Category Archives: Stock Market

Discussion about the stock market, trading and investment, market timing.

Risk On, Risk OFF?

Stocks got no-where in 2015. Gold topped back in 2011, oil bounce topped 2014. Various commodities resumed their decline during the last few years. Where is the stock market headed?

Risk On? Risk Off? Find Out Where Your Money Lies
A peek at the new free report from the editors of our Financial Forecast Service

It’s almost Christmas, “the hap-happiest season of all.” Yet, here’s a sobering fact for U.S. investors: S&P 500 stocks are actually lower now than at the end of last year (chart: Google Finance):

You could say that we’ve had a long bull market, so one “slow” year is OK. But Steve Hochberg and Pete Kendall, the editors of Elliott Wave International’s Financial Forecast Service, have recently documented several indicators which confirm that investors are actually losing their appetite for risk.

In fact, EWI has put together a subscriber-level special report with specific details on this phenomenon — from IPOs to corporate buyback to emerging markets.

You’ll find an excerpt below — and to read this new report in full, free, simply click here.

*****

From Risk On to Risk Off

…Another example is the market for Initial Public Offerings, which The Elliott Wave Financial Forecast identified as ripe for a reversal back in the fall of 2014.

Citing a “euphoria” surrounding Alibaba, which remains the largest IPO ever, we noted a similarity to the record-setting deals that hit the market in November 1999 and March 2008. After each ebullient period, the overall market fell sharply. The long term chart of the Bloomberg IPO Index shows the reversal in the IPO aftermarket that followed each speculative episode:

Interestingly, the peaks are exactly 7.38 years from each other, creating a long-term cycle top that is now behind us. Since September 2014, more than half of the 35 companies that went public with initial valuations of more than $1 billion are now below their IPO price. Many of the most heavily hyped offerings since 2011 are also down dramatically from their post-IPO highs, such as Alibaba (-30%), Twitter (-65%), Zynga (-85%) and Groupon (-90%).

Square Inc., a digital payment company, was supposed to be the next high-flyer when it debuted in mid-November, but before it even hit the market, its prospects diminished as underwriters reduced its offering price to $9 a share, 20% below its estimated opening range.

According to The Wall Street Journal, “skeptical investors” forced the reduction, “further souring the market for new technology-company stock.” …

(Editor’s note: Emerging markets; mergers and acquisitions; corporate stock buybacks — see more warning signs in the rest of EWI’s new special report. Read it free now.)

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.

Get your free report now >>

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.

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.

Take 10 seconds to get a free Club EWI password now — and get instant access to this free report >>

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.

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.

3 Ways To Identify Support and Resistence

We will consider three ways to identify price support and resistance in the markets you trade.

  1. Previous highs and lows
  2. Trendline support
  3. Fibonacci Ratios

These examples are adapted from Jeffrey Kennedy’s time tested Trader’s Classroom service.


1) Uptrends terminate at resistance while downtrends terminate at support. Previous highs and lows often act as resistance and support.

In ALCOA Inc (AA), the September 2012 selloff found support near the previous July 2012 low.

The February 2013 peak occurred following a test of resistance at the January peak at $9.33.

2) Trendlines offer resistance and support for prices.

The 2008 advance in Gold found support numerous times near the trendline that connected the lows of the move, as you can see below:

Conversely, the trendline connecting the highs of Wheat’s 2012-2013 decline provided resistance for countertrend price action.

3) Fibonacci ratios also identify resistance and support. As Elliotticians, we often look at retracements, the most common being .382, .500 and .618. In Akamai Tech, Fibonacci support ignited the July and November 2012 rallies:

In the same chart you can also notice how Fibonacci resistance in AKAM halted the July 2012 and February advances.

For more free trading lessons on trendlines, download Jeffrey Kennedy’s free 14-page eBook, Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading Decisions. It explains the power of simple trendlines, how to draw them, and how to determine when the trend has actually changed. Download free eBook now. We believe this eBook will provide you with a tool set that will improve your success ratio at trading financial markets.

Prepare for the Stock Market Crash

How to Prepare for the Coming Crash and Preserve Your Wealth

Bob Prechter first released Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression during a stock-market high in 2002, and it quickly became a New York Times–bestseller. Now he has updated the book with 188 new pages for a second edition, and it looks like it, too, will be published near a stock-market high. John Wiley & Sons plans published the new edition in late October. Visit Elliott Wave International for information on how to order the new edition from major online retailers.

