Surviving Deflation: First, Understand It Deflation is more than just "falling prices." Robert Prechter explains why.

By EWI Editorial Staff

The following article is an excerpt from Elliott Wave International's free Club EWI resource, "The Guide to Understanding Deflation. Robert Prechter's Most Important Writings on Deflation."

The Primary Precondition of Deflation
Deflation requires a precondition: a major societal buildup in the extension of credit. Bank credit and Elliott wave expert Hamilton Bolton, in a 1957 letter, summarized his observations this way: "In reading a history of major depressions in the U.S. from 1830 on, I was impressed with the following: (a) All were set off by a deflation of excess credit. This was the one factor in common." 

"The Fed Will Stop Deflation"
I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let’s try one.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To everyone’s delight, it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy. Sales again slow, so it lowers the price to $900 each. People return to the stores to buy two or three, or half a dozen. Why not? Look how cheap they are! Buyers give Jaguars to their kids and park an extra one on the lawn. Finally, the country is awash in Jaguars. Alas, sales slow again, and the government panics. It must move more Jaguars, or, according to its theory -- ironically now made fact -- the economy will recede. People are working three days a week just to pay their taxes so the government can keep producing more Jaguars. If Jaguars stop moving, the economy will stop. So the government begins giving Jaguars away. A few more cars move out of the showrooms, but then it ends. Nobody wants any more Jaguars. They don’t care if they’re free. They can’t find a use for them. Production of Jaguars ceases. It takes years to work through the overhanging supply of Jaguars. Tax collections collapse, the factories close, and unemployment soars. The economy is wrecked. People can’t afford to buy gasoline, so many of the Jaguars rust away to worthlessness. The number of Jaguars -- at best -- returns to the level it was before the program began.

The same thing can happen with credit. 

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing credit and providing it to as many people as possible. To facilitate that goal, it begins operating credit-production plants all over the country, called Federal Reserve Banks. To everyone’s delight, these banks offer the credit for sale at below market rates. People flock to the banks and buy. Later, sales slow down, so the banks cut the price again. More people rush in and buy. Sales again slow, so they lower the price to one percent. People return to the banks to buy even more credit. Why not? Look how cheap it is! Borrowers use credit to buy houses, boats and an extra Jaguar to park out on the lawn. Finally, the country is awash in credit. Alas, sales slow again, and the banks panic. They must move more credit, or, according to its theory -- ironically now made fact -- the economy will recede. People are working three days a week just to pay the interest on their debt to the banks so the banks can keep offering more credit. If credit stops moving, the economy will stop. So the banks begin giving credit away, at zero percent interest. A few more loans move through the tellers’ windows, but then it ends. Nobody wants any more credit. They don’t care if it’s free. They can’t find a use for it. Production of credit ceases. It takes years to work through the overhanging supply of credit. Interest payments collapse, banks close, and unemployment soars. The economy is wrecked. People can’t afford to pay interest on their debts, so many bonds deteriorate to worthlessness. The value of credit -- at best -- returns to the level it was before the program began.

Jaguars, anyone?

Read the rest of this important 63-page deflation study now, free! Here's what you'll learn: What Triggers the Change to Deflation
Why Deflationary Crashes and Depressions Go Together
Financial Values Can Disappear
Deflation is a Global Story
What Makes Deflation Likely Today?
How Big a Deflation?
More

---

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.

Use Bar Chart Patterns To Spot Trade Setups How 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; meaning: he uses the Wave Principle as his primary tool, along with a few secondary means of select technical studies. Such as: Bar Patterns. And, of all of those, Jeffrey counts one bar pattern in particular as his absolute, all-time favorite: the 3-in-1.

Here's the gist: The 3-in-1 bar pattern occurs when the price range of the fourth bar (named, the "set-up" bar) engulfs the highs and lows of the preceding three bars. When prices move above the high or below the low of the set-up bar, it often signals the resumption of the larger trend. The pouit where this breach occurs is called the "trigger bar." On this, the following diagram offers a clear illustration:

For a real-world example of the 3-1 formation in the recent history of a major commodity market, take a look at this close-up of Cotton from Jeffrey Kennedy's February 5, 2010, Daily Futures Junctures. 

