Category: Trading Lesson

Stock Market Interest Far Surpasses 1987 & 1929

This Measure of Stock Market Interest Far Surpasses 1987 & 1929
“More than half of U.S. households have been in the market for a generation”

By Elliott Wave International

A lot of people think that it’s perfectly normal to participate in the stock market — you know, like getting a drink of water or — breathing.

We here at Elliott Wave International call this the “equity culture” and it’s been going strong for a good many years now.

It’s difficult for many people to remember that it’s not always been thus.

Yet there’s been significant stretches of time when the populace at large wouldn’t touch stocks with the proverbial ten-foot pole — the years following the historic 1929 crash being a prime example.

Even at the top of the market in 1929, pollster Al Sindlinger estimated that only 20% of U.S. households participated in the stock market — based on interviews conducted in 1939. At the market top in 1987, the percentage of households in the market was 36%.

With this perspective, here’s a chart and commentary from the February Elliott Wave Financial Forecast which you may find interesting (the Elliott Wave Financial Forecast is a monthly publication which offers analysis and forecasts for major U.S. financial markets):

The percentage of stock holdings by U.S. households hit an all-time high of 58% at the end of 2022. The analysis in the Fed’s Survey of Consumer Finances lags by 11 months. Given the market’s recent rally, the 2023 figure is likely to be even higher. … Thanks to the Grand Supercycle degree of the bull market, more than half of U.S. households have been in the market for a generation.

And here in early 2024, the optimistic financial sentiment persists. Indeed, here’s a Jan. 16 Barron’s headline:

Investing In U.S. Stocks Still Makes Sense Despite High Valuations

And, on Jan. 18, the view of the CEO of one of the world’s largest money management firms was reflected in this headline (Seeking Alpha):

“Animal spirits” will stir the markets again in 2024

Only time will tell how the remainder of the year will play out, yet keep in mind that optimistic attitudes toward the stock market are unlikely to go on indefinitely. Another historic shift is all but inevitable.

Our analysis reveals what this shift may very well look like — so you can prepare.

As you might imagine, Elliott Wave International’s primary way of analyzing financial markets is employing the Elliott wave method.

The definitive text on the Elliott wave method is Frost & Prechter’s Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the book:

The Wave Principle often indicates in advance the relative magnitude of the next period of market progress or regress. Living in harmony with those trends can make the difference between success and failure in financial affairs.

All that’s required for free access to the online version of the book is a Club EWI membership. Club EWI is the world’s largest Elliott wave educational community (about 500,000 members and growing rapidly) and is free to join.

Just follow this link and you can have the book on your computer screen in moments: Elliott Wave Principle: Key to Market Behavior — get free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline This Measure of Stock Market Interest Far Surpasses 1987 & 1929. 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.

Stocks: It All Boils Down to This

Stocks: It All Boils Down to This
News and events do not alter the market’s trend

By Elliott Wave International

The trend of the stock market all boils down to investor psychology — which tends to unfold in similar patterns during every market cycle.

An important point to realize is that investor psychology is endogenous, which of course means “having an internal cause or origin.” Another definition in the dictionary is “not attributable to any external or environmental factor.”

This point was driven home when I first became acquainted with the Elliott Wave Principle and read the history of Ralph Nelson Elliott, the accomplished accountant who observed these repetitive stock market patterns while spending time in a hospital with an illness. He noticed, and I’m paraphrasing, that the trend of the stock market was uninterrupted despite World War II! In other words, the endogenous workings of investor psychology persisted even though an external event as significant as a world war had developed.

Besides wars, this applies to other news and events as well — such as terrorist attacks, Federal Reserve announcements, so-called oil “shocks,” “surprising” economic reports, natural disasters, developments in the world of politics and even a presidential assassination. The market may exhibit a relatively brief emotional reaction to dramatic news, but afterwards, the trend picks up where it left off.

In his landmark book, The Socionomic Theory of Finance, Robert Prechter describes a case in point with these charts and commentary:

[The chart] shows the DJIA around the time when President John F. Kennedy was shot. First of all, can you tell by looking at the graph exactly when that event occurred? Maybe before that big drop on the left? Maybe at some other peak, causing a selloff?