As was widely reported in the dark days of late February and early March 2009, Prechter called for the start of the biggest stock market rally since the 2007 high. He recommended speculators close the S&P short position that he recommended at 2007 top. Since then, the S&P has soared more than 80 percent in 2 years and seems to have topped in 2011. During the rally Prechter has called virtually all the minor tops to get in short positions for speculators. As of October 2011, his last short at the stock market top and the gold short has paid off. In his monthly newsletters, Prechter continues to remain bearish and thinks market will continue to decline with lower highs and lower lows with many bear market rallies that will make it look like a bull market.

The first edition of Conquer the Crash, which was published in early 2002, was “on the mark” with regard to our current economic environment — so much so that it’s uncanny. Prechter’s message has been good for investors who kept their money safe and for speculators who profited from declines. And he still expects a great buying opportunity ahead for those who can keep their money safe until it arrives. Here is a short list of some of the accurate predictions he made in 2002 that have come to fruition:

Credit Deflation

“Usually the culprit behind [simultaneous stock and real estate] declines is a credit deflation. If there were ever a time we were poised for such a decline, it is now.” Chapter 16

Bailout Schemes

“If [governments] leap unwisely into bailout schemes, they will risk damaging the integrity of their own debt, triggering a fall in its price. Either way … deflation will put the brakes on their actions.” Chapter 32

Banking and Insurance Stocks

“We will see stocks going down 90 percent and more … [and] bank and insurance company failures….” Chapter 14

Collateralized Securities

“Banks and mortgage companies … have issued $6 trillion worth of [securitized loans]…. In a major economic downturn, this credit structure will implode.” Chapter 19

Derivatives

“Leveraged derivatives pose one of the greatest risks to banks….” Chapter 19

Mortgage-Backed Securities

“Major financial institutions actually invest in huge packages of … mortgages, an investment that they and their clients (which may include you) will surely regret…. Chapter 16

Fannie Mae and Freddie Mac

“Investors in these companies’ stocks and bonds will be just as surprised when [Fannie and Freddie’s] stock prices and bond ratings collapse.” Chapter 25

Banks

“Banks are not just lent to the hilt, they’re past it. In a fearful market, liquidity even on these so called ‘securities’ [corporate, municipal, and mortgage-backed bonds] will dry up.”… One expert advises, ‘The larger, more diversified banks at this point are the safer place to be.’ That assertion will surely be severely tested….” Chapter 19

Insurance Companies

“The values of insurance company holdings, from stocks to bonds to real estate (and probably including junk bonds as well), will be falling precipitously…. As the values of most investments fall, the value of insurance companies’ portfolios will fall…. When insurance companies implode, they file for bankruptcy….” Chapters 15, 24

Real Estate

“What screams ‘bubble’ – giant, historic bubble – in real estate today is the system-wide extension of massive amounts of credit to finance property purchases…. [People] have been taking out home equity loans so they can buy stocks and TVs and cars…. This widespread practice is brewing a terrible disaster.” Chapter 16

Rating Services

“Most rating services will not see it coming.” Chapter 25

Political Leaders

“A leader does not control his country’s economy, but the economy mightily controls his image.” Chapter 27

Short-Selling Ban

“In a bear market, bullish investors always come to believe that short sellers are ‘driving the market down’…. Sometimes authorities outlaw short selling. In doing so, they remove the one class of investors that must buy.” Chapter 20

Psychological Change

“When the social mood trend changes from optimism to pessimism, creditors, debtors, producers and consumers change their primary orientation from expansion to conservation….” Chapter 9

Confidence

“Confidence has probably reached its limit. A multi-decade deceleration in the U.S. economy … will soon stress debtors’ ability to pay…. Total credit will contract, so bank deposits will contract, so the supply of money will contract….” Chapter 11

Falling Tax Receipts

“Governments … spend and borrow throughout the good times and find themselves strapped in bad times, when tax receipts fall.” Chapter 32

“Retirement programs such as Social Security in the U.S. are wealth-transfer schemes, not funded insurance, so they rely upon the government’s tax receipts. Likewise, Medicaid is a federally subsidized state-funded health insurance program, and as such, it relies upon transfers of states’ tax receipts. When people’s earnings collapse in a depression, so does the amount of taxes paid, which forces the value of wealth transfers downward.” Chapter 32

“The tax receipts that pay for roads, police and jails, fire departments, trash pickup, emergency (911) monitoring, water systems and so on will fall to such low levels that services will be restricted.” Chapter 32

For more information on the new second edition of Conquer the Crash, visit Elliott Wave International. Bob Prechter has added 188 new pages of critical information to his New York Times bestseller.

Bob Prechter’s “Conquer The Crash”: Eight Chapters For Free

When EWI President Robert Prechter sat down to write the first edition of Conquer The Crashin 2002, the idea that the United States would enter a period of what news authorities coined “economic Armageddon” several years later was unheard of.