As you can see, a classic 3-in-1 bar pattern emerged in Cotton at the very start of the new year. Then, within days of January, the trigger bar closed below the low of the set-up bar, signaling the market's return to the downside. Immediately after, cotton prices plunged in a powerful selloff to four-month lows.

Then February arrived and with it, the end of cotton's decline. In the same chart, you can see how Jeffrey used the Wave Principle to calculate a potential downside target for the market at 66.33. This area marked the point where Wave (5) equaled wave (1), a common relationship. Since then, a winning streak in cotton has carried prices to new contract highs.

What this example tells you is that by tag-teaming the Wave Principle with Bar Patterns, you can have a higher objective chance of pinning the volatile markets to the ground.

To learn more, read Jeffrey Kennedy's exclusive, free 15-page report titled "How To Use Bar Patterns To Spot Trade Set-ups," where he shows you 6 bar patterns, his personal favorites.

---

Nico Isaac writes for Elliott Wave International, a market forecasting and technical analysis firm.

Same Day. Same Event. Same Market. Different Story! "There is no group more subjective than conventional analysts." -- Robert Prechter.

 By Vadim Pokhlebkin

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: 

• Wall St opens weaker after Fed move
• ... Investors Wary After Fed Move
• Stocks Open Lower After Surprise Fed Move

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:

• US stocks bounce back; Fed move viewed in positive light
• US Stocks Up A Bit On Fed Discount Rate Increase
• Stocks Higher After Fed Move

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."

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.

---

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.

What Chinese Malls Tell Us about the Economic Reality

 By EWI Editorial Staff

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.

 [note: Click the chart to expand it and get a better view of the graphic.  Some of the charts are purposefully inverted by the EWI editorial staff.]

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.

Read the rest of this issue now free! You'll get 100+ pages of insights about:

• World Stock Markets
• Global Interest Rates
• International Currency Relationships
• Metals and Energy
• Social Trends and Observations
• More

Visit Elliott Wave International to download your free 100+ page issue.

---

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.

How Elliott Wave Principle Can Improve Your Trading

By EWI Editorial Staff

The Wave Principle identifies trend, countertrend, maturity of trend -- and more

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.

Read the rest of this 5-page Trader's Classroom Collection lesson now, free! Learn more here. Here's what you'll learn:

• How the Wave Principle provides you with price targets
• How it gives you specific "points of ruin": At what point does a trade fail?
• What specific trading opportunities the Wave Principle offers you
• How to use the Wave Principle to set protective stops 
• Keep reading this free lesson now.

---

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.

Europe's Return to Risky Investment

 By EWI Editorial Staff

Over 100 banks are opening soon, buying junk bonds is gaining popularity and emerging markets are the trendy investment. Sound familiar? Europe appears to be returning to some bad investment habits. 

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.

Just as in 2007, huge bullishness in concert with no fear is cropping up. Central and Eastern European (CEE) debt markets, for example, are clearly back on investors’ radar. UniCredit of Italy plans to open 100 banks across the region, while Erste Bank of Austria is preparing 70 more in Romania. Raiffeisen International, also of Austria, is getting ready to launch an internet-based banking system to serve the region as well.

Likewise, the European junk bond market, which effectively died after the financial crisis, has bounced back to life along with the rally. At 70%, total returns on western European junk bonds were more than double those on the FTSE All Share Index in 2009. Moreover, the trend is accelerating. The week of January 11 was the second largest week ever seen in European junk bonds, according to the Financial Times, as companies sold $11.7 billion worth of high-yield debt. Predictably, bankers are ramping up their expectations for 2010. Experts forecast about €50 billion in new issuance in the coming year, a number that nearly doubles what the market has produced in its best years. Says one portfolio manager discussing the market: A “virtuous-circle effect” will take place in 2010. “There was a time when German companies, for example, would think it was a social insult to be a junk bond, but now you are seeing [them] use the market as a mainstream tool for financing."

That’s on the corporate side. On the sovereign side, shaky debtors and giddy investors are also fully recommitted. For the first time ever, Moody’s upgraded JP Morgan’s Emerging Market Sovereign Bond Index from “junk” to “investment grade.” January’s upgrade occurred in spite of the sovereign default risk growing in countries like Greece, Spain, and Italy (see Secondary Markets), but that’s not stopping yield-starved investors from buying.

