How to Prepare for the Coming Crash and Preserve Your Wealth
New Edition of Conquer the Crash Released
11/10/09
11/9/09
Finance's Euphoria: The Epilogue -- What Record High Dollar Volume of Trading Says About Confidence
The following article was adapted from the November 2009 Elliott Wave Financial Forecast and reprinted with permission here. Until Nov. 11, you can read the rest of this brand-new report for free, during Elliott Wave International's FreeWeek of U.S. forecasts. Learn more about FreeWeek, and download the rest of this report and others for free here.
By Steve Hochberg and Pete Kendall
When Wall Street’s total value of assets rose to a “mind-boggling 36.6 percent of GDP” in late 2006, The Elliott Wave Financial Forecast published a chart of U.S. financial assets literally rising off the page.
The Financial Forecast observed that financial engineers had “found a new object of investor affections—themselves” and asserted that “the financial industry’s position so close to the center of the mania can mean only one thing; it is only a matter of time” before a massive reversal grabbed hold. Financial indexes hit their all-time peak within a matter of weeks, in February. The major stock indexes joined the topping process in October 2007 and in December 2007 the economy followed. Subscribers will recall that one of the most important clues to the unfolding disaster was the level of financial exuberance relative to the fundamental economic performance.
This chart of the value of U.S. trading volume (courtesy of Alan Newman at www.cross-currents.net) reveals that the imbalance is far from corrected.
Incredibly, total dollar trading volume is even higher now than it was in 2007 when the economy was humming along. In June 2008, dollar trading volume also defied an initial thrust lower in stocks and the economy, eliciting this comment from the Financial Forecast:
The chart of dollar trading relative to GDP shows how much more willing investors are to trade shares in companies that operate in an economic environment that is anemic compared to that of the mid-1960s. A basic implication of the Wave Principle is that the public will always show up at the end of a rally, just in time to get clobbered. This chart shows that it is happening in a big, big way now because the market is at the precipice of the biggest decline in a long, long time.
Total dollar volume continues to rise despite further fundamental financial deterioration. Yes, GDP experienced a one-quarter, clunker-aided uptick of 3.5 percent in the third quarter. But the economy is in far worse shape than it was when we made the above statement. In fact, its recent performance on top of the decades-long economic underperformance (which is discussed extensively in Chapter 1 and Appendix E of the new edition of Robert Prechter's Conquer the Crash) means that industrial production just experienced its worst decade since 1930-1939. Total manufacturing employment slipped to 11.7 million people, its lowest level since May 1941 when it was 33 percent of all jobs. According to Bianco Research, manufacturing now accounts for only about 9 percent of the workforce. Finance anchors the economy now, which makes it far more susceptible to non-rational dynamics.
As Prechter and Parker explain in “The Financial/Economic Dichotomy” (May 2007, Journal of Behavioral Finance), a financial system is not bound by the laws of supply and demand in the same way that an industrial economy is. In finance, confidence and fear rule decisions. “In the financial context,” say Prechter and Parker, “knowing what you think is not enough; you have to try to guess what everyone else will think.”
We do know one thing: When everyone is thinking the same, the opposite will happen.
Right now, record high dollar volume of trading shows that confidence, at least on this basis, has reached a new historic extreme.
…
Read the rest of the 10-page November 2009 Elliott Wave Financial Forecast now, when you signup for Elliott Wave International's FreeWeek of U.S. forecasts. FreeWeek ends Nov. 11, so please act now to get an enormous wealth of current market analysis and forecasts -- for free. Learn more about FreeWeek, and download the rest of this report and others for free here.
Steve Hochberg and Pete Kendall are co-editors of the Elliott Wave Financial Forecast.
11/5/09
Tightening Stops on S&P 500
In the last S&P 500 post, stops for current trend following long positions in the S&P were moved from 991.96 to 1019.94. Stops now move up to 1029.37, after a close brush within 10 points of the previous exit stop level.
In this exercise, we are using simple measures to follow price trend for potential profit. We are not currently focused on picking tops and bottoms. Instead, we are trying to harness the middle section of major price moves. Because we believe there to be greater downside risk in the market right now, we are using exit stops that are placed at levels tighter than a reversal of the entry signal itself.