The first arrow [on this next chart] shows the timing of the assassination. The market initially fell, but by the close of the next trading day, it was above where it was at the moment of the event, as you can see by the position of the second arrow.

In the latter half of 1962 and 1963, the trend of the stock market — driven by investor psychology — was up — and continued upward despite historically dramatic news.

Know that Elliott waves are a direct reflection of this investor psychology and can help you anticipate what’s next for financial markets around the globe.

If you’d like to delve into the details of Elliott wave analysis, read the definitive text on the subject: Elliott Wave Principle: Key to Market Behavior by Frost & Prechter.

Here’s a quote from the book:

All waves may be categorized by relative size, or degree. The degree of a wave is determined by its size and position relative to component, adjacent and encompassing waves. [R.N.] Elliott named nine degrees of waves, from the smallest discernible on an hourly chart to the largest wave he could assume existed from the data then available. He chose the following terms for these degrees, from largest to smallest: Grand Supercycle, Supercycle, Cycle, Primary, Intermediate, Minor, Minute, Minuette, Subminuette. Cycle waves subdivide into Primary waves that subdivide into Intermediate waves that in turn subdivide into Minor waves, and so on. The specific terminology is not critical to the identification of degrees, although out of habit, today’s practitioners have become comfortable with Elliott’s nomenclature.

If you’d like to learn more, know that the entire online version of this Wall Street classic is available to you free once you join Club EWI — the world’s largest Elliott wave educational community.

A Club EWI membership is free, and members enjoy complimentary access to a wealth of Elliott wave resources on investing and trading without any obligations.

You can have the book on your screen in moments as you follow this link: Elliott Wave Principle: Key to Market Behavior — get instant and free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Stocks: It All Boils Down to This. 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.

Why Do Traders Really Lose Money?

Answer: It’s Not the Market’s Fault
And 1 FREE course on how to help you stop self-sabotaging “good enough” trade plans

By Elliott Wave International

I have always been a “who cares about the odds” kinda person. Meaning, if someone tells me the likelihood of succeeding at, say, learning to skateboard at 40, are low, it just makes me want to try it more. Otherwise, why would I say yes to a marriage proposal to someone I met online, who lives in a farm in rural Georgia, 3 months into us dating amidst a global pandemic?

If you believe Wall Street’s statistics about the odds of success as a trader, yet still choose to speculate in the financial markets anyway, a part of you must be of that same “odds-schmods” mindset. Because according to the mainstream experts, the probability of traders losing money in the long run is between an abysmal 85% and 95%.

Are markets simply too unpredictable? Are price trends too random? Are “nefarious practices” of some traders throwing the entire system off track? Is making a profit at trading simply a matter of luck?

If anyone has the answer to these questions, it’s a 25-year veteran of technical market analysis, Jeffery Kennedy. For a quarter century, Jeffrey helmed the wheel for a multitude of educational publications and services here at Elliott Wave International, where he brought his decades of wisdom and hard-won lessons to bare for a generation of traders and investors alike.

Jeffrey confronted the validity of the 95% failure rate with this counterclaim: 80% of the time, active traders and investors select a winning position. In other words, most of the time all checkered flags are a “go.” The failure rate starts to creep up when traders stay in the market too long with the expectation of turning a “good enough” profit into a cinematic windfall.

In other words, the problem isn’t an irrational market. All too often, it’s investors and traders’ irrational greed. And the antidote to greed is discipline to avoid one common mistake.

For Jeffrey, there is one discipline that goes above all others to facilitate successful set-ups. Before we say it out loud, let’s see if you can figure it out from this pair of Elliott wave lessons from Jeffrey’s EWI archives.

First, Big Board sports apparel pacesetter Nike, Inc. (NKE).

On December 16, 2021, Jeffrey presented this chart of NKE, which showed prices engaged to the downside after having completed a five-wave rally. From EWI’s Trader’s Classroom lesson on Dec. 16:

“If we have indeed finished a larger five wave move up from the 2020 low, then we’re looking to head all the way back down to 125.”

