It's a new year, and there are new high hopes for the stock market, as you can see in this December 21, 2011 headline from USA Today:
Strategists predict a glowing 2012
The 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."
But, haven't we heard this before?
The 10.5% gains forecasted for the coming year is intriguing considering it is almost exactly the average gains that were forecasted for stocks in 2011. Take this Barron's cover story from December 2010 as a prime example:
OUTLOOK 2011: Our panel of savvy Wall Street strategists expects stocks to rise 10% next year, as an economic expansion takes hold.
But as you know, in 2011 we essentially had a flat market. 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%.
And the Dow's action masks a strongly negative stock market performance in the overseas markets. So, how should you plan for 2012? What's really ahead for the markets, and what does it mean for your portfolio? Will the European credit crisis and U.S. debt debacle continue to loom over the markets or will the economic expansion actually take hold?
Elliott Wave International has just released a free report that will help you navigate the year ahead. You'll get all of the indicators that they have been analyzing over the past year, with 25 eye-opening charts and 14 pages of straightforward commentary to help you see where we've been and what's ahead.
This report is being released for a limited-time only and will expire January 16. This could be the most important investment report you'll read for 2012.
January 10, 2011: Back in November 2011 we have shown this chart:
Here is how the stock market has moved since then:
The chart shows an a-b-c advance that is a typical countertrend rally after a 5 wave decline that occured during the summer of 2011. Auccumulation-Distribution index shows big money is selling. It is declining while stocks are going up. Big money is selling the rally. This is a good level to try a short. If you have time to watch the market during the day, identify a 5 wave decline and then short the next a-b-c intraday rally and adjust your stop according to your risk tolerance. If a 5 wave decline does not materialize, then you wait.
December 17, 2011: S&P failed to clear 200 day MA and closed below 50 day MA. Small rallies will be followed by larger declines. Daily Accumulation-Distribution index shows big money is selling. Gold decline is not over yet, in fact it is in early stages.
On December 14th, Prechter explained good earnings appear at market tops once again in CNBC:
November 20, 2011: Few days ago it looked like a bull flag was forming. But we broke down and now if the decline continues we will break below 50 day moving average. It does look like 3rd wave declines (elliott waves) are in their early stages forming at multiple degrees. Elliottwave International suggested speculators reduce their stop for their S&P short position. Further declines are expected especially if we break below 50 day MA.
Elliott Wave International has just released a free report that will help you navigate the year ahead. You'll get all of the indicators that they have been analyzing over the past year, with 25 eye-opening charts and 14 pages of straightforward commentary. As volatile as the markets have been and will likely continue to be, you owe it to yourself and your portfolio to download this free report.
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.
November 4, 2011: There are two ways to count Elliott Waves at this time. Time will tell which one is unfolding. If 50 day MA holds as support, then we are likely to have this action in the coming weeks:
If 50 day MA does not hold, then the decline will probably come faster:
October 28, 2011: Stocks moved up quickly and are about to complete a-b-c advance from September lows. Wave count does not seem to be complete to call a typical top yet. A small advance should lead to a bigger decline soon:
Subscribe to Short Term Update at Elliottwave International for frequent analysis of the markets, or the monthly Financial Forecast and Elliott Wave Theorist for the big picture. Read about Elliott Wave Theory to understand the fractal nature of the stock market moves. Understand what is going to drive the stocks lower.
October 10, 2011: Stocks are in a bear market rally that should last a while. We will explore possible target prices now. Our main opinion is that this summer’s decline was only the first leg of a much larger decline that will rival 2008 crash, if not exceed it. However, there will be many rallies on the way down.
Back in July 8, we displayed this chart and suggested a short position.