As noted on the chart above, a move below the new exit stop of 1029.36 would take us out of this trade. A move above the current trend high at 1101.36, would allow us to look for price support at higher levels, which we could move exit stops towards.
AGGRESSIVE SHORT SALE SET UP
A move below the stop of 1029.36 is a set up for anyone wanting to sell the market short against the 1101.36 as a stop loss level. Why is this considered aggressive? It is not considered aggressive because it is short sale set up. It is considered aggressive because we would not yet have confirmation of a major trend change via the weekly 13 & 40 moving averages that have followed the major trends in this market so well.
Why would we consider taking an aggressive stance here? We believe that this market has been in a counter trend rally. We believe that it is most likely the case that a massive secular bear market is still in its early stages. By reading previous S&P 500 posts, you will see that this stance has been a consistent one. When this market turns back down, it could do so with a vengeance. Such a downturn has the potential to be an extremely profitable trend.
P.S.
There will be those who say the market has crashed partially because of short sellers. Let it be known that we have been showing our hand before we even sell short. Let it be known that we are following the price trend up and down -that we are also buying the market. The large rallies you will see in the decline will be mostly because of short sellers covering positions. This recent rally has given you a final chance to get your affairs in order, and to create exit plans for your portfolio. If you fail to do so, and then desire to blame someone, go straight to the largest mirror in the house. That guy you are looking at that spent his time watching the news, football, and American Idol with his free time is the guy you need to blame. If the scenario of a major collapse is proven to be correct, the market will be collapsing because that is what markets do. They go up and down, your failure to recognize that is no one's fault but your own. If the scenario is proven incorrect for now, then that will simply mean the collapse has been postponed.
In this exercise, we are using simple measures to follow price trend for potential profit. We are not currently focused on picking tops and bottoms. Instead, we are trying to harness the middle section of major price moves. Because we believe there to be greater downside risk in the market right now, we are using exit stops that are placed at levels tighter than a reversal of the entry signal itself.
As noted on the chart above, a move below the new exit stop of 1029.36 would take us out of this trade. A move above the current trend high at 1101.36, would allow us to look for price support at higher levels, which we could move exit stops towards.AGGRESSIVE SHORT SALE SET UP
A move below the stop of 1029.36 is a set up for anyone wanting to sell the market short against the 1101.36 as a stop loss level. Why is this considered aggressive? It is not considered aggressive because it is short sale set up. It is considered aggressive because we would not yet have confirmation of a major trend change via the weekly 13 & 40 moving averages that have followed the major trends in this market so well.
Why would we consider taking an aggressive stance here? We believe that this market has been in a counter trend rally. We believe that it is most likely the case that a massive secular bear market is still in its early stages. By reading previous S&P 500 posts, you will see that this stance has been a consistent one. When this market turns back down, it could do so with a vengeance. Such a downturn has the potential to be an extremely profitable trend.
P.S.
There will be those who say the market has crashed partially because of short sellers. Let it be known that we have been showing our hand before we even sell short. Let it be known that we are following the price trend up and down -that we are also buying the market. The large rallies you will see in the decline will be mostly because of short sellers covering positions. This recent rally has given you a final chance to get your affairs in order, and to create exit plans for your portfolio. If you fail to do so, and then desire to blame someone, go straight to the largest mirror in the house. That guy you are looking at that spent his time watching the news, football, and American Idol with his free time is the guy you need to blame. If the scenario of a major collapse is proven to be correct, the market will be collapsing because that is what markets do. They go up and down, your failure to recognize that is no one's fault but your own. If the scenario is proven incorrect for now, then that will simply mean the collapse has been postponed.
11/4/09
See for Yourself: This S&P 500 Chart Tells the Two-Part Truth Have you seen or read ANYTHING like this in the past two weeks?
By Robert Folsom
The following text is courtesy of Elliott Wave International. Until Nov. 11, EWI is allowing non-subscribers to download their latest market analysis and forecasts for free, including Robert Prechter's latest Elliott Wave Theorist and Steve Hochberg's and Pete Kendall's latest Elliott Wave Financial Forecast. Learn more about FreeWeek, and download your free reports here.
…
By Robert Folsom, Senior Writer for Elliott Wave International
As you read and look at this page, please know that the chart is the star of the show. My description will add only a few details.