From there, Nike deflated like an Air Jordan basketball on a bed of nails, plummeting below 125 in May 2022 and continuing to fall before staging a small rebound into August of last year. Then, on August 31, Trader’s Classroom revisited Nike Inc. to confirm the rebound had unfolded as a countertrend move, and the current weakness was likely to continue. Jeffrey explained:

“The selloff that began in late 2021 is still very much in force.

“Wave patterns support the idea of further decline in Nike down to below 92.20.”

From there, NKE persisted lower, reaching Jeffrey’s downside objective of 92.20 — and then some — late last September.

The second market from Jeffrey’s annals isn’t a stock, but rather a commodity. In the June 2022 Monthly Commodity Junctures (now Commodity Junctures), Jeffrey showed this chart of feeder cattle. Prices had been rallying off a late spring low, and Jeffrey’s analysis called for further advance, into 2023.

From there, feeder prices took off like a rocket into record high territory, which they continue to orbit as of now, in August 2023.

So, what common feature do you notice about these two examples?

The answer: Their price trends were underway before Jeffrey introduced high-confidence set-ups. Which brings us full circle back to the no. 1 discipline he sees as being crucial for successful trades:

Do not pick tops and bottoms.

Jeffrey can’t emphasize this rule enough. When you are satisfied with a “good enough” entry after a peak or a bottom has been established, that means that you’re satisfied with leaving money on the table and your greed is in check. The second part of this “keep my greed low” trick is to not let yourself get stuck in a good trade for so long that a winner turns into a loser.

In fact, “Do not pick tops and bottoms” is the cornerstone of one of EWI’s most requested educational courses, taught by Jeffrey himself and titled “How to Formulate a Solid Trade Plan and Know When to Pull the Trigger.”

Normally priced at $99 in our Store, right now EWI is offering this entire 30-minute course FREE! In it, Jeffrey reinforces his golden rule of trading and says:

“Of the 80% of trades I was losing money on, 80% of those at some point or another were profitable. The problem was, I wasn’t taking the money off the table when it was there.

“What I finally learned was, I have no desire to buy bottom ticks or sell top picks. I’m just looking to make the cash register ring. Period.”

This hard-won lesson is just one of the many insights Jeffrey imparts in the “How to Formulate a Solid Trade Plan” course. In 30 minutes, Jeffrey asks and answers these and many more questions:

  • “What are the earmarks of a viable trade set-up?”
  • “Where should you place a protective stop?”
  • “What is the most optimal risk/reward ratio?”
  • “If you have a strong wave count, should you open a position?”

So, if you’re an “odds-schmods” person like me, consider this math: 1 renowned technical analyst sharing the wisdom of 25-plus years of trading experience in a 30-minute online video course — for $0! You can’t do better than that.

To watch Jeffrey Kennedy’s “How to Formulate a Solid Trade Plan and Know When to Pull the Trigger” — today, FREE — simply join the free, worldwide Club EWI community for instant access to this and other Club EWI resources.

Already have a free Club EWI password? Then click here to start streaming the course >>

Big Financial Trends

Robert Prechter Interview for the Ages: Quick Takes on Big Financial Trends
‘That’s not even the craziest indicator on this chart. Look at the bottom graph.’

By Elliott Wave International

Robert Prechter’s June 23 interview with GoldSeek.com, which is under 15 minutes, covers a variety of financial topics.

They include stocks with an emphasis on the technology sector (including artificial intelligence), bitcoin, gold and silver, corporate bonds and the prospects for deflation.

You can look below to learn how to listen to the entire interview for free.

But, first, let me share with you just one of the interview topics, and that’s the stock-market sentiment that was on display leading up to the January 2022 top in the blue-chip indexes.

Relatedly, in the GoldSeek interview, Robert said:

Sentiment indicators… can tell you the extent to which [people] are extremely optimistic or pessimistic. Well, 2021 was a year like no other. Finally, in December 2021, I put out an issue called “A Stock Market Top for the Ages.”