Flashing back, the major blue-chip averages were rebounding off a historic bottom, the notorious dot.com bust was making way for a powerful housing boom, Fannie Mae’s chief executive was named “the most confident CEO in America,” then President George Bush was enjoying a 60%-plus approval rating, Gulf War II hadn’t begun yet, and when it did, a “quick and easy victory” was supposed to follow, and the Federal Reserve was largely credited with slaying the big, bad bear via the sharp blade of monetary policy.
Five years later, the tables turned. The U.S. housing market endured its worst downturn since the Great Depression; Fannie Mae’s CEO was ousted amidst a mortgage crisis of incalculable damage. George W. Bush left the oval office with a record low approval rating of 25%, and the expected “cakewalk” victory in Iraq became a “quagmire” and national dilemma.

Anticipating these and other “shocks” to the global system is the unparalleled achievement of “Conquer The Crash.” Here, the following excerpts from the book put any doubt to rest:

  • Housing: “What screams bubble – giant historic bubble – in real estate is the system-wide extension of massive amount of credit.” And “Home equity loans are brewing a terrible disaster.”
  • Bonds: “The unprecedented mass of vulnerable bonds extant today is on the verge of a waterfall of downgrading.”
  • Fannie Mae & Freddie Mac: “Investors in these companies’ stocks and bonds will be just as surprised when the stock prices and bond ratings collapse.”
  • Politics: “Look for nations and states to split and shrink.” And — “The Middle East should be a complete disaster.”
  • Credit Expansion Schemes “have always ended in a bust.” And — “Like the discomfort of drug addiction withdrawal, the discomfort of credit addiction withdrawal cannot be avoided.”
  • Banks: “Banks are not just lent to the hilt, they’re past it. In a fearful market, liquidity even on these so called ‘securities’ [corporate, municipal, and mortgage-backed bonds] will dry up.” (176)

If the tools in Bob Prechter’s analytical toolbox, namely Elliott wave analysis and socionomics (Prechter’s new science of social prediction based on the Wave Principle), enabled him to foresee these “sea changes” in the economic, social, and political landscape — the only question is: What else do the pages of the “Conquer The Crash” reveal?

Well, your opportunity to find out just got a whole lot easier. Right now, you can download the 8-chapter Conquer the Crash Collection, free. It includes:

Chapter 10: Money, Credit And The Federal Reserve Banking System
Chapter 13: Can The Fed Stop Deflation?
Chapter 23: What To do With Your Pension Plan
Chapter 28: How To Identify A Safe Haven
Chapter 29: Calling In Loans & Paying Off Debt
Chapter 30: What You Should Do If You Run A Business
Chapter 32: Should You Rely On The Government To Protect You?
Chapter 33: Short List of Imperative ‘Do’s’ & ‘Don’ts”

Visit Elliott Wave International to learn more about the free Conquer the Crash Collection.

Why Do Traders Fail?

The following is an excerpt from Jeffrey Kennedy’s Trader’s Classroom Collection. Now through February 6, Elliott Wave International is offering a special 45-page Best Of Traders Classroom eBook, free.

I think that, as a general rule, traders fail 95% of the time, regardless of age, race, gender or nationality. The task at hand could be as simple as learning to ride a bike for the first time or as complex as mapping the human genome. Ultimate success in any enterprise requires that we accept failure along the way as a constant companion in our everyday lives.

I didn’t just pull this 95% figure from thin air either. I borrowed it from the work of the late, great Dr. W. Edward Deming, who is the father of Total Quality Management, commonly known as TQM. His story is quite interesting, and it actually has a lot to do with how to trade well.

Dr. Deming graduated with degrees in electrical engineering, mathematics and mathematical physics. Then, he began working with Walter A. Shewhart at Bell Telephone Laboratories, where he began applying statistical methods to industrial production and management. The result of his early work with Shewhart resulted in a seminal book, Statistical Method from the Viewpoint of Quality Control.

Since American industry spurned many of his ideas, Deming went to Japan shortly after World War II to help with early planning for the 1951 Japanese Census. Impressed by Deming’s expertise and his involvement in Japanese society, the Japanese Union of Scientists and Engineers invited him to play a key role in Japan’s reconstruction efforts. Deming’s work is largely responsible for why so many high quality consumer products come from Japan even to this day.

In turn, Japanese society holds Dr. W. Edward Deming in the highest regard. The Prime Minister of Japan recognized him on behalf of Emperor Hirohito in 1960. Even more telling, Deming’s portrait hangs in the lobby at Toyota headquarters to this day, and it’s actually larger than the picture of Toyota’s founder.