Barings Asset Management and HSBC are reportedly increasing their exposure to emerging markets. So is bond giant, Pimco, which calls emerging-market debt an “asset class on the upward path.” Its portrayal, however, merely describes the last 10 months of market action. The index shown on the previous page tracks emerging-market bond yields in their local currency. Just like trader sentiment numbers, yields are firmly back to pre-crisis levels. But extrapolating the last 10 months forward may be one of the most dangerous bets around. When the financial community recklessly returns to play with the loaded firearms from the prior mania, it’s a tell that a bear-market rally is ending. Most will again shoot themselves in the foot.

Read the rest of this issue now free! You'll get 100+ pages of insights about:

• World Stock Markets
• Global Interest Rates
• International Currency Relationships
• Metals and Energy
• Social Trends and Observations
• More

Visit Elliott Wave International to download your free 100+ page issue.

---

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.

11 Commonplace Market Views: True or Myth?

By Susan C. Walker

"Cash on the sidelines is bullish for stocks." Have you ever heard some stock market pundit utter these words? Have you ever wondered if the statement were true? Read this item from the latest issue of The Elliott Wave Financial Forecast, and you'll wonder no more:

Myth -- Cash on the sidelines is bullish for stocks. This refrain rang like a gong all the way through the declines of 2000-2002 and 2007-2009. In February 2000, when mutual fund cash hit 4.2% (compared to 3.8% in November), The Elliott Wave Financial Forecast issued its “cash is king” advice. Once again, the word on the street is that there is way too much “cash on the sidelines” for stocks to fall precipitously. This chart shows net cash available to investors plotted beneath the DJIA. In December 2007, available net cash expanded to a new high, besting all extremes since at least 1992, a 15-year time span. Despite the presence of this mountain of cash, the DJIA lost more than half its entire value over the next 15 months. Indeed, as the chart shows, cash remained high right as the stock market entered the most intense part of the crash in 2008. Available cash does correlate with the market’s moves, but the market is in charge, not the cash.
--The Elliott Wave Financial Forecast, Jan. 29, 2010

Now take a look at these 10 statements and decide if they are true:

1. Earnings drive stock prices.
2. Small stocks are the place to be.
3. Worry about inflation rather than deflation.
4. It's enough to simply beat the market.
5. To do well investing, you have to diversify.
6. The FDIC can protect depositors.
7. It's bullish when the market ignores bad news.
8. Bubbles can unwind slowly.
9. People can make money speculating.
10. News and events drive the markets.

Bob Prechter and our other analysts have debunked each of these statements as a market myth. You can discover how we exposed these ideas as myths, and in turn make more informed decisions about your investing.

We've gathered the writings that expose these 10 statements as market myths in our 33-page eBook, called Market Myths Exposed. They come from two of our premier publications, The Elliott Wave Theorist and The Elliott Wave Financial Forecast, as well as two of our books, Prechter's Perspective and The Wave Principle of Human Social Behavior. 

Get Market Myths Exposed for FREE
The 33-page eBook takes the 10 most dangerous investment myths head on and exposes the truth about each in a way every investor can understand. You will uncover important myths about diversifying your portfolio, the safety of your bank deposits, earnings reports, investment bubbles, inflation and deflation, small stocks, speculation, and more! Protect your financial future and change the way you view your investments forever! Learn more, and get your free eBook here.

---

Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company.

S&P 500 Trade Set UP 2/16/10

The S&P 500 is in a potential bearish trade set up.  This is useful for those not already short the market or those wanting to add to their short positions.  If you are long this market, then the same signal to sell short signal for bears could be a take profits / cut losses signal for you.  

After being down fairly hard for approximately three weeks in a row, the S&P rebounded starting at the end of the week before last.  That rebound is still underway.  The question for any trader is whether the rebound is a retracement in a newly developing downtrend or if the rebound is an end to a temporary consolidation within an existing uptrend. 

On the 240-min chart above we can see the current rebound has triangle shaped consolidation in the middle of it.  In terms of Elliott Wave, this is an indication that the downtrend will resume.  In terms of basic technical analysis, it does not tell us as much unless it's base is breached by price action to the downside. 

If you have been following this page for a while, you know that we have stops for current sold short (or inverse ETF's / inverse mutual funds, etc...) at the high of 1150.45 (cash market basis).  Any breach of that level to the upside takes us out of our shorts and either to the sideline or back into long positions. 

