Elliott Wave International Chief Market Analyst Steve Hochberg Sheds Light on a Feared Technical Indicator August 24, 2010
By Elliott Wave International
On Aug. 12, volatile market action coincided with a technical signal called the Hindenburg Omen, whereby a relatively high number of new highs and lows in individual stocks occur at the same time.
This indicator instantly gained an enormous amount of media attention. So we sat down with Steve Hochberg, EWI’s chief market analyst and close colleague of Robert Prechter, to ask him about the now-infamous Hindenburg Omen.
EWI: Steve, recently a market indicator called the Hindenburg Omen has been in the news, what is going on?
Steve Hochberg: Discussion of this indicator certainly has been everywhere. Someone emailed us and said they even saw it mentioned on the front page of the Drudge Report! Look, headline-grabbing names grab headlines. Essentially it measures the fractured nature of market action. Over the years, we’ve discussed numerous times in our publications how a fractured market is oftentimes an unhealthy market. The multiple non-confirmations registered at the recent August 9 stock high, which we talked about in the Short Term Update, are another manifestation of this bearish behavior. The message is consistent with how we view the Elliott wave structure.
EWI: Why are people interested in this particular indicator?
SH: That’s a good question, and it speaks to a broader issue, viz., the “re-emergence” of technical analysis into the mainstream consciousness of market participants. In Prechter’s Perspective, Robert Prechter discusses the timing of the popularity of technical analysis, of which Elliott waves, or pattern recognition, is the highest form:
“In long term bull markets, no one really needs market timing because the market is always going up. This was true during the 1950s and 1960s, a period of market strength. And it has been mostly true since 1982. From 1966 to 1982, though, the market was very cyclic, so investors couldn’t sleep like babies with a buy-and-hold blanket like they do today.”
The S&P 500 has a negative return over at least the past 12 years, so investors are naturally questioning the “broadly diversified, buy and hold” stance advocated by 90%+ of investment advisors. EWI subscribers are way ahead of the mass of investors because as the bear market progresses, the media should show increased focus on technical analysis, including patterns such as head-and-shoulders as well as trendlines, moving averages and, yes, even Elliott waves, just as they did during the last great bear market from 1966 to 1982. It will be an exciting time for those with even a cursory knowledge of the technicals.
EWI: So, what are you seeing now?
SH: Obviously we cannot give away our analysis, but the wave structure is clear, the myriad indicators we keep offer compelling confirmation and the market is accommodating our forecast. If readers have any interest in what this means for not only the stock market, but also all other markets, please give us a read to see if our work might be useful in helping to formulate your investment portfolio. We think it will be a worthwhile endeavor.
This article was syndicated by Elliott Wave International and was originally published under the headline The Hindenburg Omen — Omen-ous or Not?. 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.
Of all the belief systems of Wall Street, few can claim the devoted following of the Efficient Market Hypothesis, the idea that stock prices adhere to the same laws of supply-and-demand that govern retail products. Once coined the theoretical “Parthenon” of economics, this notion has consistently endured the test of time —– until now. Academics and advisors across the globe are currently exposing crack after crack in the “Efficient” model so deep as to bring the entire theory crashing to the ground.
“The EMH is not only dead,” writes a July 29, 2010 news source. “It’s really, most sincerely dead.” (Minyanville)
As to what caused the theory’s collapse — one recent business journal offers this insight:
“Financial markets do not operate the same way as those for other goods and services. When the price of a television set or software package goes up, demand for it generally falls. When the prices of a financial asset rises, demand generally rises.” (The Economist)
Here’s the thing. SIX years ago, Elliott Wave International president Bob Prechter pronounced the exact same finding in his April 2004 Elliott Wave Theorist. (Read that full-length publication today, absolutely free by clicking on the hyperlink)In that groundbreaking report, Bob presented the compelling picture below that shows how investors increase their percentage of stock holdings as prices rise, and decrease them as prices fall:
The next question is why? Answer: Motivation: i.e. the purchase of goods and services is about need; while the purchase of stocks is about desire. Here, Bob Prechter’s 2004 Theorist takes the rein:
“The fact is that everyday in finance, investors are uncertain. So they look to the herd for guidance. Because herds are ruled by the majority — financial market trends are based on little more than the shared mood of investors — how they feel — which is the province of the emotional areas of the brain (limbic system), not the rational ones (neocortex)… Buyers, in a rising market appear unconsciously to think, ‘The herd must know where the food is. Run with the herd and you will prosper.’ Sellers in a falling market appear to unconsciously think, ‘The herd must know that there’s a lion racing toward us. Run with the herd or you will die.’”