So why do people fail? According to Deming, it’s not because people don’t try hard enough or don’t want to succeed. People fail because they use inadequate systems. In other words, when traders fail, it’s primarily because they follow faulty trading systems – or that they follow no system at all.

So what is the right system to follow as a trader? To answer this question, I offer you what the trader who broke the all-time real-money profit record in the 1984 United States Trading Championship offered me. He told me that a successful trader needs five essentials:

1. A Method
You must have a method that is objectively definable. This method should be thought out to the extent that if someone asks how you make decisions to trade, you can quickly and easily explain. Possibly even more important, if the same question is asked again in six months, your answer will be the same. This is not to say that the method cannot be altered or improved; it must, however, be developed as a totality before implementing it.

2. The Discipline to Follow Your Method
‘Discipline to follow the method’ is so widely understood by true professionals that among them it almost sounds like a cliché. Nevertheless, it is such an important cliché that it cannot be ignored. Without discipline, you really have no method in the first place. And this is precisely why many consistently successful traders have military experience – the epitome of discipline.

3. Experience
It takes experience to succeed. Now, some people advocate “paper trading” as a learning tool. Paper trading is useful for testing methodologies, but it has no real value in learning about trading. In fact, it can be detrimental, because it imbues the novice with a false sense of security. “Knowing” that he has successfully paper-traded during the past six months, he believes that the next six months trading with real money will be no different. In fact, nothing could be farther from the truth. Why? Because the markets are not merely an intellectual exercise, they are an emotional one as well. Think about it, just because you are mechanically inclined and like to drive fast doesn’t mean you have the necessary skills to win the Daytona 500.

4. The Mental Fortitude to Accept that Losses Are Part of the Game
The biggest obstacle to successful trading is failing to recognize that losses are part of the game, and, further, that they must be accommodated. The perfect trading system that allows for only gains does not exist. Expecting, or even hoping for, perfection is a guarantee of failure. Trading is akin to batting in baseball. A player hitting .300 is good. A player hitting .400 is great. But even the great player fails to hit 60% of the time! Remember, you don’t have to be perfect to win in the markets. Practically speaking, this is why you also need an objective money management system.

5. The Mental Fortitude to Accept Huge Gains
To win the game, make sure that you understand why you’re in it. The big moves in markets come only once or twice a year. Those are the ones that will pay you for all the work, fear, sweat and aggravation of the previous 11 months or even 11 years. Don’t miss them for reasons other than those required by your objectively defined method. Don’t let yourself unconsciously define your normal range of profit and loss. If you do, when the big trade finally comes along, you will lack the self-esteem to take all it promises. By doing so, you abandon both method and discipline.

So who was the all-time real-money profit record holder who turned in a 444.4% return in a four-month period in 1984? Answer: Robert Prechter … and throughout the contest he stuck to his preferred method of analysis, the Elliott Wave Theory.

Trader's Classroom
Get 14 Critical Lessons Every Trader Should KnowLearn about managing your emotions, developing your trading methodology, and the importance of discipline in your trading decisions in The Best of Trader’s Classroom, a FREE 45-page eBook from Elliott Wave International.

Since 1999, Jeffrey Kennedy has produced dozens of Trader’s Classroom lessons exclusively for his subscribers. Now you can get “the best of the best” in these 14 lessons that offer the most critical information every trader should know.

Find out why traders fail, the three phases of a trader’s education, and how to make yourself a better trader with lessons on the Wave Principle, bar patterns, Fibonacci sequences, and more!

Don’t miss your chance to improve your trading. Download your FREE eBook today!

News and Earnings Are Not What Moves Stocks

Sometimes you know that a company earnings will be good. You buy the stock and you wait for the earnings announcement. Stock goes up until the good news are out. And then it sells off and you are frustrated. Sometimes you see the market crashing in the morning, the media says “home builders are in trouble”. You should the builders. Then in the afternoon market rallies and the news headline reads “FED optimism rallies stocks, traders shrugged home builder news”. Why does this keep happening in our day to day trading?

How News Are Interpreted by the Markets:
Same Day. Same Event. Same Market. Different Story!

“There is no group more subjective than conventional analysts.” — Robert Prechter. 

Elliott wavers sometimes hear the criticism that patterns in market charts can be “open to interpretation.” For example, what looks like a finished 1-2-3 correction to one analyst, another analyst may interpret as 1-2-3 of a developing impulse, with waves 4 and 5 on the way.

Does this happen? Absolutely. (Although, there are always tools an Elliottician can employ to firm up the wave count.) But here’s the real question: What’s the alternative?
Typical alternatives amount to analysis of the “fundamentals”: Jobs, interest rates, CPI, PPI, what Ben Bernanke said on Tuesday — it all goes into the pot. Result? Well, if you think it’s clear and unambiguous, guess again. Here’s a fresh example.

