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Cash Value in Bear Market

In Every Bear Market, One Asset Always Surges in Value — This One
“The relative value of cash will necessarily zoom higher when stocks plunge.”

By Elliott Wave International

A negative sentiment toward cash had been in place for quite some time.

Let’s go back a little more than a year when our Feb. 2019 Elliott Wave Theorist showed this chart and said:

The average cash holding in mutual funds just fell to an all-time low. All long term sentiment indicators look like [this], except for the ones that look even worse.

These headlines published later in 2019:

  • Why you shouldn’t go to cash now — in one chart (Aug. 6, CNBC)
  • 3 reasons to stay in a volatile market and not cash out (Aug. 8, Yahoo Finance)

These dismissive views toward cash are what to expect after a historically long uptrend in stocks. Many investors expected equity prices to keep climbing, so why hold cash?

Indeed, as recently as January, one highly prominent professional investor reverted back to the old saying, “Cash is trash.”

However, in the same month, our Elliott Wave Financial Forecast said:

Cash is the only answer to survival in the coming environment.

The just-published April Elliott Wave Financial Forecast followed up with this chart and said:

Equities are the opposite of cash; risk-assets that require the surrender of cash. The relative value of cash will necessarily zoom higher when stocks plunge. The chart inverts the Dow’s recent plunge to show the liftoff for a new bull market in cash. … As [the book] Conquer the Crash stated: “When the stock market reaches bottom, you can buy incredibly cheap shares that almost no one else can afford because they lost it all when their stocks collapsed.”

Speaking of a stock market bottom, are we almost there?

Well, as recently as March 28 (Marketwatch), a major financial website sported this sub-headline:

Coronavirus crash is a buying opportunity for focused, long-term investors

As the April Elliott Wave Financial Forecast relatedly noted:

The evidence of an entrenched and even surging public infatuation with shares is not simply anecdotal. A Bankrate survey of about 2500 U.S. consumers from March 20 through March 24 found that just 11% have taken investments out of the marker in first quarter of 2020, while 13% “added more investments over the last three months.” Another 66% of respondents said “they intentionally left their holdings as is.” Ten percent said “they were unaware of the current economic volatility.” So, buyers or holders of equities accounted for almost 90% of investors through the worst first quarter in the 124-year history of the Dow Jones Industrial Average. Remarkably, 47% said they cut spending over “concerns of the economy.” Just 15% said they did so because of “concerns over the stock market.”

However, Elliott wave analysis of the stock market’s price pattern suggests that many investors will soon wish they had embraced cash instead of stocks.

Now is the time to learn all you can about the Elliott wave model so you can apply this knowledge to the current stock market picture and gain insights into what to expect next.

A great educational resource is the online version of the book, Elliott Wave Principle: Key to Market Behavior by Frost & Prechter, which you can access free when you join Club EWI. Membership in Club EWI is also 100% free.

Get started.

This article was syndicated by Elliott Wave International and was originally published under the headline In Every Bear Market, One Asset Always Surges in Value — This One. 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.

Technical Analysis Training

The Elliott Wave Principle: A “Marvel” of Technical Analysis
Our FREE webinar “How to Spot Reliable Trade Setups in Any Market and Any Time Frame” is back by popular demand

By Elliott Wave International

Just when you thought there’d been every possible adaptation of the Marvel comics movie franchise, we’ve thought of one more: A Marvel installment based on financial market analysis.

At one end of this Marvel market universe is Technipede: Like the insect he’s named for, Technipede uses hundreds of technical disciplines to stand on for evaluating a market’s strength or weakness. Bollinger bands, candlesticks, pivot points, TRIX, harmonics, advance/decline, and on — a different technical “leg” for each market and each time frame.

On the other end is bulging muscled Fundamentalist: Hero of the mainstream, Fundamentalist mines the news for every story that may affect future price action — supply/demand data, earnings, scandals, profits, political disruptions, weather patterns, and so on.

But neither one of these figures is any match for the most powerful character in this Marvel market universe — Jeffrey Kennedy, editor of our Trader’s Classroom and Commodity Junctures Service. Jeffrey’s strength comes from 25-plus years of mastering the Wave Principle and its ability to identify high-confidence trade setups in any market, across any time frame.

Every trading day, Jeffrey delivers the benefits of Elliott analysis to subscribers, via price charts in a wide variety of real-world markets. Take, for example, the retail king Amazon Inc. In the fall of 2018, Amazon was falling hard amidst a broader “meltdown” in FAANG stocks. Wrote one October 29 Bloomberg:

“How long can they go? That’s the key question for traders looking at some of Wall Street’s largest technology and internet stocks. People keep calling bottoms and getting hurt; they’re trying to catch falling knives.”

But in his October 30 Trader’s Classroom video lesson, Jeffrey showcased one of the five principle benefits of Elliott wave analysis; namely, its ability to determine the maturity of a trend. There, Jeffrey identified Amazon’s 2018 selloff as a fourth -wave correction.