Prechter and contributor Wayne Parker then expanded on his landmark observation in the 2007 Journal of Behavioral Finance. (Also available, absolutely free by clicking on the hyperlink)
In the end, it’s not enough to just tear down the long-standing EMH. One must build another, more accurate model up in its place. And in the 2004 Theorist, Bob Prechter does just that with the Wave Principle, which reconciles the technical and psychological sides of stock market behavior into this key point: Herding impulses, while not rational, are also NOT random. They unfold in clear and calculable wave patterns as reflected in the price action of financial markets.
As the mainstream media continues to jump on board Prechter’s Financial/Economic Dichotomy Theory, you can read both of Prechter’s original writings. Enjoy your complimentary access to the 2004 April 2004 Elliott Wave Theorist and the2007 Journal of Behavioral Finance.
This article was syndicated by Elliott Wave International and was originally published under the headline Efficient Market Hypothesis: R.I.P.. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
There is still time to prepare if deflation is indeed in our future. August 16, 2010
By Elliott Wave International
“Fed’s Bullard Raises Specter of Japanese-Style Deflation,” read a July 29 Washington Post headline.
When the St. Louis Fed Chief speaks, people listen. Now that deflation — something that EWI’s president Robert Prechter has been warning about for several years — is making mainstream news headlines, is it too late to prepare?
It’s not too late.
There are still steps you can take if deflation is indeed in our future. The first step is to understand what it is. So we’ve put together a special, free, 60-page Club EWI resource, “The Guide to Understanding Deflation: Robert Prechter’s most important warnings about deflation.” Enjoy this quick excerpt. (For details on how to read this important report free, look below.)
When Does Deflation Occur? By Robert Prechter
To understand inflation and deflation, we have to understand the terms money and credit.
Money is a socially accepted medium of exchange, value storage and final payment; credit may be summarized as a right to access money. In today’s economy, most credit is lent, so people often use the terms “credit” and “debt” interchangeably, as money lent by one entity is simultaneously money borrowed by another.
Deflation requires a precondition: a major societal buildup in the extension of credit (and its flip side, the assumption of debt). Austrian economists Ludwig von Mises and Friedrich Hayek warned of the consequences of credit expansion, as have a handful of other economists, who today are mostly ignored. Bank credit and Elliott wave expert Hamilton Bolton, in a 1957 letter, summarized his observations this way:
In reading a history of major depressions in the U.S. from 1830 on, I was impressed with the following:
(a) All were set off by a deflation of excess credit. This was the one factor in common.
(b) Sometimes the excess-of-credit situation seemed to last years before the bubble broke.
(c) Some outside event, such as a major failure, brought the thing to a head, but the signs were visible many months, and in some cases years, in advance.
(d) None was ever quite like the last, so that the public was always fooled thereby.
(e) Some panics occurred under great government surpluses of revenue (1837, for instance) and some under great government deficits.
Near the end of a major expansion, few creditors expect default, which is why they lend freely to weak borrowers. Few borrowers expect their fortunes to change, which is why they borrow freely. The psychological aspect of deflation and depression cannot be overstated. …
Why Falling Interest Rates in This Environment Will Be Bearish
Myth: “Deflation Will Cause a Run on the Dollar, Which Will Make Prices Rise”
Myth: “Debt Is Not as High as It Seems”
Myth: “War Will Bail Out the Economy”
Myth: “The Fed Will Stop Deflation”
This article was syndicated by Elliott Wave International and was originally published under the headline Deflation: First Step, Understand It. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
Q&A with an experienced Elliott wave trader reveals seven common trading mistakes. August 12, 2010
By Elliott Wave International
To be a successful trader demands knowledge.
