4/27/09
4/18/09
Exclusive offer from our friends at EWI:
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For the first time ever, EWI is giving away one month of its most popular global analysis publication, a 120-page "little black book" of investment insights called Global Market Perspective, which includes EWI's three regional publications:
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Hurry! This offer ends soon. For a limited-time, you can download a 120-page book full of investment analysis and forecasts for every major world market courtesy of Elliott Wave International. You will not find this offer on their website; it's exclusively for you at markets and economy blogspot.
For the first time ever, EWI is giving away one month of its most popular global analysis publication, a 120-page "little black book" of investment insights called Global Market Perspective, which includes EWI's three regional publications:
- The U.S. Elliott Wave Financial Forecast ($19/month value)
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4/17/09
The S&P 500 and a Slice of Pizza
Looking at a daily bar chart of the S&P 500 index, we see an interesting and often telling price pattern called a rising wedge. It looks kind of like a slice of pizza. Prices, having been in an uptrend for about a month now, and have formed into an upward slanting pattern of converging highs and lows.
If prices break down below 835.58, as marked by the dashed red line, then the likelihood is that they will at least decline to the 770 area. If prices break above the rising wedge significantly and then close outside of the pattern's upper trendline, then the likelihood is that we are looking at something other than a rising wedge.
This particular post is geared more towards the active market participants. The more conservative participants, who closed very profitable short positions with this blog on 3/23/09, should continue to sit on that cash for now. Your interest is the big waves.
Will this lead to new lows? We don't ever know certainties. We can only manage proabilities. While remaining very bearish over the long term, my current speculation is that we will remain in an overall large bear market rally for a while. My long term Elliott Wave interpretation of the current price action is shown below:
Obviously, I believe we are in a very large secular bear market that has most of the downside action still in front of us. If that continues to put me in a minority camp of opinions, then good! When it becomes the overwhelming majority's opinion, then it will be time to buy for the long term again.
I'm out of town for the next week, but look forward to coming back and seeing how this wedge pattern played out.
If prices break down below 835.58, as marked by the dashed red line, then the likelihood is that they will at least decline to the 770 area. If prices break above the rising wedge significantly and then close outside of the pattern's upper trendline, then the likelihood is that we are looking at something other than a rising wedge.
This particular post is geared more towards the active market participants. The more conservative participants, who closed very profitable short positions with this blog on 3/23/09, should continue to sit on that cash for now. Your interest is the big waves.
Will this lead to new lows? We don't ever know certainties. We can only manage proabilities. While remaining very bearish over the long term, my current speculation is that we will remain in an overall large bear market rally for a while. My long term Elliott Wave interpretation of the current price action is shown below:
Obviously, I believe we are in a very large secular bear market that has most of the downside action still in front of us. If that continues to put me in a minority camp of opinions, then good! When it becomes the overwhelming majority's opinion, then it will be time to buy for the long term again.
I'm out of town for the next week, but look forward to coming back and seeing how this wedge pattern played out.
4/9/09
SEC debates restricting investors’ versatility
According to Ruters, the SEC is considering restrictions on short sellers. Specifically, they are supposedly debating bringing back the uptick rule. For those unaware, the uptick rule required an uptick in price before a short position could be entered. ETFs were immune to this, which helped lead to their popularity. Additionally, futures contracts are immune to this rule. Only individual stocks were restricted in this way. Uptick rules basically serve to make it more difficult for an investor to follow a downtrend in price with short positions. Uptick rules do not at all eliminate this ability, they just make doing so more difficult. Also discused was a "bid test", which would only allow shorting (of individual stocks) if the best avaiable bid was higher than the last bid.
Restrictions such as the uptick rule and the bid test rule are immoral, impractical, and are disconnected from the reality of markets.
If investors are limited in what they can purchase and what strategies they can pursue, they are limited in their ability to profit. Markets move up down, and sideways. To restrict investors from competing on the downside is to take away their freedom in an attempt to protect those on the other side of the trade. Rigging and attempted rigging of a market reduces the freedom of the market, the ability to profit in the market and the ability to have trust in the market. Also at risk with such regulations is the ability for the market's price trend to tell you what is going on behind the scenes. Price trend (supply and demand for the instrument) discounts all the available information. A downtrend serves even the investors who do not sell short, because it tells them when its time to liquidate their positions long before, and much more accurately than, analysis of all the factors believed to be at play. Enron, for example, was in a downtrend long before any news of corruption broke out. To pick on shorts, is immoral, and may be nothing more than a political ploy to look like those in charge are "doing something".
