Market Outlook -5th March 2010
Wave Principle Crash Course: There's No Going BackFree video tutorial available to all Club EWI members By Nico Isaac
For over ten decades, the mainstream financial world has embraced the view that external news events drive trend changes in the markets. In less than ten minutes, EWI's senior tutorial instructor Wayne Gorman shatters that very idea into a fine dust, swept away into thin air. In part one of his exclusive, free Club EWI video series "Why Use The Wave Principle," Wayne first assesses the pitfalls of relying on macroeconomic models to forecast. Read more.
What Does NOT Move Markets? Examining 8 Claims of Market Efficiency By Susan Walker
Economists love to talk about exogenous shocks -- events outside of the financial system that cause markets to move. But what if it's just talk and not real at all? Read more.
Use Bar Chart Patterns To Spot Trade SetupsHow a 3-in-1 chart formation in cotton foresaw the January selloff By Nico Isaac
For Elliott Wave International's chief commodity analyst Jeffrey Kennedy, the single most important thing for a trader to have is STYLE-- and no, we're not talking business casual versus sporty chic. Trading "style," as in any of the following: top/bottom picker, strictly technical, cyclical, or pattern watcher. Jeffrey himself is, and always has been, a "trend" trader . Read more
Surviving Deflation: First, Understand ItDeflation is more than just "falling prices." Robert Prechter explains why. By Editorial Staff
The most common misunderstanding about inflation and deflation -- echoed even by some renowned economists -- is the idea that inflation is rising prices and deflation is falling prices. General price changes, though, are simply effects. Effects of what? Keep reading to find out.
Elliott wavers sometimes hear the criticism that patterns in market charts can be "open to interpretation." For example, what looks like a finished 1-2-3 correction to one analyst, another analyst may interpret as 1-2-3 of a developing impulse, with waves 4 and 5 on the way.
Does this happen? Absolutely. (Although, there are always tools an Elliottician can employ to firm up the wave count.) But here's the real question: What's the alternative?Typical alternatives amount to analysis of the "fundamentals": Jobs, interest rates, CPI, PPI, what Ben Bernanke said on Tuesday -- it all goes into the pot. Result? Well, if you think it's clear and unambiguous, guess again. Here's a fresh example.
Find out what really moves markets -- download the free 118-page Independent Investor eBook. The Independent Investor eBook shows you exactly what moves markets and what doesn't. You might be surprised to discover it's not the Fed or "surprise" news events. Learn more, and download your free ebook here.
On the evening of February 18, in a surprise move, the Federal Reserve raised its discount rate -- the interest rate at which it lends money to banks. The next morning the S&P futures were pointing lower; everyone was bracing for a weak day -- because, as conventional thinking goes, higher interest rates are bad for business, the economy, and ultimately for the stock market. Friday morning, stocks indeed opened lower and major news headlines confirmed:
But around 11am that same morning, the DJIA turned around and moved higher. Now look at what the headlines from major sources were saying after lunch on February 19:
What was a "bearish move" by the Fed in the morning morphed into a "bullish" one by the afternoon! Same event. Same market. Same day. Completely opposite interpretation!
This brings to mind the answer EWI's President Robert Prechter once gave when asked about the objectivity of Elliott wave analysis. Bob said:
"I always ask, 'compared to what?' There is no group more subjective than conventional analysts who look at the same 'fundamental' news event -- a war, the level of interest rates, the P/E ratio, GDP reports, you name it -- and come up with countless opposing conclusions. They generally don't even bother to study the data. Show me a forecasting method that is totally objective or contains no human interpretation. There is no such thing, even in a black box. To answer your question more specifically, though, properly there should be no subjectivity in interpreting Elliott waves patterns. There is a set of rules and guidelines for that interpretation. Interpretation gives you only the most probable scenario(s), not a sure one. But people mislabel probabilistic forecasting as subjectivity. And subjectivity or bias can ruin that value, just as in any other approach. Sometimes we screw up. But in contrast to the outrageously improbable (if not downright false) wave interpretations or other types of forecasts we often see from others, we are as close to an objective service as you're going to find. We hire analysts who know the rules of Elliott cold."
Vadim Pokhlebkin joined Robert Prechter's Elliott Wave International in 1998. A Moscow, Russia, native, Vadim has a Bachelor's in Business from Bryan College, where he got his first introduction to the ideas of free market and investors' irrational collective behavior. Vadim's articles focus on the application of the Wave Principle in real-time market trading, as well as on dispersing investment myths through understanding of what really drives people's collective investment decisions.
Investor expectations are decidely bullish right now, and many people expect an economic turnaround this year. What do the underlying economic conditions suggest? The Chinese mall "The Place" demonstrates the contrast between investor hope and economic reality.
The following is an excerpt from the February issue of Global Market Perspective. For a limited time, you can visit Elliott Wave International to download the rest of the 100+ page issue free.