Using the Elliott guideline of the depth of corrective waves, Jeffrey pinpointed a probable end to Amazon’s selloff “at or near the prior fourth wave extreme,” namely the lows seen in February and March of 2018. That meant Amazon had “another $100 or $200 bucks to the downside” before bottoming. (Jeffrey’s chart reprinted below)

AMZN 1997-2018

From there, Amazon continued its selloff into late December before settling 177 bucks lower, just as Jeffrey anticipated, a beautiful opportunity for traders.

What about a smaller time frame? Here, we go to the August 15 Trader’s Classroom where Jeffrey used one of the three cardinal Elliott wave rules to manage near-term risk in Dollar General (DG). He identified a wave 4 pullback, which, if correct, meant prices could not enter the price territory of wave 1 — 126.55. This established a clear, make-or-break level to place a protective stop. (Jeffrey’s chart reprinted below)

Dollar General 1999-2019

If prices stayed above that level, then DG would present a strong “buying opportunity” in a fifth wave rally to the “150-155 area.” And that’s exactly what happened via a powerful gap up and weeks long rally into Jeffrey’s upside target window.

Dollar General Corp 180

What about an even smaller time frame for one of the most volatile commodity markets — crude oil? In the Sept 13 Daily Commodity Junctures, Jeffrey showed a core Elliott wave pattern on crude’s price chart — a contracting triangle. This pattern lingers sideways for a frustratingly long time, only to resolve in a powerful thrust. Armed with this knowledge, Jeffrey set the stage higher and said, “I won’t be surprised to see it pop up into the 60’s.” (Jeffrey’s chart reprinted below)

Crude Oil NYMEX 1999-2019

The next trading day, crude gapped up in its largest single-day rally since the 1991 Gulf War.

Okay, there’s obviously no such thing as a Marvel market universe. Elliott wave analysis is not akin to Iron Man’s shield of invincibility. But as these examples from Jeffrey Kennedy show, having Elliott in your trading arsenal makes it very possible to identify high-confidence opportunities in actual markets.

Which is why we’ve decided to rebroadcast one of the most invaluable resources of Elliott education — “How to Spot Reliable Trade Setups in Any Market on Any Time Frame,” co-taught by — you guessed it — Jeffrey Kennedy.

In this 45-minute long webinar, Jeffrey joins EWI’s Interest Rate Pro Service editor Jordan Kotick, to offer a comprehensive and engaging presentation of the most important aspects of the Wave Principle, including:

  • What is Elliott wave analysis and why should somebody pay attention to it?
  • How Elliott provides specific points of invalidation for every trade
  • The 5 core Elliott wave patterns that appear in prices 80% of the time
  • The 3 most common pitfalls of trading which thwart success

— And much, much more

The best part is, this 45-minute webinar is FREE to Club EWI members! You may not walk away a superhero; but you will have a supreme understanding of all things Elliott and its ability to identify trade setups in any market, on any time frame.

Learn More and Sign Up Now.

How to Capitalize on Market Corrections

How to Capitalize on Market Corrections

By Elliott Wave International

How to Capitalize on Market Corrections

By Elliott Wave International

90% of traders throw in the towel. One of the main reasons is because they don’t have a method. Elliott Wave Principle is one of the most popular investment method books ever published. Now, we’re working with Elliott Wave International to celebrate the book’s 40th anniversary by giving you free access to Bob Prechter’s bestseller. Get this must-have book now.

Fed to Cut Rates Soon

Elliott Wave: Market Signaling Fed to Cut Rates Soon
We have tracked the U.S. Federal Reserve’s interest rates decisions for years. This week, the Fed once again decided to keep the funds rate unchanged. We expect the Fed to change course soon.

By Elliott Wave International

We have tracked the U.S. Federal Reserve’s interest rates decisions for years.

In December, we wrote an article titled “Interest Rates Win Again as Fed Follows the Market,” where we observed that although most pundits believe that central banks set interest rates, central banks actually follow the freely traded bond market in their rates decisions.

We noted that the December federal funds rate hike followed increases in the three-month and six-month U.S. Treasury bill yields set by the market.

In March, we pointed out that the Fed followed the market yet again. T-bill rates had gone sideways since November, and the Fed correspondingly kept the federal funds rate unchanged.

This week, the Fed once again decided to keep the funds rate unchanged. We expect the Fed to change course soon.

The chart shows the fed funds rate (red line) and the yield on both 3-month and 6-month U.S. T-bills (yellow and green lines, respectively). The latter two rates are freely-traded, while the former rate is set by the Fed. Observe the growing gap between the yield on short-term T-bills and the present fed funds rate. The market is leading the Fed to lower its fed funds rate.

The same behavior occurred in 2007. By June 18, 2007, the 3-month U.S. T-bill yield had declined to 4.52% since trending sideways after the Fed raised the fed funds rate to 5.25% in June 2006. The market was leading the Fed to cut rates. The spread between the two became even wider, and at its September 2007 meeting, the Fed finally acquiesced to the market and lowered the funds rate from 5.25% to 4.75%. The Fed chased T-bill rates lower in a series of rate cuts all through 2008, finally dropping the fed funds rate to 0.25% in December 2008. Meanwhile, the DJIA declined more than 50% during the entire episode, highlighting the central bank’s impotence in controlling markets.