Find out what really moves markets — download the free 118-page Independent Investor eBook. The Independent Investor eBook shows you exactly what moves markets and what doesn’t. You might be surprised to discover it’s not the Fed or “surprise” news events. Learn more, and download your free ebook here.

On the evening of February 18, in a surprise move, the Federal Reserve raised its discount rate — the interest rate at which it lends money to banks. The next morning the S&P futures were pointing lower; everyone was bracing for a weak day — because, as conventional thinking goes, higher interest rates are bad for business, the economy, and ultimately for the stock market. Friday morning, stocks indeed opened lower and major news headlines confirmed:

  • Wall St opens weaker after Fed move
  • … Investors Wary After Fed Move
  • Stocks Open Lower After Surprise Fed Move

But around 11am that same morning, the DJIA turned around and moved higher. Now look at what the headlines from major sources were saying after lunch on February 19:

  • US stocks bounce back; Fed move viewed in positive light
  • US Stocks Up A Bit On Fed Discount Rate Increase
  • Stocks Higher After Fed Move

What was a “bearish move” by the Fed in the morning morphed into a “bullish” one by the afternoon! Same event. Same market. Same day. Completely opposite interpretation!

This brings to mind the answer EWI’s President Robert Prechter once gave when asked about the objectivity of Elliott wave analysis. Bob said:

“I always ask, ‘compared to what?’ There is no group more subjective than conventional analysts who look at the same ‘fundamental’ news event — a war, the level of interest rates, the P/E ratio, GDP reports, you name it — and come up with countless opposing conclusions. They generally don’t even bother to study the data. Show me a forecasting method that is totally objective or contains no human interpretation. There is no such thing, even in a black box. To answer your question more specifically, though, properly there should be no subjectivity in interpreting Elliott waves patterns. There is a set of rules and guidelines for that interpretation. Interpretation gives you only the most probable scenario(s), not a sure one. But people mislabel probabilistic forecasting as subjectivity. And subjectivity or bias can ruin that value, just as in any other approach. Sometimes we screw up. But in contrast to the outrageously improbable (if not downright false) wave interpretations or other types of forecasts we often see from others, we are as close to an objective service as you’re going to find. We hire analysts who know the rules of Elliott cold.”

Find out what really moves markets — download the free 118-page Independent Investor eBook. The Independent Investor eBook shows you exactly what moves markets and what doesn’t. You might be surprised to discover it’s not the Fed or “surprise” news events. Learn more, and download your free ebook here.

 

Vadim Pokhlebkin joined Robert Prechter’s Elliott Wave International in 1998. A Moscow, Russia, native, Vadim has a Bachelor’s in Business from Bryan College, where he got his first introduction to the ideas of free market and investors’ irrational collective behavior. Vadim’s articles focus on the application of the Wave Principle in real-time market trading, as well as on dispersing investment myths through understanding of what really drives people’s collective investment decisions.

Earnings: Is That REALLY What’s Driving The DJIA Higher?

The idea of earnings driving the broad stock market is a myth.

It’s corporate earnings season again, and everywhere you turn, analysts talk about the influence of earnings on the broad stock market:

  • · US Stocks Surge On Data, 3Q Earnings From JPMorgan, Intel (Wall Street Journal)
  • · Stocks Open Down on J&J Earnings (Washington Post)
  • · European Stocks Surge; US Earnings Lift Mood (Wall Street Journal)

With so much emphasis on earnings, this may come as a shock: The idea of earnings driving the broad stock market is a myth.

When making a statement like that, you’d better have proof. Robert Prechter, EWI’s founder and CEO, presented some of it in his 1999 Wave Principle of Human Social Behavior (excerpt; italics added):

  • Are stocks driven by corporate earnings? In June 1991, The Wall Street Journal reported on a study by Goldman Sachs’s Barrie Wigmore, who found that “only 35% of stock price growth [in the 1980s] can be attributed to earnings and interest rates.” Wigmore concludes that all the rest is due simply to changing social attitudes toward holding stocks. Says the Journal, “[This] may have just blown a hole through this most cherished of Wall Street convictions.”
  • What about simply the trend of earnings vs. the stock market? Well, since 1932, corporate profits have been down in 19 years. The Dow rose in 14 of those years. In 1973-74, the Dow fell 46% while earnings rose 47%. 12-month earnings peaked at the bear market low. Earnings do not drive stocks.