However, stocks moved much faster and they quickly reached our price target range. In August 8, we had this chart:
Last week stocks have completed the 5 waves displayed above and have started their a-b-c counter trend rally that is typical of a wave 2 in a bear market. Today we broke above 50 day moving average and exceeded 38.2% fibonacci retracement level. Our price target is first 50% fibonacci, then a pullback and an advance to 61.8% retracement level as seen below:
As the earlier forecast, the stock market decline to last weeks bottom formed 5 waves down. According to Elliott Wave Theory, 5 waves occur in the direction of the larger trend. That means larger stock market trend is down. That is why we are expecting an a-b-c counter trend rally during the coming weeks and months. While other wave formations are possible, this is the most common form.
Big Picture: Stocks in Free Fall Territory
And see EWI's long-term forecast in the updated "Free Fall" chart - August 18, 2011
In the May 2008 issue of his monthly Elliott Wave Theorist, Robert Prechter showed this chart of the Dow Jones Industrials. As you can see, prices go back to the 1970s.
Please note that on the day this chart published (May 16, 2008), the Dow closed at 12,987 -- barely eight percent below the Dow's all-time high of the previous October.
Yet, as you can also clearly see, Prechter labeled the white space below the May 2008 price level as "Free Fall Territory."
At the time, no one else dared to publish such a bearish forecast. This was before the Lehman bankruptcy, the bailout binge, the home foreclosure crisis, and certainly before the worst of the stock market collapse.
In his June 2011 Theorist, Prechter published an update to the chart above, and here's the major difference: The updated chart "telescopes out" by one full degree of trend. Prices go back to the 1930s. The scale of the white space surrounding this chart's "free fall territory" label will show you what Prechter truly means.
His commentary in that issue also observed that
"the March-April [2011] rally was one of the most passionate bouts of stock buying I have ever witnessed."
Bob Prechter made this observation not in admiration, but as a warning.
In the past three weeks, the Dow Industrials have plummeted nearly 2,000 points. Most investors are confused and scared. How far down will the decline travel? Will it end tomorrow or go on for years?
The answers to these questions are crucial to your financial health. You can still get ahead of the trend, but only if you prepare now. Read EWI's long and near-term forecast. Get it in one comprehensive package -- and stay ahead of the crowd.
And -- get Bob Prechter's August Elliott Wave Theorist. It includes "many dozens" of charts. Bob will also record this Theorist as a rare "video issue" -- you'll be able to watch and listen as Prechter himself presents all the content.
Also -- as part of the same package, you get the August issue of our Elliott Wave Financial Forecast -- you'll see and read about the latest big picture in stocks, dollar, gold and more.
August 18 10:20 AM: I missed the short entry point. Sorry it happened faster than I thought. SPY is now 114.77. I think it will go lower than 111. If you care 3-5% gain, try to find a short entry during the day and be prepared to close it today. Yes, it can be all done today with a major decline. After this leg down is done we will be completing 5 waves down in our first leg of decline. If this wave count is right, a 3 wave up rally should materialize in the coming weeks. But don’t bet on long side. Down legs are likely to be big and can catch you.
People are asking “why are the stocks falling”?
This is a critical time for the stock market. According to Prechter we are witnessing one of the great short opportinies which will be followed by once in a lifetime buying opportunity. Read this free report to understand the financial markets today. You can subscribe to his service for expert analysis of the stocks, currencies, gold, oil, commodities. You typically get free books about Elliott Wave analysis and Conquer the Crash as well. They have certainly helped me with my trades.
August 17 10:30 AM: The moment rally exceeds our ideal short point C, the decline is no longer a 5 wave decline and is instead a a-b-c countrend pullback which means the trend is up. Therefore we exit our shorts at our stops. We will wait for higher prices to short which can be at 61.8% retracement level.
August 16 1:20PM, 2011: Last month’s crash till today is turning out to be text book pattern for Elliott Wave Theory. Today’s morning we gapped down. We could not count five waves down, but the rally was clearly 3 waves: a-b-c, a countrend move according to Elliott Wave Theory. If you are adventurous, you can place your shorts at the top of those 3 waves hoping that they won’t turn into a 5 wave advance. Or you can wait for a while to see the decline and then get in. At this very moment as I type this we are ending the initial intraday decline, but after a short rally decline should resume. Good luck with your shorts. SPY target is below 111.