Here’s one of the sentiment charts that the December 2021 Elliott Wave Theorist showed along with the commentary (The Elliott Wave Theorist is a monthly publication which covers major financial and cultural trends):

NaryBear

The middle graph is the ratio between the amount of money that Rydex investors have put into bullish funds versus bearish funds. Look toward the left, and you’ll see the words “normal range.”

[Fifteen] years ago, the ratio was around 1:1 or 2:1… In general, there was a bit more money in bull funds than in bear.

Investors have been going crazy in the last five years. On November 19, the ratio reached 62:1…

That’s not even the craziest indicator on this chart. Look at the bottom graph, which depicts the ratio of leveraged bullish funds versus leveraged bearish funds. It shows that there is 82 times as much money in the leveraged bullish funds as there is in the leveraged bearish funds.

So, it wasn’t surprising that the Dow Industrials and the S&P 500 index topped early in the very next month.

Getting back to the GoldSeek interview, learn how you can access it for free by following the link.

This article was syndicated by Elliott Wave International and was originally published under the headline Robert Prechter Interview for the Ages: Quick Takes on Big Financial Trends. 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.

Stocks and Junk Bonds

Stocks and Junk Bonds: “This Divergence Appears Meaningful”
“Everything was aligned until February 2”

By Elliott Wave International

The trends of the junk bond and stock markets tend to be correlated.

The reason why is that junk bonds and stocks are closely affiliated in the pecking order of creditors in case of default. The rank of junk bonds is only slightly higher than equities because debt involves a contract.

Given these two markets are usually correlated, it’s worth paying attention when a divergence takes place. Indeed, a divergence is in the works now. In other words, while stocks have been holding up, the price of junk bonds have been trending lower for much of the year.

Here’s a headline from a few months ago (Reuters, March 16):

Investors shun high-yield bonds on recession, banking risks

At the same time, as mentioned, the S&P 500 and especially the NASDAQ has remained elevated.

The June 16 U.S. Short Term Update, which is a thrice weekly Elliott Wave International publication, discussed this divergence via this chart and commentary:

The graph shows that junk bonds diverged relative to stocks at the January 2022 peak, when stocks started their bear market. Both trends then came into alignment during the decline as well as the countertrend rallies that were interspersed in the selloff. Everything was aligned until February 2, which is when the yield on junk bonds made a low (shown as a high on the inverted chart). Yields then started to rise but instead of stocks declining, which would keep both trends side by side, equities continued to rally. This divergence appears meaningful.

The U.S. Short Term Update goes on to say that this divergence is not meant to be used for near-term market timing. But it is an indicator to keep in mind along with other indicators as well as the Elliott wave model.

If you’re unfamiliar with Elliott wave analysis or need to re-acquaint yourself, you are encouraged to delve into the definitive text on the subject, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter.

Here’s a quote from the book:

After you have acquired an Elliott “touch,” it will be forever with you, just as a child who learns to ride a bicycle never forgets. Thereafter, catching a turn becomes a fairly common experience and not really too difficult. Furthermore, by giving you a feeling of confidence as to where you are in the progress of the market, a knowledge of Elliott can prepare you psychologically for the fluctuating nature of price movement and free you from sharing the widely practiced analytical error of forever projecting today’s trends linearly into the future. Most important, the Wave Principle often indicates in advance the relative magnitude of the next period of market progress or regress. Living in harmony with those trends can make the difference between success and failure in financial affairs.

Here’s the good news: You can read the entire online version of the book for free once you become a Club EWI member.

Club EWI is the world’s largest Elliott wave educational community and is free to join. Moreover, members enjoy free access to a wealth of Elliott wave resources on investing and trading.

Get started by following this link: Elliott Wave Principle: Key to Market Behavior — get free and unlimited access now.

This article was syndicated by Elliott Wave International and was originally published under the headline Stocks and Junk Bonds: “This Divergence Appears Meaningful”. 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.