And in 2004, EWI’s monthly Elliott Wave Financial Forecast added this chart and comment:

earnings do not drive prices

Earnings don’t drive stock prices. We’ve said it a thousand times and showed the history that proves the point time and again. But that’s not to say earnings don’t matter. When earnings give investors a rising sense of confidence, they can be a powerful backdrop for a downturn in stock prices. This was certainly true in 2000, as the chart shows. Peak earnings coincided with the stock market’s all-time high and stayed strong right through the third quarter before finally succumbing to the bear market in stock prices. Investors who bought stocks based on strong earnings (and the trend of higher earnings) got killed.

So if earnings don’t drive the stock market’s broad trend, what does? The Elliott Wave Principle says that what shapes stock market trends is how investors collectively feel about the future. Investors’ mood — or social mood — changes before “the fundamentals” reflect that change, which is why trying to predict the markets by following the earnings reports and other “fundamentals” will often leave you puzzled. The chart above makes that clear.

Get Your FREE 8-Lesson “Conquer the Crash Collection” Now! You’ll get valuable lessons on what to do with your pension plan, what to do if you run a business, how to handle calling in loans and paying off debt and so much more. Learn more and get your free 8 lessons here.

 

Robert Prechter, Chartered Market Technician, is the world’s foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theoristmonthly market letter since 1979.

Earnings Do Not Drive Stock Prices – See The Proof in This Chart

A free Club EWI report exposes the TEN most misleading myths of Wall Street, including this one: “Earnings drive the stock market.”

Since the time of buttonwood trees, Wall Street has had its own version of the Ten Commandments – the cornerstone principles of conventional economic wisdom. The first of these writ-in-stone notions is the widespread belief that earnings drive the stock market.

By this line of reasoning, knowing where a market’s prices will trend next is simply a matter of knowing how the companies that comprise said market are expected to perform. On this, the recent news items below capture the public’s devoted following of earnings data:

  • “Stocks Rebound As Investors Await Earnings.” (Associated Press)
  • “US Stocks Drop As Earnings Data Fall Short” (MarketWatch)
  • “Sideways Market Looks For Direction: Earnings Could Point The Way” (MarketWatch)

In reality, though, much of this belief is based on faith, not facts. While earnings may play a role in the price of an individual stock, the stock market as a whole marches to a different drummer.

You get this ground-breaking revelation in the FREE report from Club Elliott Wave International (Club EWI, for short) titled “Market Myths Exposed”. In Chapter One, our editors shatter the smoke-screen surrounding the widespread notion that “Earnings Drive Stock Prices” with these enlightening insights:

“Quarterly earnings reports announce a company’s achievements from the previous quarter. Trying to predict futures prices movements based on what happened three months ago is akin to driving down the highway looking only in the rearview mirror. It leaves investors eating the markets dust when the trend changes.”

And — There is no consistent correlation between upbeat earnings and an uptrend in stock prices; or vice a versa, downbeat earnings and a decline in stocks. Case in point: During the 1973-4 bear market, the S&P 500 plummeted 50% while S&P earnings rose every quarter over that period. Here, “Market Myths Exposed” provides the following, visual reinforcement: A chart of the S&P 500 versus S&P 500 Quarterly Earnings since 1998.

S&P 500 earnings versus price

As you can see, the market enjoyed record quarterly earnings right alongside the historic, bear market turn in stocks in 2000. Then again, the first negative quarter ever in 2009 preceded the March 2009 bottom in stocks.

“Market Myths Exposed” dispels the top TEN fallacies of mainstream economic thought. The misconception that “Earnings Drive the Stock Market” is number one. The remaining nine are equally capable of knocking your socks off and most importantly, helping you protect your financial future.

Get the free 33-page Market Myths Exposed eBook now Learn why you should think independently rather than relying on misleading investment commentary and advice that passes as common wisdom. Just like the myth that government intervention can stop a stock market crash, Market Myths Exposed uncovers other important myths about diversifying your portfolio, the safety of your bank deposits, earnings reports, inflation and deflation, and more! Protect your financial future and change the way you view your investments forever!

EUR/USD: What Moves You?

It’s not the news that creates forex market trends –
it’s how traders interpret the news.

Today, the EUR/USD stands well below its November peak of $1.51. Find out what Elliott wave patterns are suggesting for the trend ahead now — FREE. You can access EWI’s intraday and end-of-day Forex forecasts right now through next Wednesday, February 10. This unique free opportunity only lasts a short time, so don’t delay! Learn more about EWIs FreeWeek here.

What moves currency markets? “The news” is how most forex traders would undoubtedly answer. Economic, political, you name it — events around the world are almost universally believed to shape trends in currencies.