For a trader wishing to let the market take him into and out of trades via price trending action, the set up here is clear.  A breach of 1062.97 (cash market) to the downside would mean the lower level of the consolidation formed internal to the current rebound would have been violated.  Support would have been taken out, in other words.  The probability that such as breach would lead to more intermediate term downside is higher than the probability that it would lead to more upside.  Pretty simple.  


More aggressive traders might want to move stops down to the turning point (high of the current rebound once it terminates) if that breach were to occur.  Others might want to leave the stop up at 1150.45 until further price action develops.  Looser stops can equal fewer whipsaw trades.  The most important thing with stops is to always have them in place.  The next most important thing with stops is to always move them in favor of an established position and not against it.  Cutting losses short is the name of the game.

The chart below shows a broader view of the action.   

Notice on the weekly chart we have some velocity divergences in the MACD indicator that were also present prior to the reverse from a bear phase to a bull phase.  This is also a warning signal to any traders still long this market that buying pressure may be drying up / willing participants may have spent their wad.  Of course the price action is always to final arbiter of these debates, and we are happy to simply follow its lead. 

Identified also on the weekly chart is the level of 956.23 as a level of increased confirmation of a sustained downtrend should prices breach that level.  This is because that level was previously a level of resistance.  Prices broke and held above it, making it a level of support.    

Side note: Gold (we follow that too.  look at the list of topic labels) and the S&P have been trading almost in tandem lately.  It could get interesting out there if the S&P is indeed going to break down.

Get 100+ Pages of FREE Charts & Analysis for Every Major World Market

Once each year or so, our friends at Elliott Wave International do something unheard-of in the world of financial analysis – they give it away for free!

But it always ends soon after it starts, so your time to get more than 100 pages of free analysis and forecasts on every major world market is running out.

This time they've upped the ante.

EWI is giving away one month of its most popular global analysis publication, a 100+ 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)
• The European Elliott Wave Financial Forecast ($29/month value)
• The Asian-Pacific Elliott Wave Financial Forecast ($31/month value)

PLUS, the 100+ page book includes analysis culled straight from EWI's professional-grade Specialty Services, each of which is valued at $199/month. This means you also get analysis and forecasts for the following global markets:

• 
  
World stock markets (China, Japan, Korea, U.S, France, Britain, Australia, Singapore and more)
• Global interest rates (Australia, Europe, Japan, U.S.)
• International currency relationships (U.S. Dollar, Euro rates, Swiss Francs, Australian Dollar, Japanese Yen and more)
• Metals and Energy (Crude Oil, Gold, Silver, Natural Gas)
• And so much more!

This is truly a very rare occasion, and it only lasts for just a few more days. Whether you use Elliott or not, we highly recommend you stop by the website below and take advantage of this limited-time, completely free offer.

Learn how to get your free 100+ pages of global analysis here.

---

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

House cleanning -RSS Feeds

Sometimes I get e-mail from friends asking what my latest market opinion is.  No worries, continue to send me the e-mails.  However, this made me think of something.  Anyone can use the RSS feed to add this page's post headlines to their own home page or Google Reader.  I personally use Google Reader for pages I monitor -its like your own custom news paper!.  

For those who don't know how this works, its easy.  Look to the right of the page.  Scroll down the column just a short distance until you see a "Subscribe To" box.  Click on "Posts".  A drop down menu will appear.  You will have a choice to add to different types of home page or personal page sites.  Yahoo and Google are the two most popular, and I have tested the feed on both of them.  It works well. 

If you have a Google Reader account (free), or want to create one, all that is usually required is to simply use the basic web address of the page you want to follow after first selecting "add a subscription" from your personal Google Reader page.  If not, then the page address that you are taken to after you select "Atom" from the "Subscribe To" & Posts" button  we talked about in the second paragraph should work for reader.  Simply copy and past the page URL (address).  

I hope this information is useful.  I really enjoy using RSS feeds for pages I follow, and thought you might enjoy them as well.

Bob Prechter's "Conquer The Crash": Eight Chapters For Free

By Nico Isaac

When EWI President Robert Prechter sat down to write the first edition of "Conquer The Crash" in 2002, the idea that the United States would enter a period of what news authorities coined "economic Armageddon" several years later was unheard of. 