Bullish expectations (shown by the top three panels) may not be quite as extreme as they were in 2007, but adjusted for underlying economic conditions (bottom panels), the current psychology probably ranks right up there with the most complacent outlook in history. The charts of housing, consumer credit and unemployment show the systemically sluggish state of the economy. We know that fundamentals always lag psychological trends, but the lag is generally only a matter of months. It's been nearly 11 months since the outset of the Primary wave 2 rally; by these critical economic measures the rebound is barely registering.The wide disparity between the hope of investor expectations and the reality of economic strength shows that the great bear market -- already ten years old -- remains in its early stages. As the next legdown matures, hope will turn to despair, and it will become impossible to ignore the persistence of the economic contraction. The same chasm between fundamental performance and stock market expectations is visible in other parts of the world. In China, for instance, ground reports reveal how out-of-whack financial expectations are with street-level demand. A blog called The Peking Duck described Beijing's "stunningly dysfunctional, catastrophic mall, The Place. Fifty percent of the eateries in the basement were boarded up. The cheap food court, too, was gone, covered up with ugly blue boarding, making the basement especially grim and dreary. There is simply too much stuff, too many stores and no buyers." The world's largest mall in southern China is completely empty. Most investors do not see past the performance of the Shenzhen or Shanghai stock indexes, just as most of the buying and selling of U.S. stock indexes remains detached from the real economy. We see lots of hope but no change in the reality.
Bullish expectations (shown by the top three panels) may not be quite as extreme as they were in 2007, but adjusted for underlying economic conditions (bottom panels), the current psychology probably ranks right up there with the most complacent outlook in history. The charts of housing, consumer credit and unemployment show the systemically sluggish state of the economy. We know that fundamentals always lag psychological trends, but the lag is generally only a matter of months. It's been nearly 11 months since the outset of the Primary wave 2 rally; by these critical economic measures the rebound is barely registering.The wide disparity between the hope of investor expectations and the reality of economic strength shows that the great bear market -- already ten years old -- remains in its early stages. As the next legdown matures, hope will turn to despair, and it will become impossible to ignore the persistence of the economic contraction.
The same chasm between fundamental performance and stock market expectations is visible in other parts of the world. In China, for instance, ground reports reveal how out-of-whack financial expectations are with street-level demand. A blog called The Peking Duck described Beijing's "stunningly dysfunctional, catastrophic mall, The Place. Fifty percent of the eateries in the basement were boarded up. The cheap food court, too, was gone, covered up with ugly blue boarding, making the basement especially grim and dreary. There is simply too much stuff, too many stores and no buyers." The world's largest mall in southern China is completely empty. Most investors do not see past the performance of the Shenzhen or Shanghai stock indexes, just as most of the buying and selling of U.S. stock indexes remains detached from the real economy. We see lots of hope but no change in the reality.
Elliott Wave International (EWI) is the world's largest market forecasting firm. EWI's 20-plus analysts provide around-the-clock forecasts of every major market in the world via the internet and proprietary web systems like Reuters and Bloomberg. EWI's educational services include conferences, workshops, webinars, video tapes, special reports, books and one of the internet's richest free content programs, Club EWI
The following article is an excerpt from Elliott Wave International's Trader's Classroom Collection.
Every trader, every analyst and every technician has favorite techniques to use when trading. But where traditional technical studies fall short, the Wave Principle kicks in to show high probability price targets and, just as importantly, how to distinguish high probability trade setups from the ones that traders should ignore.
Where Technical Studies Fall Short There are three categories of technical studies: trend-following indicators, oscillators and sentiment indicators. Trend-following indicators include moving averages, Moving Average Convergence-Divergence (MACD) and Directional Movement Index (ADX). A few of the more popular oscillators many traders use today are Stochastics, Rate-of-Change and the Commodity Channel Index (CCI). Sentiment indicators include Put-Call ratios and Commitment of Traders report data.
Technical studies like these do a good job of illuminating the way for traders, yet they each fall short for one major reason: they limit the scope of a trader's understanding of current price action and how it relates to the overall picture of a market. For example, let's say the MACD reading in XYZ stock is positive, indicating the trend is up. That's useful information, but wouldn't it be more useful if it could also help to answer these questions: Is this a new trend or an old trend? If the trend is up, how far will it go? Most technical studies simply don't reveal pertinent information such as the maturity of a trend and a definable price target -- but the Wave Principle does.
How Does the Wave Principle Improve Trading? Here are five ways the Wave Principle improves trading:
1. Identifies Trend – The Wave Principle identifies the direction of the dominant trend. A five-wave advance identifies the overall trend as up. Conversely, a five-wave decline determines that the larger trend is down. Why is this information important? Because it is easier to trade in the direction of the overriding trend, since it is the path of least resistance and undoubtedly explains the saying, "the trend is your friend." Simply put, the probability of a successful commodity trade is much greater if a trader is long Soybeans when the other grains are rallying.