The chart published less than two weeks ago in Bob Prechter's Elliott Wave Theorist. The rectangular box is plain to see: It envelopes the huge S&P 500 rally that began last March -- a gain of 61.5% and 430 points, as of Oct. 18.
But there's a two-part truth to the rally -- and that is what the box really shows.
Part one shows the "wall of worry" -- basically March through August. That's when the media and experts were overwhelmingly negative about stocks. They were surprised by the rally. Remember?
Part two shows the more recent time of "euphoria" -- basically September and October. The media and experts turned positive. The market was all about "green shoots" and "recovery."
You see when most of the rally unfolded. Six months of serious worry produces a 373-point climb, whereas "two months of euphoria produces only 57 S&P points."
Now, the two-part truth about this rally is an easy story to tell. It's literally a few lines and notations on a price chart. Yet have you seen or read ANYTHING like this in the past two weeks? Has anyone else pointed out that over the past two months, the stock market "rally" has in fact slowed to a crawl?
As you looked at the chart, perhaps you noticed that the decline, which began in 2007, and in turn the recent rally, are both on a similarly large scale. The full version of this chart shows how important that "similarity of scale" really is (Elliott labels were excluded in consideration of Theorist subscribers).
Price action in the stock market this week has only strengthened the analysis in Bob Prechter's October Theorist issue.
What's more, you can read the very latest forecasts in the just-published November issue of the Elliott Wave Financial Forecast -- both publications (plus the tri-weekly Short Term Update) are yours for free -- only during FreeWeek (now through Nov. 11).
Learn more about FreeWeek, and download the November Theorist for more about the above chart.Robert Folsom is a financial writer and editor for Elliott Wave International. He has covered politics, popular culture, economics and the financial markets for two decades, via print, radio and the Internet. Robert earned his degree in political science from Columbia University in 1985.
10/30/09
Black Monday: Ancient History Or Imminent Future?
By Nico Isaac
The following article includes analysis from Robert Prechter’s Elliott Wave Theorist. For more insights from Robert Prechter, download the 75-page eBook Independent Investor eBook. It’s a compilation of some of the New York Times bestselling author’s writings that challenge conventional financial market assumptions. Visit Elliott Wave International to download the eBook, free.
Once upon a time, the term "Black Monday" was to Wall Street what the name "Lord Voldemort" was to Hogwarts. It turned the air freezing cold and sent traders flinching around every corner in fear of a repeat of the October 19, 1987 or October 28, 1929 meltdown.
Case in point: The 2008 "Black Monday" anniversary. At the time, the U.S. stock market was locked in a ferocious downtrend that included regular, triple-digit daily declines of 400 points and more. Needless to say, when the final two Mondays of October arrived, the least superstitious investors surrounded their portfolios with more good-luck talismans than a Bingo player. See October 19, 2008 AP headline below:
"Black Monday: Stocks Sink As Gloom Seizes Wall Street. Prolonged Economic Turmoil" is seen.
That was then. Today, the usual dread surrounding the back-to-back string of "Black Mondays" is nowhere to be found. In its place, media reports abound of a new, global bull market "shrugging off," "ignoring," and "making a distant memory" of the event.
For one, "gloom" hasn't "seized" the U.S. stock market in quite a while; from its March 2009 low, the Dow has risen more than 50% to above the psychologically important 10,000 level. For another, the mainstream experts insist that today's financial animal is unrecognizable to that of 1987, and especially 1929. In their eyes, it's a completely different -- i.e. safer, smarter, and sounder system.
We beg to differ.
See, while the usual experts want to put as much mental distance between today's market and those that facilitated the 1987 recession and 1929-1932 Great Depression -- the physical similarities are impossible to ignore; more so, in fact, to the latter scenario.
Here, the October 2009 Elliott Wave Financial Forecast presents the following news clip from the October 25, 1929 New York Daily Investment News.
Now, take a look at these headlines from the week of October 12-17, 2009:
"The Great Recession Is Over." (Reuters) --- "80% of Economists Say The Worst Is Behind Us." (CNN Money) --- "The Bull Is Back" (AP) --- "The Economic Recovery Is Well Underway" (Wall Street Journal)
They're interchangeable -- Eighty years later.