Flashing back, the major blue-chip averages were rebounding off a historic bottom, the notorious dot.com bust was making way for a powerful housing boom, Fannie Mae’s chief executive was named “the most confident CEO in America,” then President George Bush was enjoying a 60%-plus approval rating, Gulf War II hadn’t begun yet, and when it did, a “quick and easy victory” was supposed to follow, and the Federal Reserve was largely credited with slaying the big, bad bear via the sharp blade of monetary policy.

Five years later, the tables turned. The U.S. housing market endured its worst downturn since the Great Depression; Fannie Mae’s CEO was ousted amidst a mortgage crisis of incalculable damage. George W. Bush left the oval office with a record low approval rating of 25%, and the expected “cakewalk” victory in Iraq became a “quagmire” and national dilemma.

Anticipating these and other “shocks” to the global system is the unparalleled achievement of “Conquer The Crash.” Here, the following excerpts from the book put any doubt to rest:

Housing: “What screams bubble – giant historic bubble – in real estate is the system-wide extension of massive amount of credit.” And “Home equity loans are brewing a terrible disaster.”
Bonds: “The unprecedented mass of vulnerable bonds extant today is on the verge of a waterfall of downgrading.”
Fannie Mae & Freddie Mac: “Investors in these companies’ stocks and bonds will be just as surprised when the stock prices and bond ratings collapse.”
Politics: “Look for nations and states to split and shrink.” And -- “The Middle East should be a complete disaster.”
Credit Expansion Schemes “have always ended in a bust.” And -- “Like the discomfort of drug addiction withdrawal, the discomfort of credit addiction withdrawal cannot be avoided.”
Banks: “Banks are not just lent to the hilt, they’re past it. In a fearful market, liquidity even on these so called ‘securities’ [corporate, municipal, and mortgage-backed bonds] will dry up.” (176)

If the tools in Bob Prechter’s analytical toolbox, namely Elliott wave analysis and socionomics (Prechter's new science of social prediction based on the Wave Principle), enabled him to foresee these “sea changes” in the economic, social, and political landscape -- the only question is: What else do the pages of the “Conquer The Crash” reveal?

Well, your opportunity to find out just got a whole lot easier. Right now, you can download the 8-chapter Conquer the Crash Collection, free. It includes:

Chapter 10: Money, Credit And The Federal Reserve Banking System
Chapter 13: Can The Fed Stop Deflation?
Chapter 23: What To do With Your Pension Plan
Chapter 28: How To Identify A Safe Haven
Chapter 29: Calling In Loans & Paying Off Debt
Chapter 30: What You Should Do If You Run A Business
Chapter 32: Should You Rely On The Government To Protect You?
Chapter 33: Short List of Imperative 'Do's' & 'Don'ts"

Visit Elliott Wave International to learn more about the free Conquer the Crash Collection.

---

Nico Isaac writes for Elliott Wave International, a market forecasting and technical analysis firm.

Robert Prechter on Herding and Markets' "Irony and Paradox" To anyone new to socionomics, the stock market is saturated with paradox.

The following is an excerpt from a classic issue of Robert Prechter's Elliott Wave Theorist. For a limited time, you can visit Elliott Wave International to download the rest of the 10-page issue free. 

Market Herding
Have you ever watched a dog interact with its owner? The dog repeatedly looks at the owner, taking cues constantly. The owner is the leader, and the dog is a pack animal alert for every cue of what the owner wants it to do. Participants in the stock market are doing something similar. They constantly watch their fellows, alert for every clue of what they will do next. The difference is that there is no leader. The crowd is the perceived leader, but it comprises nothing but followers. When there is no leader to set the course, the herd cues only off itself, making the mood of the herd the only factor directing its actions.

Irony and Paradox
To anyone not versed in socionomics, everything the stock market does is saturated with paradox.

— When T-bills sported double-digit interest rates in 1979-1984, investors saw no reason to abandon their T-bills for stocks; when T-bill rates were low in the 2000s, investors saw no reason to put up with the “low yield” of T-bills and sought capital gains in stocks. The first period was the greatest stock-buying opportunity in two generations, and the second period was the greatest stock-selling opportunity ever.

