Tag: Stock Market Correction

U.S. Economic Slowdown

3 Signs of Developing U.S. Economic Slowdown
“Credit standards are tightening, thereby freezing out borrowers”

By Elliott Wave International

Recent headlines about the U.S. economy are rosy:

  • US economic growth for last quarter is revised up slightly to a healthy 3.4% annual rate (AP News, March 28)
  • US economy continues to shine with help from consumers, labor market (Reuters, March 28)

It’s all well and good to announce positive economic news. Yet, consumers of such news may not be getting the full story.

In other words, there’s plenty of less-than-positive economic developments, and I’ll point out just three which portend a possible economic contraction.

The first one has been well-advertised: the developing commercial real estate crisis. In a nutshell, office building owners face higher interest rates as their loans mature. This could set off a wave of defaults. Indeed, there’s already been a dramatic rise in the number of U.S. commercial property foreclosures in the past four years.

Another sign of a developing economic slowdown has to do with consumers. If you live in the U.S., quite a few of your neighbors — or at least residents of your community — are tapped out.

Here’s a chart from the March Elliott Wave Financial Forecast, a monthly publication which covers major U.S. financial markets:

Credit Card Holders Are Strapped Too

As you can see, credit card delinquencies have been rising since 2022. Indeed, credit card arrears are higher than they’ve been since the wake of the Great Recession in 2007-2009.

And speaking of the Great Recession, sub-prime car loan delinquencies are even higher than they were then.

The March Elliott Wave Financial Forecast elaborates with this chart and commentary:

Subprime Car Loan Delinquency on the Rise

Car loan delinquencies are higher than at any time in the data’s history, which goes back to 1996. … Credit standards are tightening, thereby freezing out borrowers. … Access to auto credit is the lowest in nearly four years.

Also keep in mind that the economy follows the stock market.

If the stock market goes into a correction — or worse — expect the economy to weaken. History shows that there’s usually a few months lag time between the action of the stock market and economy.

Elliott wave analysis can help you get a handle on the stock market’s trend.

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

All waves are of a specific degree. Yet it may be impossible to identify precisely the degree of developing waves, particularly subwaves at the start of a new wave. Degree is not based upon specific price or time lengths but upon form, which is a function of both price and time. Fortunately, the precise degree is usually irrelevant to successful forecasting since it is relative degree that matters most. To know a major advance is due is more important than its precise name. Later events always clarify degree.

Get more insights into the Wave Principle by reading the entire online version of the book.

Learn more by following this link: Elliott Wave Principle: Key to Market Behavior — get instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline 3 Signs of Developing U.S. Economic Slowdown. 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.

Expect a Once-in-a-Lifetime Debt Crisis

Why You Should Expect a Once-in-a-Lifetime Debt Crisis
U.S. credit card debt surpasses $1 trillion

By Elliott Wave International

On a national level, a debt crisis occurs when a country is unable to pay back its government debt. This might result from government spending exceeding tax revenues for an extended period.

On an individual level, a crisis can result from too little income and too much debt — that simple. This sometimes means defaulting on a car loan, for example, or even declaring bankruptcy.

Part 1 of the June Elliott Wave Theorist, a publication which covers major financial and cultural trends, said:

A debt crisis is brewing, and higher long term interest rates will add to the pressure.

Indeed, as Kiplinger noted on Aug. 18:

Credit Card Use Spikes for Cash-Strapped Consumers
Credit card use amps up as consumers reckon with inflation and higher interest rates; 39% of Americans living paycheck-to-paycheck, study shows.

The August Elliott Wave Theorist had more to say about the looming debt crisis as it showed these side-by-side charts:

Excess savings US households built up during the pandemic are nearly gone. …

At the same time, consumers are borrowing to stay alive, driving indebtedness to yet another milestone: Total credit card debt in the U.S. has just surpassed $1 trillion. Will consumers be able to pay it off?

They had better do it fast, because credit-card interest rates have just soared to a new all-time high above 20%!