A January 14 news story, for example, was high up on the roster of events that supposedly have a major impact on the euro-dollar exchange rate. That morning, the European Central Bank announced it was leaving the “interest rate unchanged at the record low of 1% for an eighth successive month.” (FT.com)

The euro fell against the U.S. dollar after the news. But could it have rallied instead? You bet. In fact, traditional forex analysis says it should have. Here’s why.

Analysts always say that the higher a country’s interest rates, the more attractive its assets are to foreign investors — and, in turn, the stronger its currency. Well, U.S. interest rates are now at 0-.25% and in Europe, at 1%, they are 3 to 4 times higher. Isn’t that wildly bullish for the EUR? Apparently not, and wait till you hear why — because in today’s announcement ECB president Jean-Claude Trichet warned that European recovery would be “bumpy.” Ha!

By no means is this the first time a supposedly bullish event failed to lift the market. On June 6, 2007, for example, the ECB raised interest rates. Bullish, right? But the euro didn’t gain that day, either — the U.S. dollar did.

Watch forex markets with these “inconsistencies” in mind and you’ll see them often. In time you realize that it’s not news that creates market trends — it’s how traders interpret the news. That’s a subtle — but hugely important — distinction.

So the real question becomes: What determines how traders interpret the news? The Elliott Wave Principle answers that question head-on: social mood — i.e., how they collectively feel. Currency traders in a bullish mood disregard bad news and buy, leaving it to analysts to “explain” why. Bearishly-biased traders find “reasons” to sell even after the rosiest of economic reports.

If you know traders’ bias, you know the trend. How do you know? Watch Elliott wave patterns in forex charts – it’s reflected in there, on all time frames.

Today, the EUR/USD stands well below its November peak of $1.51. Find out what Elliott wave patterns are suggesting for the trend ahead now — FREE. You can access EWI’s intraday and end-of-day Forex forecasts right now through next Wednesday, February 10. This unique free opportunity only lasts a short time, so don’t delay! Learn more about EWIs FreeWeek here.

 

Vadim Pokhlebkin joined Robert Prechter’s Elliott Wave International in 1998. A Moscow, Russia, native, Vadim has a Bachelor’s in Business from Bryan College, where he got his first introduction to the ideas of free market and investors’ irrational collective behavior. Vadim’s articles focus on the application of the Wave Principle in real-time market trading, as well as on dispersing investment myths through understanding of what really drives people’s collective investment decisions.

EUR/USD: Often, Basic Elliott Wave Analysis Is All You Need

Watch this classic video from Elliott Wave International’s Chief Currency Strategist, Jim Martens, to see how useful the basics of Elliott wave analysis can be. Jim explains how the same basic pattern that R.N. Elliott discovered back in the 1930s is often all you need to make informed market forecasts.

Then access Jim Marten’s intraday and end-of-day Forex forecasts, completely free from Elliott Wave International. The independent market forecasting firm is offering free access (a $199 value) through February 10. Get your free Forex forecasts now.

EUR/USD: Often, Basic Elliott Wave Analysis Is All You Need

Watch this classic video from Elliott Wave International’s Chief Currency Strategist, Jim Martens, to see how useful the basics of Elliott wave analysis can be. Jim explains how the same basic pattern that R.N. Elliott discovered back in the 1930s is often all you need to make informed market forecasts.

Then access Jim Marten’s intraday and end-of-day Forex forecasts, completely free from Elliott Wave International. The independent market forecasting firm is offering free access (a $199 value) through February 10. Get your free Forex forecasts now.

Don’t stop here! Get Jim Marten’s intraday and end-of-day Forex forecasts FREE through February 10. Get your free Forex forecasts..

 

Bin Laden is dead, but stock market is down. Why?

Interest rates, oil prices, trade balances, corporate earnings and GDP: None of them seem to be important, or even relevant, to explaining stock price changes
May 3, 2011

By Elliott Wave International

On the morning of May 2, the financial headlines were abuzz with the news of Osama Bin Laden’s death and its positive impact on the stock market:

“Stock Market Celebrates Killing of Bin Laden” (The Wall Street Journal)

But despite a positive open, stocks closed lower on May 2. Undoubtedly, in the days ahead we’ll hear analysts explaining how Bin Laden’s death is not that “bullish” of an event, after all.

On that same note, MarketWatch.com ran an interesting story on May 2 that quoted from a research paper which found “little evidence that non-economics events have a big effect on the stock market.”

Here at EWI, we go one step further and say the following: Economic events have little impact on the stock market, too.

Don’t believe us? Read this excerpt from a free Club EWI resource, the 50-page 2011 Independent Investor eBook, and judge for yourself.

The Independent Investor eBook, 2011 Edition
(Excerpt; full report here)

…Economists’ Claim #5: “GDP drives stock prices.”