— When long-term bonds yielded 15 percent in 1981, investors were afraid of Treasury bonds even though they were about to embark on the greatest bull market ever; in December 2008, when the Fed pledged to buy T-bonds, rising prices appeared so strongly guaranteed that the Daily Sentiment Index indicated a record 99 percent bulls, just before prices started to fall.

— When oil was $10.35 a barrel in 1998, no one made a case that the world was running out of black gold; but when it was 7-8 times more expensive, some three dozen books came out arguing that global oil production had peaked, a theme that convinced investors to begin buying oil futures…about a year before the price collapsed 78 percent.

— In the second half of the 1990s, the idea that stocks would always be the best investment “in the long run” became popular just as a long period of superior returns was coming to an ignoble end. A new study... shows that as of today the S&P has underperformed safe, boring Treasury bonds for the past 40 years, since 1969.

— Just when nearly everyone -- including world-famous investors -- finally panicked and conceded in February-March 2009 that the financial and economic worlds were in dire shape, the market turned around and shot upward in its fastest rally in 76 years.

And so on. The exogenous-cause model fools investors exquisitely. One reason is that rationalization follows upon mood change. Mood change comes first, and attempts at reasoning come afterward. Socionomists recognize that social mood is primary and has consequences in social action, so we never have to wrestle with paradox. This orientation does not mean that we are always right. It means only that we are not doomed to be chronically wrong. 

To succeed in the market, you must learn initially to embrace irony and paradox, at least as humans are unconsciously wired to interpret things. Once you get used to the world of socionomic causality, the irony and paradox melt away, and everything makes perfect sense...

---

Read the rest of this classic Elliott Wave Theorist issue now, free! You’ll get 10 pages of Bob Prechter's unique insights on:

• Why Finance and Macroeconomics Are Not Subsets of Economics
• How Correct Are Economists Who Forecast Macroeconomic Trends?
• The “Beat the Market” Fallacy
• Stock-Picking Geniuses or Just a Bull Market?
• Index Funds and Diversification
• Market Confidence vs. Certainty
• Observations on Corporate Earnings
• Why Being a Bear Doesn't Equal "Doom & Gloom"
• More

Visit Elliott Wave International to download your free 10-page issue. 

Download for free now: 14 Critical Lessons Every Trader Should Know

---

Our friends over at Elliott Wave International have brought back one of their most sought after free resources for one week only. The Best of Trader's Classroom eBook serves up the very best lessons from their popular -- and expensive -- Trader's Classroom Collection in one valuable 45-page report. If you aren't one of the thousands who downloaded this valuable resource in its original release, don't miss out on this rare second chance. The Best of Trader's Classroom eBook is free through February 16. Learn more and download your free report now..

---

Dear reader,

Sometimes I wonder how my pals over at Elliott Wave International ever make any money -- they give so much valuable trading education away for free.

They've compiled 14 of the very best lessons from their Trader's Classroom Collection of eBooks (retails for $189) and put them in one incredibly valuable 45-page report. What's more -- they're letting people download these lessons for free.

Some of the most interesting chapters include:

• Why Emotional Discipline is Key to Success
• When to Place a Trade
• How to Use Bar Patterns To Spot Trade Setups
• How To Calculate Fibonacci Projections
• The Best Place for High-Opportunity Trade Setups
• You'll find several more fascinating lessons -- 14 in all -- at the link below.

I highly recommend you give this free report a look – this opportunity is only available through February 16. I suggest you jump at this chance to put these essential trading lessons in your library while they're free.

Go here to download them now.

---

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

Then and Now

In 1929 there was a book by Charles Amos Dice called New Levels in the Stock Market.  This was printed in August before the crash.  Although I have not read the book, I understand that Dice gave multiple persuasions of why one should expect the boom of that time to expand further.  

Any student of the financial auction markets will know that such optimistic arguments near peaks are the norm, just as end-of-the-world / doom & gloom arguments find their peak in popularity at the lowest points of a bust.  Bob Prechter has done a great job studying this in his work on Socionomics.  However, there is one argument postulated by Dice at the time that is of particular interest to me.  