If you’d prefer to become an unsuccessful trader, you can start by making the following common trading mistakes, detailed by a professional who spent 25 years in portfolio management, trading and forecasting in the financial capital of the world, New York City.
In 2002, Wayne Gorman, long-time Elliott wave trader and current head of trader education at Elliott Wave International, left his 35th floor Manhattan apartment and moved to the quiet of North Georgia. He’s been sharing his knowledge and skills with aspiring traders ever since — in both online seminars and before live audiences around the world.
Wayne graciously agreed to a Q&A about trading mistakes. In his interview, Wayne reveals seven common mistakes traders make.
——–
EWI: Could you name two mistakes frequently made by stock traders?
Wayne Gorman: (mistake 1) The first big mistake is the flawed logic of extrapolation. Many traders and investors assume that a trend will remain in force until an “event” comes along to change it. But market trends are not like billiard balls on a pool table. This false assumption will put you on the wrong side of the market more times than not, especially at major turning points.
(mistake 2) The second big mistake is to suppose that news events drive market trends. In fact, the opposite is true: economic, political and social events lag market trends.
EWI: What are two common mistakes among options traders?
WG: (mistake 3) One common mistake is to buy puts or calls that are way “out of the money,” with no other transactions to compliment them. Unless your timing is absolutely perfect — and who has perfect timing? — your chance of success is low. It’s like buying a lottery ticket.
(mistake 4) Another common mistake is to buy options with too little time left to expiration. With less than one month to expiration, the time decay begins to accelerate and the chances of success diminish.
EWI: Please name a frequent mistake among traders who aim to catch the beginning of a particular Elliott wave.
WG: (mistake 5) In the middle of a corrective pattern, it’s common to run out of patience while waiting for confirmation of a trend change. You have to give corrective patterns time to unfold before you jump in. This requires discipline, and a solid understanding of the many ways corrective patterns can unfold.
EWI: What’s the biggest misconception among traders about using Elliott waves?
WG: (mistake 6) Too many traders think Elliott wave is a trading system that tells you exactly where to enter and exit a particular market. That’s the biggest misconception. The reality is that it’s an analytical and forecasting tool, which helps you develop and use your own trading system, based on your own personal risk tolerance.
EWI: What technical indicators do you believe traders over-rely on, and why?
WG: (mistake 7) Traders tend to over-rely on momentum indicators such as RSI, Stochastics and MACD to precisely spot turning points. But to paraphrase Mark Twain, markets can stay overbought or oversold a lot longer than either you or I can remain solvent.
EWI: How would you characterize today’s market action, and do you teach courses that address this environment?
WG: This is a difficult stock market in the near term. Prices haven’t strayed far from where they began in January. The action has yet to break out significantly to the downside or upside. This situation may not last much longer. I can suggest these online courses to deal with the current situation, and to prepare for the next big move:
This article was syndicated by Elliott Wave International and was originally published under the headline Do You Recognize These Six Common Trading Mistakes?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market
The single most convenient untruth about the 2008 (and counting) financial crisis is that it was unforeseen. For two years policymakers have insisted “There was no way to know ahead of time” that the liquidity boom would come to a screeching halt. Back in November 2008, in fact, the usually tight-lipped Queen of England herself publicly described the turmoil of international markets as “awful” and openly asked a panel of experts from the London School of Economics “Why did nobody notice?”
Her Majesty is right: Most financial authorities did NOT notice the crisis before it was too late. Comedy Central’s “The Daily Show with Jon Stewart” of all places provided the most poignant evidence: A March 2009 video montage shows executives and economists from the world’s leading financial firms repeatedly forecasting continued upside strength in stocks, plus renewed bull market growth in financials — right as debt markets came unhinged and the US stock market headed into a 50%-plus selloff.
Dubbed the “8-Minute Rap” (after the “18-Minute Gap” of Nixon’s Watergate tapes), the Daily Show video feature sent an equally powerful message, as the clip below makes plain.
