are presenting!

The World is Awash in Oil

…But does that mean that oil prices will only go down from here?

In this new interview with Elliott Wave International’s Chief Energy Analyst, Steve Craig, you’ll learn where he sees prices going next.

*Editor’s note: this interview was recorded on August 12; the price low cited in the video was broken on August 13.

Market Myths Exposed

Free Report: “Peak Oil” — And Other Ways Crude Oil Fooled Almost Everyone

These excerpts from Robert Prechter’s Elliott Wave Theorist highlight the flaws in the conventional approach to forecasting oil prices — and show you why oil fooled almost everyone.

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This article was syndicated by Elliott Wave International and was originally published under the headline (Interview) “The World is Awash in Oil”. 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.

EURUSD – What is Next?

Think the recent rally in the euro was the result of “good news” from Greece? Think again.

Watch our Currency Pro Service editor, Jim Martens, explain what’s really behind the moves.

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This article was syndicated by Elliott Wave International and was originally published under the headline (Interview) EURUSD: After the Rally, What’s Next?. 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.

Greek Tragedy? Too Late to Prepare

Today, I got on the phone with Brian Whitmer, editor of our monthly European Financial Forecast.

Brian has been preparing his subscribers for the Greek crisis for a while. Listen to his latest thoughts.

Europe is in the world spotlight this month, with Greece’s future hanging in the balance. But Greece is just one part of the problem. Enjoy an excerpt from Brian Whitmer from the June European Financial Forecast to see just how precarious Europe’s financial situation has become.

Read Global Insight: Europe’s Debt-Dependent Economy now >>

This article was syndicated by Elliott Wave International and was originally published under the headline (Interview, 5:13 min.) Greek Debt Crisis: “Too late to prepare now”. 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.

Volatility Shakes Bond Markets

Is the debt bomb about to go off?

The yields on U.S. Treasuries and European sovereign debt have risen sharply in a relative short time.

Bond prices trend inversely to yields — which means debt portfolios have suffered substantial losses.

From mid-April through May 6, yield on German 10-year bunds spiked 47 basis points. Yields on 10-year U.S. Treasuries jumped 29 basis points in just the past week.

Volatility in the bond market continued on May 7. In just a few hours, the yield on the 10-year bund jumped 21 basis points before pulling back. Bear in mind that sovereign bond yields rarely move more than a fraction of one percent in a day.

Long-term bonds have been hit particularly hard. The yield on 30-year U.S. Treasuries topped 3% for the first time this year.

“We’ve been hurt,” said [an] investment manager at Aberdeen Asset Management. “The movements of recent days have been extremely unusual … .” (Financial Times, May 7)

German government debt is regarded as a benchmark for European assets.

Take a look at this chart of Euro-Bund futures from our May 6 Financial Forecast Short Term Update:

Similar to the credit crisis in 2007-2009, the rout is starting in the bond market, where the pace of evaporating liquidity is quickening. Bids are pulled, prices crack, yields rise and it leaks out toward other asset classes. The turn in bonds in the U.S. and Europe is a sign that the “debt bomb” … is about to go boom.

The April Elliott Wave Financial Forecast warned subscribers about the insanity that pervades the world’s bond markets. Take a look at this chart and commentary:

Many bonds that are perceived to be the safest credit risks guarantee investors a loss. To our knowledge this has never occurred on such a widespread basis in the history of finance. Yields on nearly a third of the euro area’s $6 trillion of government bonds are below zero, which means that bond buyers are guaranteed to lose money if they buy these bonds and hold them to maturity.

The risk of widespread defaults also lurks in the world’s credit markets.

Here’s what well-known hedge fund manager Stanley Drunkenmiller recently said:

Back in 2006/2007, 28% of debt being issued was B-rated. Today 71% of the debt that’s been issued in the last two years is B-rated. So, not only have we issued a lot more debt, we’re doing so with much [lower standards].

All told, the world’s credit markets are on very unstable ground. Expect that ground to get even shakier in the months ahead.

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NASDAQ Leads the Stock Market Bubble

Another bubble is about to pop. In March 2015, we covered the return to a popular fascination with technology.

The striking resemblance to 2000’s technology mania is not going unnoticed. How can it? With the NASDAQ’s much heralded return to 5000 and magazine covers proclaiming “Google Wants You To Live Forever,” concern about an “asset bubble” is being raised. But this is actually another throwback to early March 2000, when the NASDAQ reached its all-time high and the Financial Forecast remarked on a “public ambivalence toward warnings of any kind.”