It turns out that Dice argued that advances in the Federal Reserve System's understanding of how to stabilize business would be a significant factor in keeping the boom of the 1920's going.  According to Robert Shiller in his book Irrational Exuberance, Dice believed the Federal Reserve Bank to be "analogous to the governor on a steam engine, regulating the speed of the economy.".  This is not a recommendation Shiller's book.  I simply have to read it for a test I am taking given by a professional organization, but I did think this little piece of information to be something that might be interesting to those reading this page. 

Clearly, the Federal Reserve failed.  A crash of great proportions began later that same year.  We call it the Great Depression.   Yet, to this day, the Fed remains in power and the market remains plagued by its artificial interest rates, control over a fiat standard of money, and its monetary debasements.

In a haunting reminder of the arrogance of man against economic law and reality, Bernanke in 2002 made a promise to Milton Friedman.  Bernanke said: "Regarding the Great Depression, You're right, we did it.  We're very sorry.  But thanks to you, we won't do it again".  

Bernanke was implying that the government had not exerted enough force on the markets through the use of the Fed's powers during the Depression.  Of course this is not true.  They were very active.  To this they claim that they did not act quickly enough.  You see, with this crowd it is always the same.  When they fail, they do not look at economic law that tells them they cannot simply pull macro levers and have the markets under their control.  Instead they always think the problem not to be in their own policies but rather in the limited use of those policies.  They always want more debt and more power to manipulate the markets.  In the end, economic law catches up and prevails.  Unfortunately, the greater the number of bad seeds they sow the worse the inevitable process where by the malinvestments caused by artificially low interest rates and other inflationary policies are liquidated.  They are still sowing bad seed right now, and the liquidation process was never complete. 

The question is: are they going to call this the Second Great Depression, the Greater Depression, or GDII?        

Putting Nails in the Coffin

I was out of town part of last week, and other than watching positions in current trades did not pay that much attention the news.  So I decided to catch up a little.  It turns out that on February 4th Congress voted to raise the debt ceiling by $1.9 trillion!  This brings the ceiling up to $14.3 trillion.  

The country has been bankrupt for some time.  Now they are just putting nails in the coffin instead of trying to heal the patient.  What needs to be done is to end the foreign military empire, and move those funds towards the debt and other entitlements.  There needs to be a transition from entitlements.  Younger generations need to be given the option to not participate or fund entitlement programs like medicare and social security.   In addition, legal tender laws need to be repealed so that individuals and markets can decide what they want to use for money.  Due to the probability that many would choose to transact in commodity based money, like gold and silver, this last measure itself would work to limit government's use of increasing debt.  But no; the choice has been to give the drug addict more drugs.  

Increasing the debt ceiling increases the certainty that the dollar will eventually be worthless.  What they did by increasing the debt ceiling was to increase the pain we will all feel later on.   

Most politicians are too afraid and too morally weak to face the hard decisions that have to be made.  Instead they find it easier to simply put nails in the coffin.

Keynesian Predictions vs. American History

Colts' Daniel Muir on Ben Bernanke: "He Looks Like a Crook"

Perhaps Daniel Muir has been exposed to a little Austrian Economics?

EUR/USD: What Moves You?

It's not the news that creates forex market trends - it's how traders interpret the news.

February 5, 2010

By Vadim Pokhlebkin

Today, the EUR/USD stands well below its November peak of $1.51. Find out what Elliott wave patterns are suggesting for the trend ahead now -- FREE. You can access EWI’s intraday and end-of-day Forex forecasts right now through next Wednesday, February 10. This unique free opportunity only lasts a short time, so don't delay! Learn more about EWIs FreeWeek here.

What moves currency markets? "The news" is how most forex traders would undoubtedly answer. Economic, political, you name it -- events around the world are almost universally believed to shape trends in currencies.

A January 14 news story, for example, was high up on the roster of events that supposedly have a major impact on the euro-dollar exchange rate. That morning, the European Central Bank announced it was leaving the "interest rate unchanged at the record low of 1% for an eighth successive month." (FT.com)

The euro fell against the U.S. dollar after the news. But could it have rallied instead? You bet. In fact, traditional forex analysis says it should have. Here's why.

Analysts always say that the higher a country's interest rates, the more attractive its assets are to foreign investors -- and, in turn, the stronger its currency. Well, U.S. interest rates are now at 0-.25% and in Europe, at 1%, they are 3 to 4 times higher. Isn't that wildly bullish for the EUR? Apparently not, and wait till you hear why -- because in today's announcement ECB president Jean-Claude Trichet warned that European recovery would be “bumpy.” Ha!