August 15, 2011: According to our previous forecast, we have reached the end of wave 4 and wave 5 is about to start sharply taking us down to a temporary bottom. We have reached 38.2% fibonacci retracement level for the rally. It is possible that my wave count is wrong and the rally could continue to 61.8% retracement level (or more). If you have time to watch the market during the day, I would recommend shorting after 5 waves down, 3 waves up (indicating one larger trend is down) if you catch it during the next few days. If you are busy, then add some shorts at this level with stops according to your risk tolerance. Admittedly, this is little bit early into the rally, but it is possible that next leg down will be a big one and we don’t want to miss if that happens.
August 8, 2011:Elliott Wave #3 of (1) took us quickly to the vicinity of 38.2% fibonacci retracement level for the decline. We should expect a sharp rally to develop soon. When it comes, it should take us 80-100 points higher in SP500. Not to sweat it out, you may want to lower your stops for your shorts. If we can exit shorts on time, we will try to short it again at the top of that rally. If you are not into options, SKF, SRS, SDS did well for the shorts but they are not long term holds due to slippage. After the rally, a 5th wave will take us to a temporary bottom and will complete wave 1 of a larger degree downtrend.
Many people think S&P downgrade of US credit rating is the culprit for the market crash. However, the charts show that the decline has started much earlier. Earnings were good, news were not worse than the rally days. Then why is the market falling? To have a fresh perspective on analysis of cause/effect relationships in the markets, download EWI's FREE 50-page Independent Investor eBook.
July 8, 2011: This is a good level to try a short. Stocks have been under distribution for the last 4 months according to accumulation-distribution index despite new highs. Sharp rally of last 2 weeks occured on declining volume.
June 22, 2011: Stocks remain in a downtrend. US dollar should continue it’s rally. Here's the sort of story that should have made the financial headlines for a week:
"From March 17 through April 11, 14 out of 17 days began with an up gap in the S&P futures; and from April 19 through May 2, the day of the top, 8 out of 9 trading days began with an up gap."
But, of course, there were no such headlines. I don't recall reading a word about it anywhere. It would have been a story worth reporting. Done properly, it could have included a quote like this from a 30-year market pro:
"The March-April rally was one of the most passionate bouts of stock buying I have ever witnessed.... Investors wanted stocks so insistently that they paid above the previous day's close more often than at any time I can remember."
Unfortunately, the only people who read these comments are Elliott Wave Theorist subscribers. The quotes come from Bob Prechter, on page one of the June issue.
Now, it is true that what he describes above happened during a relative few weeks. And for him this is more like looking through a microscope, instead of the longer-term perspective he typically offers.
Yet what is striking is how much the "microscope" agrees right now with the "telescope" -- Prechter had a seriously good reason for calling attention to the April/May buying spasm.
In a word, it's about Valuation. In 2009, we have published this chart about the stock valuations and explained why we have not seen a true market bottom:
What does this chart show today? The "passionate bouts of stock buying" and "up gaps" for days on end directly reflect today's extreme market valuation. June issue of Elliott Wave Theorist explains it. Which is to say, Prechter puts all this in its historical perspective. Far beyond those two recent months, today's stock market is now in a league of epic-scale valuation measures which go back as far as we have reliable data (80-plus years).
Words alone can't capture that scale; so the June Theorist includes a unique valuation chart that combines book value and dividend yield. Published for the first time, it shows exactly where today's market is among the great "outliers" of market history. It is excellent warning to those who claim the stocks are cheap by historic measure.
Read Prechter's analysis and see the charts, and you'll know that my few words here amount to a mere glimpse of the story. Mind you, the June Theorist includes a lot more than an analysis of hair-raising valuation levels -- from the economy to the Fed to the 2012 elections to how to keep your assets truly safe. What you'll discover defines "tomorrow's news today."