Yet even as the mainstream authorities failed to detect the economic earthquake moving below their own feet, somebody did “notice” well in advance. That person was EWI’s president Bob Prechter.
The clip below is from a 2007 Bloomberg interview. Clear as PLAY, the foreseeable nature of the crisis emerges from Bob’s October 19, 2007 interview.
As the historic trend change began to unfold, Bob issued this timely insight:
“We’ve seen the first crack in the credit structure with a huge drop in commercial paper… These are the harbingers of a change toward the downside for the stock market, commodities including oil, and the debt market itself.”
This article, The Economic Crisis No One Saw Coming: A Convenient Untruth, was syndicated by Elliott Wave International. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
Mainstream financial analysts always look for ways to explain market action through news stories and events. Conventional wisdom states that news and inter-market correlations cause market booms and busts, but such explanations rely on selective presentation of the data. In this video, Elliott Wave International’s Asian-Pacific Financial Forecast Editor Mark Galasiewski shows you how Elliott wave analysis was able to predict Hong Kong’s late ’90s mania and its aftermath in real time — without looking at the news or the market’s “fundamentals.”
Discover how Elliott wave analysis gives you a consistently logical explanation
– and debunk one of the major myths of what caused the Asian Financial Crisis
– in the free video, “The Real-Time Power of Elliott Wave Analysis:
Debunking the Myths of the Asian Financial Crisis.” Access Your FREE Video Now.
Stress test results for the biggest European banks were recently released, while the largest U.S. banks took their first stress tests in May 2009. But most people don’t really care how much stress their banks are under; they are more worried about their own stress levels. One thing that adds to personal stress is worrying about whether their deposits are in a safe place. Bob Prechter has encouraged people to find the safest banks for their money since he originally wrote his New York Times best-selling book, Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression in 2002. This excerpt explains why banks of all sizes are riskier than they used to be (think about portfolios stuffed with derivatives, emerging market debt and non-performing commercial loans). You can also get a list of the Top 100 Safest U.S. Banks — two banks per state — that was just updated in late June with the latest available data by joining Club EWI and receiving EWI’s Safe Banks report.
* * * * *
Excerpted from Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression, by Robert Prechter
Many major national and international banks around the world have huge portfolios of “emerging market” debt, mortgage debt, consumer debt and weak corporate debt. I cannot understand how a bank trusted with the custody of your money could ever even think of buying bonds issued by Russia or Argentina or any other unstable or spendthrift government. As At the Crest of the Tidal Wave put it in 1995, “Today’s emerging markets will soon be submerging markets.” That metamorphosis began two years later. The fact that banks and other investment companies can repeatedly ride such “investments” all the way down to write-offs is outrageous.
Many banks today also have a shockingly large exposure to leveraged derivatives such as futures, options and even more exotic instruments. The underlying value of assets represented by such financial derivatives at quite a few big banks is greater than the total value of all their deposits. The estimated representative value of all derivatives in the world today is $90 trillion, over half of which is held by U.S. banks. Many banks use derivatives to hedge against investment exposure, but that strategy works only if the speculator on the other side of the trade can pay off if he’s wrong.
Relying upon, or worse, speculating in, leveraged derivatives poses one of the greatest risks to banks that have succumbed to the lure. Leverage almost always causes massive losses eventually because of the psychological stress that owning them induces. You have already read of the tremendous debacles at Barings Bank, Long-Term [sic] Capital Management, Enron and other institutions due to speculating in leveraged derivatives. It is traditional to discount the representative value of derivatives because traders will presumably get out of losing positions well before they cost as much as what they represent. Well, maybe. It is at least as common a human reaction for speculators to double their bets when the market goes against a big position. At least, that’s what bankers might do with your money.