2. Identifies Countertrend – The Wave Principle also identifies countertrend moves. The three-wave pattern is a corrective response to the preceding impulse wave. Knowing that a recent move in price is merely a correction within a larger trending market is especially important for traders, because corrections are opportunities for traders to position themselves in the direction of the larger trend of a market.
3. Determines Maturity of a Trend – As Elliott observed, wave patterns form larger and smaller versions of themselves. This repetition in form means that price activity is fractal, as illustrated in Figure 1. Wave (1) subdivides into five small waves, yet is part of a larger five-wave pattern. How is this information useful? It helps traders recognize the maturity of a trend. If prices are advancing in wave 5 of a five-wave advance for example, and wave 5 has already completed three or four smaller waves, a trader knows this is not the time to add long positions. Instead, it may be time to take profits or at least to raise protective stops.
Since the Wave Principle identifies trend, countertrend, and the maturity of a trend, it's no surprise that the Wave Principle also signals the return of the dominant trend. Once a countertrend move unfolds in three waves (A-B-C), this structure can signal the point where the dominant trend has resumed, namely, once price action exceeds the extreme of wave B. Knowing precisely when a trend has resumed brings an added benefit: It increases the probability of a successful trade, which is further enhanced when accompanied by traditional technical studies.
Here's what you'll learn:
Robert Prechter, Chartered Market Technician, is the world's foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.
NEoWave's Glenn Neely Forecasts Looming Market Top - Multi-month Decline on Horizon
Glenn Neely, founder of NEoWave Institute and top Elliott Wave analyst, believes the S&P 500 is forming an important top and is preparing for a multi-month decline.
Aliso Viejo, CA (PRWEB) January 22, 2010 -- NEoWave Institute's Glenn Neely, the architect of the NEoWave method of stock market forecasting, believes the S&P 500 is forming an important top and is preparing for a multi-month decline.
"Due to the substantial advance following March 2009's low, many investors and analysts believe the worst of the economic downturn has ended. However, based on NEoWave theory, the opposite appears to be underway," says Glenn Neely. "The relentless, almost illogical advance of the past 10 months is coming to an end. This pending top will be followed by a significant 3- to 6-month decline, retracing 60 to 90% of the 2009 rally." To confirm this analysis, Neely points out the cash S&P must break 1100 in the month of January.
Neely has been recognized by Timer Digest in the past 12 months as the #1 S&P market timer and #1 Gold timer. For more than a decade Neely's NEoWave Trading Services, which employ an advanced form of Elliott Wave analysis, have consistently ranked in Timer Digest's Top 10 list of most accurate.
In addition, Neely recently formed a NEoWave-based investment management company - Neely Investments LLC - to manage and direct private funds globally. Based in New York, Neely Investments is the culmination of his 25-year career of successful forecasting and trading advisory services. Given the unsettled market, Neely trades primarily with Exchange-Traded Funds (ETFs) to quantify risk and control costs, with an eye toward absolute returns, independent of current market trends.
Neely Investments has partnered with Emerson Equity LLC, a registered investment advisor and broker dealer, to offer a series of NEoWave-based private investment funds. To receive information on NEoWave-based private investment funds, contact Emerson Equity at:Emerson Equity LLCAttn: Robert Steger (650) 312-0224RSteger(AT)emersonequity(DOT)comA Registered Investment AdvisorMember FINRA and SIPC
About Glenn Neely and NEoWave Institute:Glenn Neely, who is internationally regarded as the premier Elliott Wave analyst, founded the Elliott Wave Institute in 1983. In 1990, Neely published his advanced Wave analysis process in his now-classic book, Mastering Elliott Wave. In 2000, Neely changed the name of his research and advisory firm to NEoWave Institute to differentiate his scientific Wave analysis technology from orthodox, subjective Elliott Wave analysis, which is frequently nebulous, inaccurate, and constantly fluid.
What is Elliott Wave? In the early 1930s, Ralph Nelson Elliott presented his theory of market behavior, which quantifies each stage of an economic cycle into specific patterns of mass psychology. Glenn Neely has devoted more than 25 years to mastering and advancing the concepts of Wave theory. Neely refined Elliott Wave theory to make it objective, practical, and consistently accurate, producing his now-famous NEoWave technology. This precise, step-by-step assessment of market structure leads to low-risk, high-profit investing and trading. Orthodox Elliott Wave, devoid of such technology and rules, typically leaves the analyst with ambiguous interpretations, seriously flawed results, and dual-directional forecasts.
Today, decades after R.N. Elliott penned his original theory, countless investors and traders trust Neely's revolutionary, step-by-step NEoWave approach to market analysis. Devotees of NEoWave Institute and Glenn Neely are reaping the rewards of low-risk, high-profit investing. Learn more about Glenn Neely and NEoWave Institute at http://www.NEoWave.com.
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