Suppose that you had perfect foreknowledge that over the next 3¾ years GDP would be positive every single quarter and that one of those quarters would surprise economists in being the strongest quarterly rise in a half-century span. Would you buy stocks?

If you had acted on such knowledge in March 1976, you would have owned stocks for four years in which the DJIA fell 22%. If at the end of Q1 1980 you figured out that the quarter would be negative and would be followed by yet another negative quarter, you would have sold out at the bottom.

Suppose you were to possess perfect knowledge that next quarter’s GDP will be the strongest rising quarter for a span of 15 years, guaranteed. Would you buy stocks?

Had you anticipated precisely this event for 4Q 1987, you would have owned stocks for the biggest stock market crash since 1929. GDP was positive every quarter for 20 straight quarters before the crash and for 10 quarters thereafter. But the market crashed anyway. Three years after the start of 4Q 1987, stock prices were still below their level of that time despite 30 uninterrupted quarters of rising GDP.

These two events are shown in the figure below:

GDP and Stock Market

It seems that there is something wrong with the idea that investors rationally value stocks according to growth or contraction in GDP. …
Claim #6: “Wars are bullish/bearish for stock prices.” … (continued)

Keep reading the 50-page Independent Investor eBook now, free — all you need is a free Club EWI password. Get yours now to gain independent perspective to the financial markets.

DOW Jones Index Priced in Gold

DOW Priced in Gold: What Does It Mean for the Long-Term Trend?

Of the many forward-looking market indicators we at EWI employ, one of the most interesting tools (and least discussed in the financial media) is the DJIA priced in gold — “the real money,” as EWI’s president Robert Prechter calls it. What implications might the present position of Dow/gold have for the long-term trend of the nominal Dow? In this video, Elliott Wave International’s Steven Hochberg shows you several revealing charts that answer this question.

(Discover why deflation is the biggest threat to your money — download your FREE 90-page eBook now.)

FREE Download: Deflation eBook.
Newly updated for 2010, Prechter’s 90-page eBook reveals why deflation is the biggest threat to your money right now. You will learn how to prepare for deflation, survive it, and maybe even prosper during it, so you’ll be ready for the next buying opportunity of a lifetime when deflation is over. Free Download: Deflation eBook.

 

Why You Should Care About DJIA Priced in Gold

By Vadim Pokhlebkin

The following article is provided courtesy of Elliott Wave International (EWI). For more insights that challenge conventional financial wisdom, download EWI’s free 118-page Independent Investor eBook.

Of the many forward looking market indicators we at EWI employ, one of the most interesting tools (and least discussed in the financial media) is the DJIA priced in gold — “the real money,” as EWI’s president Robert Prechter calls it.

We’ve been tracking the Dow/Gold ratio for many years and it has serves our subscribers well. It’s not a short-term timing tool, yet in the longer term, as our January 6 Short Term Update put it, “the nominal Dow eventually plays catch up to what is transpiring in the Dow/Gold ratio.”

Here’s a good example. Remember when the nominal DJIA hit its all-time high? October 2007, just above 14,000. At that time, most investors expected new highs still to come. But our Elliott Wave Financial Forecast warned five months prior, in May 2007:

DOW Priced in Gold versus Nominal DOW

One key reason [for a coming top in the DJIA] is the undeniable bear market status of the Dow Jones Industrial Average in terms of gold, the Real Dow…

Notice, by contrast, the relative strength of the Real Dow versus the nominal Dow, the index in terms of dollars, from 1980 to 1982. By August 1982 when the Dow denominated in dollars bottomed, the Real Dow was rising strongly from its 1980 low… The nominal Dow soon played catch-up, and they both rallied more or less in sync until 1999.

Now, instead of soaring the Real Dow is crashing relative to the nominal Dow. In fact, it’s barely off its low of May 2006. This dichotomy reveals the weakness that underlies the financial markets’ push higher. When mood turns and credit inflation reverses, the ensuing drop in the nominal value of the market should be dramatic.

“Dramatic drop” did indeed follow: Between October 2007 and March 2009, the DJIA lost 53%, high to low.

For more information, download Robert Prechter’s free Independent Investor eBook. The 118-page resource teaches investors to think independently by challenging conventional financial market assumptions.

 

Vadim Pokhlebkin joined Robert Prechter’s Elliott Wave International in 1998. A Moscow, Russia, native, Vadim has a Bachelor’s in Business from Bryan College, where he got his first introduction to the ideas of free market and investors’ irrational collective behavior. Vadim’s articles focus on the application of the Wave Principle in real-time market trading, as well as on dispersing investment myths through understanding of what really drives people’s collective investment decisions.