Today’s bank analysts assure us, as a headline from The Atlanta Journal-Constitution put it on December 29, 2001, that “Banks [Are] Well-Capitalized.” Banks today are indeed generally considered well capitalized compared to their situation in the 1980s. Unfortunately, that condition is mostly thanks to the great asset mania of the 1990s, which, as explained in Book One, is probably over. Much of the record amount of credit that banks have extended, such as that lent for productive enterprise or directly to strong governments, is relatively safe. Much of what has been lent to weak governments, real estate developers, government-sponsored enterprises, stock market speculators, venture capitalists, consumers (via credit cards and consumer-debt “investment” packages), and so on, is not. One expert advises, “The larger, more diversified banks at this point are the safer place to be.” That assertion will surely be severely tested in the coming depression.
There are five major conditions in place at many banks that pose a danger: (1) low liquidity levels, (2) dangerous exposure to leveraged derivatives, (3) the optimistic safety ratings of banks’ debt investments, (4) the inflated values of the property that borrowers have put up as collateral on loans and (5) the substantial size of the mortgages that their clients hold compared both to those property values and to the clients’ potential inability to pay under adverse circumstances. All of these conditions compound the risk to the banking system of deflation and depression.
Financial companies are enjoying big advances in the current stock market rally. Depositors today trust their banks more than they trust government or business in general. For example, a recent poll asked web surfers which among a list of seven types of institutions they would most trust to operate a secure identity service. Banks got nearly 50 percent of the vote. General bank trustworthiness is yet another faith that will be shattered in a depression.
Well before a worldwide depression dominates our daily lives, you will need to deposit your capital into safe institutions. I suggest using two or more to spread the risk even further. They must be far better than the ones that today are too optimistically deemed “liquid” and “safe” by both rating services and banking officials.
Inside the revealing free report, you’ll discover:
The 100 Safest U.S. Banks (2 for each state)
Where your money goes after you make a deposit
How your fractional-reserve bank works
What risks you might be taking by relying on the FDIC’s guarantee
This article, Stress Test: How to Find the Safest Banks in the U.S. and Abroad,was syndicated by Elliott Wave International. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
What Will Happen as $1,000,000,000,000,000 in Global Debt Winds Down? July 22, 2010
By Elliott Wave International
The biggest balloon in the world is deflating.
This balloon had been inflated with a quadrillion (1015) dollars, which is to say: This balloon was filled not with air but with debt from around the globe.
What will happen as this global debt winds down? In two words: Deflationary Depression — the likes of which could be unprecedented in history.
A thousand trillion in debt can’t be wished away or swept under the rug. No one can “forgive” the debt. The consequences of unwinding this debt could be as massive as the dollar figure itself.
We’ve heard plenty about the debt problems of Greece, Spain, Portugal and Italy.
But how about the world’s second largest economy? Consider this fact reported in the Japan Times (July 8):
“Japan’s government debts are the highest the world has ever seen, at 219 percent of gross domestic product, according to the International Monetary Fund.”
Then there’s the world’s sixth largest national economy. In January 2009, Robert Prechter wrote this in the Elliott Wave Theorist:
“British banks have amassed $4.4 trillion worth of foreign liabilities, twice Britain’s annual GDP. … England, moreover, ‘has not defaulted since the Middle Ages.’ The possibility that it may do so again is yet another indication that the bear market is of … (larger) degree, exactly as Elliott wave analysts have predicted all along.”
Remember, Japan and Great Britain are major world economies. Imagine what the debt totals would look like in a line-item analysis of other nations, regions, states, provinces and municipalities around the world, including the U.S.
De-leveraging will likely lead to a deflationary crash — a “day of reckoning.”
This article, Quadrillion Dollar Debt: ‘Day of Reckoning’ Looms,was syndicated by Elliott Wave International. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
While many people spend time yearning for the financial markets to turn back up, a rare few have looked back in time to compare historical markets with the current situation – and then delivered a clear-eyed view of the future informed by knowledge of the past. One who has is Robert Prechter. When he thinks about markets and wave patterns, he goes back to the 1700s, the 1800s, and — most tellingly for our time now — the early 1900s when the Great Depression weighed down the United States in the late 1920s and early 1930s. With this large wash of history in mind, he is able to explain why he thinks we have a long way to go to get to the bottom of this bear market.