To require an uptick for shorts is akin to requiring a downtick for longs. The markets are a place of competiion between buyers and sellers, not a bank with additional benefits. What's next, do we try to put a floor on the prices of goods and services by restricting shops and individuals from offering discounts and mark downs? That's how absurd these uptick rule considerations are. Inflationary policy in investment markets is just as immoral as inflationary policy in the markets for daily goods and services.
Of course, restricting short sellers will not stop prices from trending down and even collapsing. All that is required for a downtrend to start is inertia, or a lack of buying. Downtrends tend to be much faster than uptrends simply because buying is required to push prices higher. If no one is coming to the table to buy or sell, prices go down until buyers are found. If no trading happens, prices come down more. Restrictions on short selling does not change this, and therefore it is completely impractical. In fact, the largest rallies happen within bear markets. Why do you think this is? Short covering! Shorts can't financially or mentally afford to sit around and watch uptrending prices create losses for their short positions. Bear market rallies, and initial bull market rallies, include a lot of short covering buy orders. Those considering the proposed restrictions should consider both the impracticality of the restrictions, as well as the loss of benefits from short covering rallies. Restricting short sellers is disconnected from reality. The reality is that the investment markets are trending down because they were bid up in a mania that has ended, just like the tulip mania hundreds of years ago. Think about it, if short sellers are to blame for downtrending markets, then why all of the sudden have they been successful? Why were they not successful in the 90s? The answer is that they are not to blame, and attempting to restrict their behavior will do nothing to stop downtrends that occur, and have always occurred, in markets.
It seems like we would all be better off if the SEC, Congress, the President, and especially the Federal Reserve just went on an extended leave of absence and did nothing. Imagine the creativity and benefits that would be unlocked in the markets!
Restrictions such as the uptick rule and the bid test rule are immoral, impractical, and are disconnected from the reality of markets.
If investors are limited in what they can purchase and what strategies they can pursue, they are limited in their ability to profit. Markets move up down, and sideways. To restrict investors from competing on the downside is to take away their freedom in an attempt to protect those on the other side of the trade. Rigging and attempted rigging of a market reduces the freedom of the market, the ability to profit in the market and the ability to have trust in the market. Also at risk with such regulations is the ability for the market's price trend to tell you what is going on behind the scenes. Price trend (supply and demand for the instrument) discounts all the available information. A downtrend serves even the investors who do not sell short, because it tells them when its time to liquidate their positions long before, and much more accurately than, analysis of all the factors believed to be at play. Enron, for example, was in a downtrend long before any news of corruption broke out. To pick on shorts, is immoral, and may be nothing more than a political ploy to look like those in charge are "doing something".
To require an uptick for shorts is akin to requiring a downtick for longs. The markets are a place of competiion between buyers and sellers, not a bank with additional benefits. What's next, do we try to put a floor on the prices of goods and services by restricting shops and individuals from offering discounts and mark downs? That's how absurd these uptick rule considerations are. Inflationary policy in investment markets is just as immoral as inflationary policy in the markets for daily goods and services.
Of course, restricting short sellers will not stop prices from trending down and even collapsing. All that is required for a downtrend to start is inertia, or a lack of buying. Downtrends tend to be much faster than uptrends simply because buying is required to push prices higher. If no one is coming to the table to buy or sell, prices go down until buyers are found. If no trading happens, prices come down more. Restrictions on short selling does not change this, and therefore it is completely impractical. In fact, the largest rallies happen within bear markets. Why do you think this is? Short covering! Shorts can't financially or mentally afford to sit around and watch uptrending prices create losses for their short positions. Bear market rallies, and initial bull market rallies, include a lot of short covering buy orders. Those considering the proposed restrictions should consider both the impracticality of the restrictions, as well as the loss of benefits from short covering rallies. Restricting short sellers is disconnected from reality. The reality is that the investment markets are trending down because they were bid up in a mania that has ended, just like the tulip mania hundreds of years ago. Think about it, if short sellers are to blame for downtrending markets, then why all of the sudden have they been successful? Why were they not successful in the 90s? The answer is that they are not to blame, and attempting to restrict their behavior will do nothing to stop downtrends that occur, and have always occurred, in markets.
It seems like we would all be better off if the SEC, Congress, the President, and especially the Federal Reserve just went on an extended leave of absence and did nothing. Imagine the creativity and benefits that would be unlocked in the markets!
4/3/09
Elliott Wave Tutorial
Learn more about the method that has kept Robert Prechter out of the herd and in the game for more than three decades. His company, Elliott Wave International, has an extremely useful Elliott Wave Tutorial for free online. It’s broken up into 10 lessons across 50 pages, so it’s easy to read and review at your leisure. DETAILS>>
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