Treasury Bonds

Treasury Bonds: How This Forecast is Playing Out
Here’s what happened with a shelf of support in the chart of the long bond

By Elliott Wave International

The yield on U.S. Treasury bonds trended higher from 1942 to 1981 — that’s 39 years.

Interestingly, yields (or interest rates) then trended lower for 39 years (1981 to 2020).

Thirty-nine years is quite a long time — well long enough for observers to get used to the idea of exceptionally low yields, even the Fed.

Indeed, here’s a Sept. 16, 2020 headline from the Wall Street Journal:

Fed Signals Low Rates Likely to Last Several Years

Elliott Wave International President Robert Prechter had an entirely different perspective. Here’s what he said just a week later in his Sept. 23, 2020 issue of The Elliott Wave Theorist, a monthly publication that provides analysis of major financial and cultural trends:

On September 16, Fed Chairman Powell [said] he expected short-term interest rates to stay near zero as long as inflation stays below 2%, a condition he believes will maintain … through “the end of 2023.” I think there is not a chance in the world of that scenario playing out. … The probability is high that interest rates have begun a process of rising. … [emphasis added]

As we all know, interest rates or yields have risen substantially since 2020.

This chart and commentary from the May 19, 2023 Elliott Wave Theorist provide an update (Keep in mind that Elliott wave labeling is available to subscribers):

Treasury bond futures have been slipping again. As you can see in [the chart], bond prices broke a shelf of support this week and traded today at their lowest level in ten weeks. A debt crisis is brewing, and higher long-term interest rates will add to the pressure.

Yes, servicing public and private debt is getting a lot more expensive. And that debt has been increasing dramatically and rapidly (CNBC, May 18):

The global debt pile grew by $8.3 trillion in the first quarter to a near-record high of $305 trillion … .

Getting back to the price pattern of the U.S. Treasury Long Bond, Elliott wave analysis can help you determine what’s next.

Of course, no method of analyzing financial markets can offer a guarantee, but Elliott Wave International knows of no other method which surpasses the usefulness of the Elliott wave model.

That said, here’s a quote from Frost & Prechter’s Wall Street classic, Elliott Wave Principle: Key to Market Behavior:

Without Elliott, there appears to be an infinite number of possibilities for market action. What the Wave Principle provides is a means of first limiting the possibilities and then ordering the relative probabilities of possible future market paths. Elliott’s highly specific rules reduce the number of valid alternatives to a minimum. Among those, the best interpretation, sometimes called the “preferred count,” is the one that satisfies the largest number of guidelines. Other interpretations are ordered accordingly. As a result, competent analysts applying the rules and guidelines of the Wave Principle objectively should usually agree on both the list of possibilities and the order of probabilities for various possible outcomes at any particular time. That order can usually be stated with certainty. Do not assume, however, that certainty about the order of probabilities is the same as certainty about one specific outcome. Under only the rarest of circumstances do you ever know exactly what the market is going to do. You must understand and accept that even an approach that can identify high odds for a fairly specific event must be wrong some of the time.

If you’d like to read the entire online version of the book, you may do so for free once you become a member of Club EWI, the world’s largest Elliott wave educational community.

A Club EWI membership is also free.

Get started right away by following this link: Elliott Wave Principle: Key to Market Behavior — get free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Treasury Bonds: How This Forecast is Playing Out. 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.

Corporate Bonds: “The Next Shoe to Drop”

Corporate Bonds: “The Next Shoe to Drop”
“The neckline has been broken over the last few days”

By Elliott Wave International

A “calamity” is likely ahead for corporate bonds, says our head of global research, Murray Gunn.

Some of Murray’s analysis involves the head and shoulders, a classic technical chart pattern. In case you’re unfamiliar with it, here’s an illustration along with an explanation from one of our past publications:

A head-and-shoulders is a reversal pattern that consists of three price extremes. Market technicians refer to [them] as the left shoulder, head, and right shoulder. …it takes a break of the neckline to confirm a reversal… [and it’s] not just a bearish reversal formation. Inverted head-and-shoulders mark bottoms.