This March 7 headline from a major financial paper offers a perfect example of how this “normalization” works: “Forget 2000. It’s a Different Investing Ballgame.” Really? Yeah, really. “It really is different this time,” says another. “The crazy valuations seen at the turn of the millennium — when silly concepts, such as collecting eyeballs, attracted billions of dollars from breathless speculators wanting to get in on the new, new thing — are absent.”

There’s just one problem with this assessment, it’s not accurate. Here’s the reality, or should we say surreality, as depicted in Bloomberg on March 17:

The Fuzzy, Insane Math That’s Creating
So Many Billion-Dollar Tech Companies

The article discloses how companies are shooting to “astronomical valuations,” mostly with Internet ideas that capture people’s bullish imaginations and, as in 2000, cause them to look beyond mundane things such as cash flow and profits. Once again, such stone-age metrics are less important than “the number of people using the product” and “whether they pay for it. Investors salivate over what’s called ‘hockey-stick’ growth curves, indicating massive uptake. Costs, especially operations costs, are largely ignored.”

As in 2000, the fever has been spreading fast. According to Bloomberg, start-ups with billion-dollar valuations were once dubbed “unicorns” because of their rarity. Now, Bloomberg counts more than 50 of them. Many have expanded ten-fold, so a new buzzword, “decacorn,” now applies to those with capitalizations of more than “$10 billion, which includes Airbnb, Dropbox, Pinterest, Snapchat and Uber.”

Of course, the driving force behind many of these investments is the same–a fear of missing out (FOMO).

“A severe case of FOMO can cause some to do crazy things to get into the hottest deals,” says Bloomberg. This is exactly what the Financial Forecast said in March 2000, when we explained why people fail to heed ample warnings in the final throes of a mania: “Acting on such an opinion might mean missing something on the upside. ‘The average person must ride it out,’ says [a] Nobel Prize winner. Quotes such as these will deserve preservation in bronze when the bear market is mature.” Clearly, that time still lies ahead.

For compelling Elliott wave evidence of a culmination of the Mania Era, see the five-wave advance in the share price of the current technology leader, Apple Inc., on page 3 of the March Elliott Wave Theorist. As the Theorist notes, after rising more than 14,500% over the past 12 years, S&P Dow Jones Indices added the stock to the Dow Jones Industrial Average on March 19.

This is one more remarkable parallel to the prior technology mania, as Microsoft was added to the Dow Industrials just prior to its January 2000 top. Here’s how EWFF interpreted its addition in November 1999:

The ultimate concession to technology is due November 2, when Microsoft will be inducted into the Dow Jones Industrial Average. For most of the bull market, the world’s most dominant stock was excluded from the world’s premier blue-chip average. But just as RCA was added to the Dow in October 1928 (and removed in 1932), Microsoft has assumed its rightful place at the head of the pack, in time to lead the way down.

Apple has just been acknowledged in the same way and for the same reason. The pressure to pile onto the technology bandwagon has proved irresistible to the Dow’s purveyors. This has generally happened when the most important stock market reversals were at hand.

Editor’s note: This article is from Elliott Wave International’s brand-new investment report, Investors Face a Giant, Historic Bubble. It was originally published in the April issue of The Elliott Wave Financial Forecast, published March 27, 2015. For a limited-time, EWI has agreed to give our readers exclusive free access to the full report. Please click to read this most enlightening report now.

Is Unemployment Rate Really Getting Better?

The “Big Lie” About the U.S. Jobs Picture

Some 30 million people are either out of work or severely underemployed

The financial media heve been featuring stories with an upbeat outlook for the U.S. economy.

For example: The economy is on track for “the fastest growth in a decade” (Associated Press), and “Experts expect jobs aplenty in ’15” (USA Today).

This upbeat tone is related to December’s U.S. jobless rate of 5.6%, its lowest since June 2008.

But Jim Clifton, Chairman and CEO of Gallup, offers a different perspective on the jobs data. His February 3 article on Gallup’s website was headlined, “The Big Lie: 5.6% Unemployment.”

Right now, we’re hearing much celebrating from the media, the White House and Wall Street about how unemployment is “down” to 5.6%. The cheerleading for this number is deafening.

None of them will tell you this … If you are so hopelessly out of work that you’ve stopped looking over the past four weeks — the Department of Labor doesn’t count you as unemployed. … Right now, as many as 30 million Americans are either out of work or severely underemployed. …

If you perform a minimum of one hour of work in a week and are paid at least $20 … you’re not officially counted as unemployed … .