April 17, 2001: It is earnings season again! Will the market go up? Will the market go down?
Earnings Season: Strong Earnings Mean a Strong Stock Market -- Right?
Earnings season is upon us, so it's a good time to delve into how earnings affect stock prices. Here's an excerpt from Bob Prechter's February 2010 Elliott Wave Theorist. It considers the conventional belief in a cause/effect relationship between earnings and stock prices. EWI's 50-page Independent Investor eBook includes the entire report on the effect 10 different economic events, political events, and monetary and fiscal policies have on the market. You can download it now for free.
Claim: "Earnings drive stock prices."
This belief powers the bulk of the research on Wall Street. Countless analysts try to forecast corporate earnings so they can forecast stock prices. The exogenous-cause basis for this research is quite clear: Corporate earnings are the basis of the growth and the contraction of companies and dividends. Rising earnings indicate growing companies and imply rising dividends, and falling earnings suggest the opposite. Corporate growth rates and changes in dividend payout are the reasons investors buy and sell stocks. Therefore, if you can forecast earnings, you can forecast stock prices.
Suppose you were to be guaranteed that corporate earnings would rise strongly for the next six quarters straight. Reports of such improvement would constitute one powerful "information flow." So, should you buy stocks?
Figure 9 shows that in 1973-1974, earnings per share for S&P 500 companies soared for six quarters in a row, during which time the S&P suffered its largest decline since 1937-1942. This is not a small departure from the expected relationship; it is a history-making departure. Earnings soared, and stocks had their largest collapse for the entire period from 1938 through 2007, a 70-year span! Moreover, the S&P bottomed in early October 1974, and earnings per share then turned down for twelve straight months, just as the S&P turned up! An investor with foreknowledge of these earnings trends would have made two perfectly incorrect decisions, buying near the top of the market and selling at the bottom.
In real life, no one knows what earnings will do, so no one would have made such bad decisions on the basis of foreknowledge. Unfortunately, the basis that investors did use--and which is still popular today--is worse: They buy and sell based on estimated earnings, which incorporate analysts' emotional biases, which are usually wrongly timed. But that is a story we will tell later. Suffice it for now to say that this glaring an exception to the idea of a causal relationship between corporate earnings and stock prices challenges bedrock theory.
For more of Robert Prechter's analysis of cause/effect relationships in the markets, download EWI's FREE 50-page Independent Investor eBook. It includes essays from recent issues of The Elliott Wave Theorist and its sister publication The Elliott Wave Financial Forecast, in addition to a full chapter from the New York Times bestseller, Conquer the Crash. Download your free eBook.
This article was syndicated by Elliott Wave International and was originally published under the headline Earnings Season: Strong Earnings Mean a Strong Stock Market -- Right?. 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.
March 18, 2011 Announcement: Elliott Wave International has released a free issue of Robert Prechter's Elliott Wave Theorist. It includes more of Robert Prechter's experience than you’ll ever read in a single issue -- all 30-plus years of it. What matters is that he uses his experience at a moment when it can do the most good, namely when investors are most vulnerable. This is a unique opportunity for you to see what Prechter’s subscribers see. Don't miss out! This free issue is only available through March 21.
March 7, 2011: Stocks are struggling to go higher. We may be building a major top. Bullish sentiment is extreme which happens on market tops. Oil has rallied with the excuse of social unrest in Egypt, Libya. Precious metals rallied as well and US dollar should be close to it’s bottom. USD is becoming a good buy again. Debt is still the problem and we have more of it now. Debt is denominated in US dollars.