With that in mind, here’s a chart and commentary which Murray provided for the April Global Market Perspective, a monthly Elliott Wave International publication which covers 50-plus financial markets:

The chart … shows the relative performance of corporate bonds, as proxied by the iShares iBoxx $ Investment Grade Corporate Bond ETF (ticker LQD) versus the iShares 7-10 Year Treasury Bond ETF (ticker IEF). A distinct Head and Shoulders pattern exists where the neckline has been broken over the last few days. The corporate bond market has held in reasonably well over the last year, but we fully expect this sector to be the next shoe to drop.

Don’t count on the ratings services to provide timely warnings. In the past, downgraded ratings have sometimes come only after most if not all the damage was done.

Remember Enron? The company still had an “investment grade” rating just four days before it collapsed. Ratings services also missed the 1995 debacle at Barings Bank. Olympia and York of Canada is another historical example: the largest real estate developer in the world at the time had a AA rating on its debt in 1991. Less than a year later, it went bankrupt.

Getting back to the present, Murray Gunn also notes:

When … corporate loans are re-set this year, there are going to be a few deep breaths being taken, and more than a fair share of tightened sphincters!

And, speaking of chart patterns of financial markets, another way to monitor the bond market is to use Elliott wave analysis.

If you’d like to delve into the details of this method of analysis, read Frost & Prechter’s Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the book:

If indeed markets are patterned, and if those patterns have a recognizable geometry, then regardless of the variations allowed, certain price and time relationships are likely to recur. In fact, experience shows that they do.

It is our practice to try to determine in advance where the next move will likely take the market. One advantage of setting a target is that it gives a sort of backdrop against which to monitor the market’s actual path. This way, you are alerted quickly when something is wrong and can shift your interpretation to a more appropriate one if the market does not do what you expect. The second advantage of choosing a target well in advance is that it prepares you psychologically for buying when others are selling out in despair, and selling when others are buying confidently in a euphoric environment.

If you’d like to read the entire online version of Elliott Wave Principle: Key to Market Behavior, you may do so for free once you become a member of Club EWI, the world’s largest Elliott wave educational community. A Club EWI membership is also free.

Join now by following this link: Elliott Wave Principle: Key to Market Behavior — get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Corporate Bonds: “The Next Shoe to Drop”. 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.

Gold and Inflation Market Myth

Gold and Inflation: Here’s a Market Myth
“If you believe in Gold as a consumer price inflation hedge then…”

By Elliott Wave International

Back in the days of the Roman Empire, an ounce of gold could buy a Roman a well-made toga, belt, and finely crafted sandals.

In modern-day Rome, lo and behold, a businessman can become sharply dressed via the value of that same ounce of gold.

So, yes, gold has maintained its store of value over the centuries.

However, in the relatively short term — which can last years — gold may not be the inflation hedge that gold bugs believe it to be.

In a moment, I’ll show you how this relates to what’s going on with gold and inflation now. However, let’s first get insights from a chart and commentary from our February 2022 Global Market Perspective, which was published when inflation was really getting going (The monthly Global Market Perspective is an Elliott Wave International publication that covers 50-plus global financial markets):

The chart shows the U.S. dollar price of Gold versus the annualized rate of change in the U.S. Consumer Price Index (CPI). If you believe in Gold as a consumer price inflation hedge then, as the CPI is accelerating, the Gold price should be advancing. The green-shaded areas show that there have been five occasions since 1980 when the opposite was true, the last year being a good example. On the other side, the Gold-Inflation myth would allude to the price of Gold declining as CPI was decelerating. The grey-shaded areas show five occasions since 1970 when this was not the case, with 2007 to 2010 being a prime example.

Fast forward to today and we have these headlines:

  • US inflation eases grip on the economy, falling for a 6th month (AP News, Jan. 23)
  • Inflation in the U.S. could turn negative by midyear, says [this] billionaire investor … (MarketWatch, Jan. 28)

What’s happened to the price of gold? It’s steadily climbed in the face of easing inflation. Of course, this is just the opposite of what was occurring around this time last year. In both cases, the price of gold went in the opposite direction from what many would expect.