If you … are working 10 hours part time because it is all you can find … the government doesn’t count you in the 5.6%.

There’s no other way to say this. The official unemployment rate … amounts to a Big Lie.

A Federal Reserve chart shows that the civilian labor force has been shrinking for 15 years.

The February Elliott Wave Financial Forecast comments:

Why is [the U.S. Labor Force Participation Rate] falling when job growth is rising? The answer, we think, is the emerging force of deflation. Notice that the peak participation rate of 67.3% came from January to March 2000, as the major stock indexes topped, after which inflation first began to falter. When stocks rallied to their 2007 top, there was a mild bounce in the rate, but the latest stock market rally failed to generate any sustained rise in the rate of work force participation. Workers appear so discouraged that the pool of available employees is back to where it was in 1978. The opening chapter of Conquer the Crash …states, “The persistent deceleration in the U.S. economy is vitally important, because it portends a major reversal from economic expansion to economic contraction.”

What will the jobless picture look like at the bottom of an economic contraction?

The third edition of Conquer the Crash published in July 2014 and forecast:

The true unemployment rate in the U.S. and in most countries around the world will rise and eventually exceed 25 percent … .

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Why Expectations for Business Activity are Plunging

Editor’s note: This article is excerpted from “The State of the Global Markets 2015 Edition,” a comprehensive report by Elliott Wave International, the world’s largest independent market-forecasting firm (data through December 2014). You can download the full, 53-page report here — 100% free.

In its November issue, published on Oct. 31, EWI’s European Financial Forecast discussed the plunging 5-year/5-year forward swap, a market-based gauge that measures inflation expectations from five years to 10 years out, and stated, “Even the central bank’s preferred inflation metric shows nothing but flat or falling prices over the foreseeable future.”

In November, a “sharp deterioration in sentiment” (WSJ, 11/17/14) popped up in the economic surveys.

According to a poll conducted by Germany’s IW Economic Institute, nearly one quarter of the 2,900 companies surveyed (almost double the percentage from last spring) plan to cut investments in 2015. Likewise, the percentage of companies planning to increase spending fell from 44.1% to 29.8%.

In fact, the more officials seem to push the story of a great global recovery, the harder the deflationary evidence seems to push back.

Global Business Activity Expectations

Notice that the balance of companies expecting to increase business activity in the next 12 months just fell to its lowest level since the survey began five years ago.

Markit’s accompanying analysis presents many more lowlights (emphasis added):


  • Expectation of business activity weakened among both manufacturers and service providers.
  • Hiring and investment plans rest at post-crisis lows.
  • Price expectations deteriorated further.
  • Optimism in manufacturing fell to its lowest since mid-2013, while optimism in services slumped to the lowest in the survey’s five-year history.

In the United States

  • The most striking development was the extent of the downturn in the U.S., where optimism hit a new survey low, with the service sector seeing a particularly dramatic decline.”

In Europe and Emerging Markets

  • Business confidence in Spain and Italy was the lowest recorded since this time last year.
  • In Germany and France, confidence was far lower … with both ‘core’ countries seeing the lowest levels of optimism since June of last year.
  • Business expectations across the main emerging markets fell on average to the lowest seen in the survey’s five-year history.

To be clear, deeply rooted economic pessimism often precedes a low in stocks and social mood. But what exists today is something quite different: Namely, investors display excessive optimism toward stocks, while economic fundamentals only continue to deteriorate. We have noted, for example, that J.P. Morgan equity strategists just upgraded European stocks from underweight to overweight, believing that the region is “due a period of outperformance vs. the U.S.” (Reuters, 11/17/14) Yet, economists at J.P. Morgan just downgraded its GDP forecast, calling for world growth to come in at 2.6%. The International Monetary Fund likewise cut its forecast for global growth — for the sixth time in less than two years. At 3.3%, world growth will fall from 3.6% a year ago and from 4.1% a year before that.

We simply don’t buy any of these projections. The critically stretched position of the world’s major stock markets calls for economic downgrades to persist until the worldwide economy enters another full-blown contraction, which is likely sometime in 2015.

Editor’s note: This article is excerpted from “The State of the Global Markets 2015 Edition,” a comprehensive report by Elliott Wave International, the world’s largest independent market-forecasting firm. For a limited time, you can download the full report, for free, and use its year-in-preview insights to prepare, survive and prosper through the global investment landscape of 2015 and beyond. Download the full, free, 53-page report here.

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