Along with a similar extreme in bullish sentiment, the performance of stocks between now and the 1929 situation is cut from the same cloth. After an initial plunge from August 1929 through late October 1929, the US stock market enjoyed a powerful rally well into the following year. NOW: After a steep freefall from its October 2007 peak, the US stock market is once again enjoying the fruits of a powerful rally back to new highs for the year.
Also, on closer examination, the October 19 Elliott Wave Theorist (EWT, for short) uncovers an even deeper parallel between the 2009 rally and the 1929-30 one. Here, EWT presents the following snapshot of the Dow during the Depression-era advance:
As Bob Prechter points out -- in 1930, stocks rallied to the level of the preceding year's gap. Bob then reveals that the same level has been reached now.
So, we all know how the 1930 rally ended. The question is whether the 2009 advance will experience the same fate. As Bob explains in the Theorist, the only way to know for certain is to "look at the reality of the situation."
The following article includes analysis from Robert Prechter’s Elliott Wave Theorist. For more insights from Robert Prechter, download the 75-page eBook Independent Investor eBook. It’s a compilation of some of the New York Times bestselling author’s writings that challenge conventional financial market assumptions. Visit Elliott Wave International to download the eBook, free.
Once upon a time, the term "Black Monday" was to Wall Street what the name "Lord Voldemort" was to Hogwarts. It turned the air freezing cold and sent traders flinching around every corner in fear of a repeat of the October 19, 1987 or October 28, 1929 meltdown.
Case in point: The 2008 "Black Monday" anniversary. At the time, the U.S. stock market was locked in a ferocious downtrend that included regular, triple-digit daily declines of 400 points and more. Needless to say, when the final two Mondays of October arrived, the least superstitious investors surrounded their portfolios with more good-luck talismans than a Bingo player. See October 19, 2008 AP headline below:
"Black Monday: Stocks Sink As Gloom Seizes Wall Street. Prolonged Economic Turmoil" is seen.
That was then. Today, the usual dread surrounding the back-to-back string of "Black Mondays" is nowhere to be found. In its place, media reports abound of a new, global bull market "shrugging off," "ignoring," and "making a distant memory" of the event.
For one, "gloom" hasn't "seized" the U.S. stock market in quite a while; from its March 2009 low, the Dow has risen more than 50% to above the psychologically important 10,000 level. For another, the mainstream experts insist that today's financial animal is unrecognizable to that of 1987, and especially 1929. In their eyes, it's a completely different -- i.e. safer, smarter, and sounder system.
We beg to differ.
See, while the usual experts want to put as much mental distance between today's market and those that facilitated the 1987 recession and 1929-1932 Great Depression -- the physical similarities are impossible to ignore; more so, in fact, to the latter scenario.
Here, the October 2009 Elliott Wave Financial Forecast presents the following news clip from the October 25, 1929 New York Daily Investment News.
Now, take a look at these headlines from the week of October 12-17, 2009:
"The Great Recession Is Over." (Reuters) --- "80% of Economists Say The Worst Is Behind Us." (CNN Money) --- "The Bull Is Back" (AP) --- "The Economic Recovery Is Well Underway" (Wall Street Journal)
They're interchangeable -- Eighty years later.
Along with a similar extreme in bullish sentiment, the performance of stocks between now and the 1929 situation is cut from the same cloth. After an initial plunge from August 1929 through late October 1929, the US stock market enjoyed a powerful rally well into the following year. NOW: After a steep freefall from its October 2007 peak, the US stock market is once again enjoying the fruits of a powerful rally back to new highs for the year.
Also, on closer examination, the October 19 Elliott Wave Theorist (EWT, for short) uncovers an even deeper parallel between the 2009 rally and the 1929-30 one. Here, EWT presents the following snapshot of the Dow during the Depression-era advance:
As Bob Prechter points out -- in 1930, stocks rallied to the level of the preceding year's gap. Bob then reveals that the same level has been reached now. So, we all know how the 1930 rally ended. The question is whether the 2009 advance will experience the same fate. As Bob explains in the Theorist, the only way to know for certain is to "look at the reality of the situation."
For more information, download Robert Prechter’s free Independent Investor eBook. The 75-page resource teaches investors to think independently by challenging conventional financial market assumptions.
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.
10/26/09
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