On Sept. 28, gold was trading at $1613.75 and has been in an overall uptrend since. The precious metal traded as high as $1949.46 on Jan. 26 (as of this writing on Jan. 30).

The bottom-line takeaway is that the widespread expected relationship between gold and inflation is not always there — indeed, there have been several instances in the past several decades where the opposite is the case.

Know that Elliott wave analysis, which is by no means a crystal ball, can nonetheless help you anticipate gold’s next big price move.

If you’re unfamiliar with Elliott wave analysis, read Frost & Prechter’s Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the book:

The Wave Principle is governed by man’s social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value.

Learn about these “forms” for free as a Club EWI member.

That’s right — you can gain free access to the entire online version of this Wall Street classic by joining Club EWI — the world’s largest Elliott wave educational community. A Club EWI membership is also free, and members enjoy complimentary access to a wealth of Elliott wave resources on investing and trading.

Get started right away by following this link: Elliott Wave Principle: Key to Market Behavior — get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Gold and Inflation: Here’s a Market Myth. 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.

Stocks and Economy: Why 2022 May Have Just Been the Preview


“Fight the inertia that will keep you from taking action to prepare for the downturn”

By Elliott Wave International

The main show is likely about to begin.

2022 may have just been a preview of what’s ahead for stocks and the economy, which Robert Prechter’s Last Chance to Conquer the Crash warned about nearly a year ago, and our Global Market Perspective discussed at the start of 2022.

Let’s start with that warning from the January 7, 2022, Global Market Perspective, a monthly Elliott Wave International publication that covers 50-plus worldwide financial markets, via these charts and commentary:

The blue-chip Dow Industrials and S&P 500 … managed to eke out new highs in the first two trading days of 2022. There is a good chance that Wednesday’s trend reversal is the start of a long-term decline.

The “Wednesday” referenced was Jan. 5 and indeed, an all-time high for the Dow Industrials occurred on that very date, with the S&P 500 hitting its high on Jan. 4. Mind you, the Global Market Perspective‘s forecast was made in real-time — just two and three days, respectively, after those all-time highs registered.

As you know, the blue-chips have been in a downtrend since, albeit accompanied by some very sharp rallies — which is not unusual during downtrends.

Let’s now turn our attention to Robert Prechter’s Last Chance to Conquer the Crash, which, as a reminder, was published nearly a year ago and warned of a major economic contraction ahead. This is from the book:

Fight the inertia that will keep you from taking action to prepare for the downturn. Start taking steps now. … Think globally, not just domestically.

Yes, when the good times are rolling and stock market indexes are reaching new all-time highs, it can seem unnecessary to prepare for a downturn.

But, as you read these headlines, many people likely wished they had:

  • Household wealth down by $13.5 trillion in 2022, second-worst destruction on record (Marketwatch, Dec. 9)
  • Tech Layoffs in U.S. Send Foreign Workers Scrambling to Find New Jobs (The New York Times, Dec. 9)
  • Economists: A US housing recession has already arrived (The Hill, Dec. 7)
  • Defaults Loom as Poor Countries Face an Economic Storm (The New York Times, Dec. 3)
  • The UK economy is sliding into recession and Europe is set to follow (CNN, Nov. 11)
  • China’s super-rich see fortunes plunge as economy slows (The Guardian, Nov. 7)

There are many more similar headlines.

The stance of Elliott Wave International is that these headlines represent only an inkling of what’s likely ahead.

Keep in mind that the stock market leads and the economy follows. In other words, a downturn in the stock market is generally followed by a downturn in the economy and an upturn in the stock market is generally followed by improving economic conditions.

So, it would be a good idea to keep on top of the Elliott wave pattern of the stock market in which you are interested — whether it’s the U.S., another nation or many nations. Elliott wave analysis will help you to anticipate what’s next for a given stock market index or indexes. Hence, you can also anticipate what’s down the road for the economy. As you might imagine, Elliott wave analysis offers no guarantees, but it’s the best analysis of financial markets of which Elliott Wave International knows.