By no means is this the first time a supposedly bullish event failed to lift the market. On June 6, 2007, for example, the ECB raised interest rates. Bullish, right? But the euro didn't gain that day, either -- the U.S. dollar did.

Watch forex markets with these "inconsistencies" in mind and you'll see them often. In time you realize that it's not news that creates market trends -- it's how traders interpret the news. That's a subtle -- but hugely important --- distinction.

So the real question becomes: What determines how traders interpret the news? The Elliott Wave Principle answers that question head-on: social mood -- i.e., how they collectively feel. Currency traders in a bullish mood disregard bad news and buy, leaving it to analysts to "explain" why. Bearishly-biased traders find "reasons" to sell even after the rosiest of economic reports. 

If you know traders' bias, you know the trend. How do you know? Watch Elliott wave patterns in forex charts - it's reflected in there, on all time frames.

Today, the EUR/USD stands well below its November peak of $1.51. Find out what Elliott wave patterns are suggesting for the trend ahead now -- FREE. You can access EWI’s intraday and end-of-day Forex forecasts right now through next Wednesday, February 10. This unique free opportunity only lasts a short time, so don't delay! Learn more about EWIs FreeWeek here.

---

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.

S&P 500 Update 2/04/10

This is a follow up to the short S&P positions we have been establishing and the downtrend that is emerging.  1/25/10 was the date of the S&P post preceding this one. 

In the last post it was mentioned that a firm break below the drawn trend lines would be confirming action for the bearish stance.  Those trend lines have been broken and prices have closed below them on a daily basis.  

Although the first half of the week provided a bounce in the S&P,  that retracement upwards has now been fully reversed.  Sometimes this type of action leads to the tightening of stops, but not this time.  The bounce may have possibly been a lower degree 4th wave.   If it was, then a larger sub-trend bounce is coming right around the corner.  Since I am trying to ride the wave for all it has, stops are staying at 1150.46.  

Below is a chart showing the same Elliott counts I had shown last week, but with updated price action as of close on 2/4/10.  Although Elliott analysis allows us improved vision of market trends and potential trends, it is not clairvoyance.  Elliott simply allows us to have improved ability in ordering probabilities.  Risk is still on the table, and might be for some time; such is trading. 

Notice that we are ahead of the weekly moving averages that are used for following price trends; or are we incorrectly standing against their signal?  Only the market can be the final arbiter of that battle, which is why we always employ the use of limited risk and stop-loss orders.  More on that was said in the last S&P post. 

Gold -update 2/4/10

On 1/7/10 I started tracking a possible emerging downtrend in the price of Gold.  That post was followed up on 1/29/10.  These two prior posts will be useful for anyone just now taking a look at this attempt to track and trade a new price trend in the yellow metal.  Please understand that I favor commodity money.  That is not the purpose of this series.  I am tracking a price downtrend that can be profitable for an investor or trader just like I would track a price uptrend for the same purpose. 

Today the potential downtrend followed through to the downside and became an actual downtrend.  Lower lows and lower highs have been produced by the price action as visible on both the weekly and daily bar charts. 

More conservative traders and investors who have established short positions should probably keep loose stops for now.  If the 1166.7 level (basis: April Futures contract) were broken to the upside, any intermediate term downside potential will have been greatly reduced.  1166.7 in the April futures contract is therefore a good stop-loss level for conservative traders.

Assertive traders and investors could tighten up the stop by bringing it down to the last lower high on the chart.  The1126.4 level in the April contract is identified with a doted line on the charts.  I would use this stop if you are more active in your trading. 

After stops are placed, we just watch the trend either develop for profit, eventually moving stops along with trend, or we watch the new trend disintegrate for a small loss. 

It's FreeWeek at Elliott Wave International!

Our friends at Elliott Wave International have just announced the beginning of their wildly popular FreeWeek event, where they've thrown open the doors to some of their most popular paid services to non-subscribers for one week only.

You can access EWI’s intraday and end-of-day Forex forecasts right now through next Wednesday, February 10.

This unique opportunity only lasts a short time, so don't delay!

Learn more about EWIs FreeWeek here.