Here is an excerpt from the EWI Independent Investor eBook, which answers the question: How close to the bottom are we?
* * * * * Originally written by Robert Prechter for The Elliott Wave Theorist, January 2009
Some people contact us and say, “People are more bearish than I have ever seen them. This has to be a bottom.” The first half of this statement may well be true for many market observers. If one has been in the market for less than 14 years, one has never seen people this bearish. But market sentiment over those years was a historical anomaly. The annual dividend payout from stocks reached its lowest level ever: less than half the previous record. The P/E ratio reached its highest level ever: double the previous record. The price-to-book value ratio went into the stratosphere, as did the ratio between corporate bond yields and the same corporations’ stock dividend yields.
During nine and a half of those years, from October 1998 to March 2008, optimism dominated so consistently that bulls outnumbered bears among advisors (per the Investors Intelligence polls) for 481 out of 490 weeks. Investors got so used to this period of euphoria and financial excess that they have taken it as the norm.
With that period as a benchmark, the moderate slippage in optimism since 2007 does appear as a severe change. But observe a subtle irony: When commentators agree that investors are too bearish, they say so to justify being bullish. Thus, as part of the crowd, they are still seeking rationalizations for their continued optimism, and one of their best excuses is that everyone else is bearish. This would be reasoning, not rationalization, if it were true.
But is the net reduction in optimism since 2000/2007 in fact enough to indicate a market bottom? For the rest of this issue, we will update the key indicators from Conquer the Crash that so powerfully signaled a historic top in the making. When we are finished, you will know whether or not the market is at bottom.
Figure 1 updates our picture of Supercycle and Grand Supercycle-degree periods of prosperity and depression. The top formed in the past decade is the biggest since 1720, yet, as you can see, the decline so far is small compared to the three that preceded it. There is a lot more room to go on the downside.
Figure 2 updates the Dow’s dividend yield. Over the past nine years, it has improved nicely, from 1.3 percent to 3.7 percent, near its level at previous market tops. If companies’ dividends were to stay the same, a 50 percent drop in stock prices from here would bring the Dow’s yield back into the area where it was at the stock market bottoms of 1942, 1949, 1974 and 1982. But of course, dividends will not stay the same.
Companies are cutting dividends and will cut more as the depression deepens. So, the falling stock market is chasing an elusive quarry in the form of an attractive dividend yield. This is a downward spiral that will not end until prices get ahead of dividend cuts and the Dow’s dividend yield goes above that of 1932, which was 17 percent (or until dividends fall so close to zero that the yield is meaningless).
Get the whole story about how much farther we have to go to a bear-market bottom by reading the rest of this article from EWI’s Independent Investor eBook. The fastest way to read it AND the six new chapters in EWI’s Independent Investor eBook is to become a member of Club EWI.
This article, The Bear Market and Depression: How Close to the Bottom?,was syndicated by Elliott Wave International. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
Ralph Nelson Elliott discovered the Wave Principle in the 1930s. Over the decades, his discovery was kept alive by a handful of individuals. A few of those, such as Bolton, Prechter and Frost, educated investors on how to use pattern analysis in financial markets.
To help out Elliott Wave International’s readers in learning the basics of the method, we put together a free 10-lesson online tutorial. Here’s an excerpt. To get it in full, look for details below.
At that time [of his discovery], with the Dow in the 100s, R. N. Elliott predicted a great bull market for the next several decades that would exceed all expectations at a time when most investors felt it impossible that the Dow could even better its 1929 peak. As we shall see, phenomenal stock market forecasts, some of pinpoint accuracy years in advance, have accompanied the history of the application of the Elliott Wave approach.
Under the Wave Principle, every market decision is both produced by meaningful information and produces meaningful information. Each transaction, while at once an effect, enters the fabric of the market and, by communicating transactional data to investors, joins the chain of causes of others’ behavior. This feedback loop is governed by man’s social nature, and since he has such a nature, the process generates forms. As the forms are repetitive, they have predictive value.