If you’re unfamiliar with Elliott wave analysis and would like to learn about it, read Frost & Prechter’s Elliott Wave Principle: Key to Market Behavior — the definitive text on the Elliott wave model. Here’s a quote from the book:

The Wave Principle is governed by man’s social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value.

Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are causal conditions. The reason is that the market has a law of its own. It is not propelled by the external causality to which one becomes accustomed in the everyday experiences of life. The path of prices is not a product of news. Nor is the market the cyclically rhythmic machine that some declare it to be. Its movement reflects a repetition of forms that is independent both of presumed causal events and of periodicity.

The market’s progression unfolds in waves. Waves are patterns of directional movement.

If you’d like to read the entire online version of this Wall Street classic, you may do so for free once you join Club EWI — the world’s largest Elliott wave educational community. A Club EWI membership is also free and allows you complimentary access to a wealth of Elliott wave resources on investing and trading.

Just follow this link: Elliott Wave Principle: Key to Market Behavior — get instant and free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Stocks and Economy: Why 2022 May Have Just Been the Preview. 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.

Investors in U.S. Treasuries Face Major Risk

Why Investors in U.S. Treasuries Face Major Risk
Rising rates will be “disastrous” for governments, other debtors and creditors

By Elliott Wave International

The market for U.S. Treasuries is the biggest bond market in the world, and it appears that potentially big trouble may be afoot.

Earlier this month, none other than the U.S. Treasury Secretary herself (Janet Yellen) acknowledged …

… “a loss of adequate liquidity in the [U.S. government debt] market.”

Then, in a statement last week, Bank of America strategists expressed concerns about …

… “large scale forced selling [of U.S. Treasuries].”

No wonder other analysts and traders have voiced worries about U.S. Treasuries being a potential key factor in the next financial crisis.

It may interest you to know that Elliott Wave International has been ahead of this developing story.

In April of this year, The Elliott Wave Theorist, a monthly publication which provides analysis of financial markets and major cultural trends, showed this amazing chart and said:

Because of the 39-year symmetry in this picture and the unprecedented arrival of negative interest rates, we have been adamant that interest rates bottomed in 2020. Sure enough, they have been rising since. … Rising interest rates will be disastrous for governments and other debtors as well as for creditors who hold long-term bonds.

Fast forward to the Oct. 21, 2022 U.S. Short Term Update, a thrice weekly Elliott Wave International publication that provides near-term analysis of major U.S. financial markets, which noted:

[U.S. Treasury long bond futures] are collapsing, as rates shoot higher. The yield on … 10-year treasury paper pushed to 4.34%, its highest level in 15 years. Bond investors are being absolutely crushed.

Of course, when bond yields rise, prices fall.

The question now is: Is the rise in yields almost over or do they have a lot further to go?

Well, an Oct. 21 Reuters article said:

Some investors believe Treasury yields are close to peaking. …

All financial markets have countertrend moves and it’s certainly possible that one is ahead for U.S. Treasuries.

Yet, what’s important to know is the main trend.

You can get a handle on the main trend of U.S. Treasuries by employing the Elliott wave model.

If you’re unfamiliar with Elliott wave analysis, or need a refresher, a great resource is Frost & Prechter’s Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the book:

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. The two interruptions are apparently a requisite for overall directional movement to occur.

[R.N.] Elliott noted three consistent aspects of the five-wave form. They are: Wave 2 never moves beyond the start of wave 1; wave 3 is never the shortest wave; wave 4 never enters the price territory of wave 1.

If you’d like to read more about the Elliott wave model, here’s some good news: You can access the online version of Elliott Wave Principle: Key to Market Behavior for free once you become a member of Club EWI, the world’s largest Elliott wave educational community.

Club EWI is free to join and members enjoy complimentary access to a wealth of Elliott wave resources on financial markets, investing and trading, including videos and articles from Elliott Wave International analysts.

Just follow this link to get started: Elliott Wave Principle: Key to Market Behavior — get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Why Investors in U.S. Treasuries Face Major Risk. 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.