Robert Prechter thinks bear market is about to resume:
December 16 Update: As the stocks reach new recent highs each day, internals are peeling apart. Various measures of technical indicators point to extreme optimism despite overbought conditions and deteriorating internal strength. In their latest Financial Forecast, Elliottwave International reports “Analysts Have Not Seen an Environment This Extreme in 45 Years”. Despite Bernenke’s promise for lower rates, Mortgage rates jumped again. Treasuries are up. Recent report shows demand for US dollar is well and alive. Deflationary threat continues as Bernanke’s threat of printing scares the creditors and causes credit to deflate! CPI is up due to energy speculation, but is otherwise points to deflationary problems. Stock market top is near and we will try to be short before the next leg down.
December 12 Update: Wave 5 from July lows is in progress. Wave 4 down bounced from 50 day Simple Moving Average. Wave 5, the final advance of an impulse move started. Once complete it should be followed by a large decline. If wave 1 is to be equal to wave 5 in magnitude, then wave 5 still has some room to run. Get ready to go short.
Below is the chart for SPY ETF for the last few months showing a 5 wave advance unfolding:
On April 30th 2010, we warned the investors to go cash or short which turned out to be a timely recommendation:
Warning: Pump and Dump is in Progress
Accumulation-Distribution Index once again rings the bell of a market top. Big money has been buying since February lows and they started selling half way. The momentum gives them enough pricing power to dump their shares to the greater fool, aka individual investor at a higher price.
Below S&P 500 weekly chart shows accumulation distribution index is a leading indicator. When it goes down while the prices continue to increase, eventually lower prices follow.
April 15, 2010: Steven Hochberg of Elliott Wave International on CNBC
April 8, 2010: Prechter on Fast Money Show Bulls don’t let Prechter speak! And that’s a sell signal!
Subscribe to Short Term Update at Elliottwave International for frequent analysis of the markets, or the monthly Financial Forecast and Elliott Wave Theorist for the big picture. Learn what drives the market lower.
March 2010: Are we close to the top? Volume is declining on price advance, and it is surging on price declines.
We are approaching 61.8% retracement level on S&P 500. Check out the stock market crash that happened after DOW retraced 50% of the decline in 1930.
Our January 5 update below alerted the investors on time before the decline:
January 5, 2010 Update: Prechter recommends investors to completely get out of stocks, bonds. Short term treasuries is the place to be. US dollar rally is real and should continue for 1 to 2 years. Speculators can take short positions.
Let us a take a look at deteriorating accumulation-distribution index:
As seen in the above weekly chart, S&P 500 index has retraced 50% of the initial decline since 2007 top. After a classic 1-2-3-4-5 decline, an a-b-c counter trend move has formed according to Elliott Wave Theory. Meanwhile, accumulation distribution index once again is going down while the prices are going higher. Same happened at 2007 top.
In his monthly Elliottwave InternationalElliott Wave Theorist newsletter, Prechter explains the limited upside possibility and the major downside target for DOW. He believes March lows will not hold. Please read his excellent book Conquer the Crash to understand why. Prechter turned bullish in February 2009 with a DOW target of 10000 in his Elliott Wave Theorist newsletter. Now he thinks the bear market rally has already ran it’s course as we near the upper end of the target range (11600) he has presented back in August 2009. Subscribe to his short term update to learn support and resistance levels.
Have We Seen the Stock Market Bottom? The Big Picture
Robert Prechter explains the big picture with two unique charts that reveal the answer to the question: Where is the stock market bottom?
Housing Bubble - What Caused it?
Housing prices have been inflated along with stock prices for the last few decades due to credit inflation that FED has fostered. Here is a summary of what caused the housing bubble and why deflation hit housing.
Is it a Bear Market Rally?
Prechter on Bloomberg, June 19, 2009:
After predicting the last few months of bull market back in February, Prechter is expecting a pullback and then a rally into the summer to complete wave 2 with great crowd optimism that will lead to the wave 3 crash.
Stock Market Bottom Call - February 2009
Stock Market Top Call - October 2007
Become a member at Elliottwave International to get access to upto date financial forecasts:
August 16 1:20PM, 2011: Last month’s crash till today is turning out to be text book pattern for 