Based on current dynamics, the market is signaling that at some point in the coming months, the Fed will lower its Fed Funds rate to align with T-bill rates. We’ll be watching.

See Chapter 3 of The Socionomic Theory of Finance for more examples of central banks’ acquiescence to markets around the world.

This article was syndicated by Elliott Wave International and was originally published under the headline Elliott Wave: Market Signaling Fed to Cut Rates Soon. 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.

Discover 5 Reliable Setups in Just 26 Minutes (Free Video)

Did you know 60-80% of price action unfolds in just 5 core Elliott wave patterns? It’s true. If you can get familiar with just those five, you’ll be able to quickly scour you price charts. When one of those patterns shows up, you will have identified a potential high-confidence set-up. So says Elliott Wave International’s senior instructor and Trader’s Classroom editor Jeffrey Kennedy. Jeffrey’s FREE video lesson “Discover 5 Reliable Setups in Just 26 Minutes” is designed to reveal those five patterns to you. In his free 26-minute video, Jeffrey uses five well-known stocks to show you the core patterns. And he shows you what those set-ups mean for the immediate future. This is one of Elliottwave.com’s most popular videos on its website. Now, we’re making it available to you. Don’t miss it. Watch it now — free.
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How to Win in the Stock Market

How to Win Against the Dangerous “Herding Impulse”

By Elliott Wave International

We all love a bargain…

…Except when it comes to stocks.

The reason boils down to uncertainty. We know what our fruits and vegetables should cost at the grocer’s — but we’re far less certain about how much to pay for a blue-chip stock or shares in an S&P 500 Index fund.

So how does our mind work in decisions that involve certainty vs. uncertainty?

Robert Prechter and Wayne Parker, co-authors of the paper, The Financial/Economic Dichotomy in Social Behavioral Dynamics: The Socionomic Perspective” (Journal of Behavioral Finance, Vol. 8, No. 2, pp. 84-108, 2007) explain that in each situation, very different regions of the brain take over — literally.

When we spend money as consumers, we depend on the neocortex region of the brain, where our ability to reason resides.

For example, if we shop for groceries and see our favorite fruit on sale at a 40 percent discount, we think “That’s a good deal. I make the best use of my money by buying it now.” And, if we hang around to watch how other shoppers behave, we see that particular item sell out sooner than usual. In other words: The demand for consumer goods rises as the price falls.

But when we spend money as investors, our brain relies on the more primitive region — the basal ganglia — which drives unconscious behavior such as herding.

Let’s say that 30 minutes after the stock market opens, we see that the blue-chip stock we own is down 20 percent. We know that shareholders are fleeing the stock. The basal ganglia screams, “They know something I don’t. I’d better sell too.” In this case, demand for the asset FALLS as the price falls. Why?

Because in speculative markets, assets have no true utility. An investor buys it today in the hope that it will be worth more to another investor tomorrow. But that future value is uncertain, so the brain defaults to herding.

The sketch of the brain shows the locations of the conscious, reasoning neocortex and the unconscious, impulsive lower areas:

In other words, herding impulses force you to “buy high — and sell low,” precisely the opposite of what you should be doing.

Can you win? Yes.

Instead of getting wrapped up in the day’s news, when you study the collective psychology of market participants, you see the markets objectively — and separate yourself from the herd.

You can see the market’s psychology shift right before your eyes — when you look at price charts. The trends you see are not random; they are patterned according to the Elliott Wave Principle: 5 waves in the direction of the trend, and 3 waves against it.

When you know these patterns, you can make probability-based forecasts.

Elliott Wave Basic Tutorial

If you are prepared to take the next step in educating yourself about the basics of the Wave Principle — access the FREE Online Tutorial from Elliott Wave International.

The Elliott Wave Basic Tutorial is a 10-lesson comprehensive online course with the same content you’d receive in a formal training class — but you can learn at your own pace and review the material as many times as you like!

Get 10 FREE Lessons on The Elliott Wave Principle that Will Change the Way You Invest Forever.

This article was syndicated by Elliott Wave International and was originally published under the headline How to Win Against the Dangerous “Herding Impulse”. 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.

Oil and Gold predictions

3 charts, 3 forecasts, in 7 fast minutes

By Elliott Wave International

See just how much you can learn from three simple charts.

Oil, gold, ETFs & more: FREE pro-grade forecasts

Are you paying attention to commodities? You should be.

Major moves in oil, gold and other commodities have offered up huge opportunities for traders in 2017.

Now through July 28, get free, professional-grade forecasts for gold, oil, ETFs and more inside the new Commodity Hotlist

This article was syndicated by Elliott Wave International and was originally published under the headline 3 charts, 3 forecasts, in 7 fast minutes. 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.