And bond yields (and interest rates) continue to climb (Reuters, Sept. 21):

TREASURIES-Two-year yields hit 17-year highs …

Elliott Wave International warned subscribers to prepare back in 2020 when interest rates were near zero.

Of course, a lot of people are wondering if rates are headed even higher.

Remember, it’s the market which determines the direction of interest rates; the Fed merely follows.

A key way to keep tabs on widely traded financial markets is to employ the Elliott wave method.

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

“When you have eliminated the impossible, whatever remains, however improbable, must be the truth.” Thus eloquently spoke Sherlock Holmes to his constant companion, Dr. Watson, in Arthur Conan Doyle’s The Sign of Four. This advice is a capsule summary of what you need to know to be successful with Elliott. The best approach is deductive reasoning. By knowing what Elliott rules will not allow, you can deduce that whatever remains is the proper perspective, no matter how improbable it may seem otherwise. By applying all the rules of extensions, alternation, overlapping, channeling, volume and the rest, you have a much more formidable arsenal than you might imagine at first glance. Unfortunately for many, the approach requires thought and work and rarely provides a mechanical signal. However, this kind of thinking, basically an elimination process, squeezes the best out of what Elliott has to offer and besides, it’s fun! We sincerely urge you to give it a try.

Club EWI members get free access to the entire online version of Elliott Wave Principle: Key to Market Behavior.

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

Get started now by following this link: Elliott Wave Principle: Key to Market Behavior — free and instant access for Club EWI members.

This article was syndicated by Elliott Wave International and was originally published under the headline Why You Should Expect a Once-in-a-Lifetime Debt Crisis. 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.

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.

Stock Market Recession Indicator

Here’s a More Reliable “Recession Indicator” Versus an Inverted Yield Curve
“The lead time between past inverted curves and economic contractions is widely variable”

By Elliott Wave International

Longer-dated bonds generally yield more than shorter-dated bonds to compensate an investor for assuming the greater risk of tying up money for a longer time.

As examples, 30-year government bonds have historically offered investors a higher yield than 10-year notes, and 10-year notes generally provide a higher yield than 2-year notes.

However, there are times when the yield on a shorter-term bond is higher than a longer-term bond. This is known as an inverted yield curve, and many market observers view this occurrence as a signal that a recession may be just around the corner.

For example, a March 28 CNBC headline said:

5-year and 30-year Treasury yields invert for the first time since 2006, fueling recession fears

The next day, on March 29 and then again on April 1, the yield on 2-year U.S. treasury notes climbed above the yield on 10-year U.S. treasury notes — prompting more potential recession talk. A key reason why is that a yield inversion has preceded every U.S. recession since at least 1955.

However, here are some important insights from our just-published April Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets:

The lead time between past inverted curves and economic contractions is widely variable … and usually does not occur until after the curve un-inverts. Since stock prices lead the economy, it is more reliable to monitor equities to estimate when the onset of an economic contraction may occur.

Indeed, here’s some historical evidence of that from Robert Prechter’s landmark book, The Socionomic Theory of Finance, which says:

It is important to understand that socionomic causality does not predict that each stock market decline will produce an official recession as defined by the National Bureau of Economic Research; it predicts that stock market declines and advances will reliably lead rather than follow whatever official recessions and recoveries do occur.

So, keep an eye on the stock market’s Elliott wave pattern for a clue about what’s ahead for the economy.

If you’re new to Elliott wave analysis, or simply need a refresher on the topic, you are encouraged to read Frost & Prechter’s Wall Street classic, Elliott Wave Principle: Key to Market Behavior.

Here’s a quote from the book:

In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or “waves,” that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.

You may be interested in knowing that you can read the entire online version of Elliott Wave Principle: Key to Market Behavior for free.

You can get that free access by joining Club EWI, the world’s largest Elliott wave educational community.

Club EWI membership is free and allows you complimentary access to a wealth of Elliott wave educational resources on investing and trading without any obligation.

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

This article was syndicated by Elliott Wave International and was originally published under the headline Here’s a More Reliable “Recession Indicator” Versus an Inverted Yield Curve. 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.

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.