The market…is not propelled by the linear causality to which one becomes accustomed in the everyday experiences of life. Nor is the market the cyclically rhythmic machine that some declare it to be. Nevertheless, its movement reflects a structured formal progression. In markets, progress ultimately takes the form of five waves of a specific structure.
Three of these waves, which are labeled 1, 3 and 5, actually effect the directional movement. They are separated by two countertrend interruptions, which are labeled 2 and 4, as shown in Figure 1-1. The two interruptions are apparently a requisite for overall directional movement to occur.
At any time, the market may be identified as being somewhere in the basic five wave pattern at the largest degree of trend.
Read the rest of this 10-lesson Tutorial and see multiple charts now, free! All you need is to create a free Club EWI profile.
What the basic Elliott wave progression looks like
Difference between impulsive and corrective waves
How to estimate the length of waves
How Fibonacci numbers fit into wave analysis
Practical application tips for the method
More
Keep reading this free tutorial today.
This article, Learn Basics of Elliott Wave Analysis, was syndicated by Elliott Wave International. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
The following article is an excerpt from Elliott Wave International’s free report, 20 Questions With Deflationist Robert Prechter. It has been adapted from Prechter’s June 19 appearance on Jim Puplava’s Financial Sense Newshour.
Jim Puplava: In 1933 at the bottom of the crisis, the Roosevelt administration comes in. In its first week they declare a bank holiday, they reopen the banks with the FDIC, they sever gold, they come in with massive fiscal stimulus and they devalue the dollar substantially. The result was from 1933 to1937 we have positive CPI, economic growth, a robust stock market. If fiscal and monetary measures fail to revive the economy and the market, could the government try devaluation to change the deflationary outcome the way they did 1933?
RP: Well, you have to have a benchmark in order to devalue a currency. Our currency isn’t pegged to anything, so I don’t understand even what the term devaluation would mean. What would they do to do create a devaluation?
Editor’s Note: The article you are reading is just one small excerpt from Elliott Wave International’s FREE report, 20 Questions With Deflationist Robert Prechter. The full 20-page report includes even more of Prechter’s insightful analysis on fiat currency, gold, the Fed, the Great Depression, financial bubbles, and government intervention. You’ll learn how to protect your money — and even profit — in today’s environment. Read ALL of Prechter’s candid answers for FREE now. Access the free 20-page report here.
JP: Maybe they come out with a formal saying: the dollar is now worth a half a euro, X amount of yen or it’s a formal statement. They just declare it formally.
RP: Yeah, but everybody already knows what it’s worth, because it’s floating freely against these other currencies. And they certainly couldn’t fix it to a lesser currency like the euro. And then the managers of this other currency would simply make another decree and negate it. That’s not going to work.
Let’s take your example, because it’s very important. The whole idea of the government being ahead of the curve is bogus. You know the collapse was from September 1929 down to July 1932, right? The government did not act until it was over. They waited for the bottom of the collapse—of course—and then they finally decided they’re going to do something about it. So, months after the low in 1932, they finally shut the banks and pass laws such as Glass-Steagall, which created the FDIC, and the Securities and Exchange Act, and that sort of thing, to bring confidence back into the banking system. I think the same thing is going to happen here. They’re going to try the same old stuff, more and more lending, more and more borrowing—which is the problem, not the solution—until everything collapses, and then they’ll go, “Oh maybe we should try something else,” and by that time we’ll already be at the deflationary nadir, and it’ll be time to look for an inflationary outcome.
My whole thesis is exactly along those lines. We want to stay prepared for a deflationary crash, and when it’s over, we’re going to convert whatever money we have to stocks, and raw land, and gold, and whatever else we want to buy. That’s when—if the government makes a political decision to inflate through currency printing—it would make the decision. They’re not going to make it before the bottom. The government has never acted before the bottom, never acted in a new way. Right now these bailouts and other schemes are simply pressing the accelerator harder on what we’ve been doing since 1913.
Editor’s Note: The article you are reading is just one small excerpt from Elliott Wave International’s FREE report, 20 Questions With Deflationist Robert Prechter. The full 20-page report includes even more of Prechter’s insightful analysis on fiat currency, gold, the Fed, the Great Depression, financial bubbles, and government intervention. You’ll learn how to protect your money — and even profit — in today’s environment. Read ALL of Prechter’s candid answers for FREE now. Access the free 20-page report here.
This article, 20 Questions with Robert Prechter: Devaluation Won’t Work,was syndicated by Elliott Wave International. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
The following article is an excerpt from Elliott Wave International’s free report, 20 Questions With Deflationist Robert Prechter. It has been adapted from Prechter’s June 19 appearance on Jim Puplava’s Financial Sense Newshour.
Jim Puplava: I want to come back to government spending, but first I want to move onto the stock market. In your last two Elliott Wave Theorist issues, you laid out a scenario that would put the Dow and S&P, which in your opinion may have peaked on April 26, as the top from here. You feel that this top is the biggest top formation of all time, a multi-century top and we could head straight down in a six-year collapse that would end in 2016 that could see a substantial portion of the S&P and the Dow wiped out in a similar way that we saw between 1929 and 1933. Let’s talk about that and the reasoning behind it.
Editor’s Note: The article you are reading is just one small excerpt from Elliott Wave International’s FREE report, 20 Questions With Deflationist Robert Prechter. The full 20-page report includes even more of Prechter’s insightful analysis on fiat currency, gold, the Fed, the Great Depression, financial bubbles, and government intervention. You’ll learn how to protect your money — and even profit — in today’s environment. Read ALL of Prechter’s candid answers for FREE now. Access the free 20-page report here.
RP: Yes, you’re exactly right. I did a lot of work on technical forms, cycle forms and Elliott wave forms in April and May and put them in a double issue. Let’s talk about the cycles first.
The 7¼-year cycle has been quite regular since the first bottom in 1980. The next bottom was at the crash in October 1987. The next one was November 1994, which is when the economy went through four years with lots of layoffs; it was a recessionary period throughout until that cycle bottomed. The next one was between September 2001, which was the 9/11 attack, and the October 2002 bottom. And the latest one was at the low in March 2009. All those periods are 7¼ years apart, so we are in the uptrend portion of the 7¼-year cycle.
However, notice for example that in 1987, the market went up until August of that year and then bottomed in October, just a couple of months later. So the decline occurred very, very late in the cycle. This time it occurred a little bit earlier in the cycle, topping in ’07 and bottoming in ’09. In the current cycle, prices should peak the earliest of all of them. It’s what we in the cycle prediction business call “left-hand translation.” The market’s already gone up for about a year, and I think that’s just about enough. I think we’re going to spend most of the cycle going down. But the important thing to note is that the next bottom is due in 2016. That means I think we’re going to have a repeat of what happened between 1930—which was the top of the rally following the 1929 crash—and the July 1932 low. Instead of taking two years, it’s going to take about six years.
It’s going to be a very long decline. It’s going to be interrupted by many, many rallies, just as the decline from 1930 to 1932 was. And every time it bottoms and rallies, people are going to say “OK, that’s enough; it’s over.” But it won’t be over. It’s just going to be a long, long process. I think you and I will probably be talking a few times during this period. One of the interesting aspects of this process is that optimism should actually remain dominant through the first three years of the cycle. That will carry us into 2012. Even though prices will be edging lower, most people are going to think it’s a buy, and you shouldn’t get out of your stocks, and recovery is just around the corner, probably for the next three years. And then, for the final half of the cycle, the final three years, that’s when you’ll get the capitulation phase when everyone finally gives up.
Editor’s Note: The article you are reading is just one small excerpt from Elliott Wave International’s FREE report, 20 Questions With Deflationist Robert Prechter. The full 20-page report includes even more of Prechter’s insightful analysis on fiat currency, gold, the Fed, the Great Depression, financial bubbles, and government intervention. You’ll learn how to protect your money — and even profit — in today’s environment. Read ALL of Prechter’s candid answers for FREE now. Access the free 20-page report here.
This article, 20 Questions with Robert Prechter: Long Decline Ahead,was syndicated by Elliott Wave International. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
