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04 July 2015

China's Stock Market Rollercoaster Ride

China's Stock Market Rollercoaster Ride Continues
But there is a way to endure the wild ride -- with Elliott wave analysis

By Elliott Wave International

"Chao gu" is the Chinese term for speculating in stocks. Roughly translated, it means "stir-frying" shares. Lately, though, for millions of Chinese investors, it means getting fried.
Enter the "nerve-shredding," "whiplash-inducing," rollercoaster "tantrum" of China's stock market. After soaring to 7-year highs on June 12, both the Shanghai Composite and Shenzhen stock indexes collapsed in a respective 21% and 25% sell-off (as of June 30), frequently marked by wrenching intraday swings the likes of which haven't been seen in 20 years.
In the words of one June 28 news source (bold added):
"You have to have a very strong stomach to trade in China. You have to be prepared for days when you are up or down more than 5% and there is no clear fundamental explanation." (FinanceAsia)
In fact, not only isn't there a bearish fundamental explanation for the market rout, but those fundamentals widely seen as bullish for stocks have also failed to stem the slide. Take, for instance, these recent stock-boosting initiatives on the part of the People's Bank of China:
  • A .25% cut to both its 1-year lending and deposit rates
  • A decrease in banks' reserve requirements to loosen the lending spigot
  • The first-ever approval of local government pensions to buy stocks 
That China's stock market shrugged off these (and other) supposedly bullish catalysts hasn't gone unnoticed. In the words of one Chinese investor, these moves imply "the stock market is kidnapping the government." (The Globe & Mail, June 30)
Well, he's sort of right. The moves imply the government is not in control of the market. Actually, on June 5, our own Asian-Pacific Financial Forecast expressed this exact sentiment and wrote:
"China's current bull market is not a product of government stimulus or of investor ignorance or -- as a prominent short-seller told CNBC this week -- 'the largest pump-and-dump in history.' "(Bloomberg, 6/1/15).
So, what is it a product of? Well, our Asian-Pacific Financial Forecast provides this Elliott wave explanation:
"Actually, it's the initial wave within China's wave V up, which followed the end of its wave IV contracting triangle."
In other words, Chinese stocks have been in a bullish Elliott wave formation, but those don't develop in a straight line; you should expect pullbacks, whether or not there is a good "fundamental" explanation for them.
In fact, before the current rollercoaster ride began, our Asian-Pacific Financial Forecast wave count showed China's stocks nearing a wave 3 peak, setting the stage for an important decline. On June 5, we wrote:
"The indexes should soon correct in wave 4 for some weeks"
One week later -- on June 12 -- China's stocks turned down in the stomach-churning decline we see today.
Whether this decline marks a long-term top for China's bull market -- the same June 5 Asian-Pacific Financial Forecast shows you what key indicators to look for, and when.
The best part is, EWI has bundled exclusive charts and commentary from that subscriber-only report and made it available as a FREE resource to all Club EWI members.
This free resource, titled "China Stocks: Where Have They Been and Where Are They Going?" may be the most valuable report you read on the developing trend in China's stock market. And the best part is, it's absolutely FREE to all Club EWI members. If you haven't joined already, a life-time membership to Club EWI is also FREE!
Or -- for existing Club EWI members, click here for instant access to the entire "China Stocks: Where Have They Been and Where Are They Going?" report.

This article was syndicated by Elliott Wave International and was originally published under the headline China's Stock Market Rollercoaster Ride Continues. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

16 June 2015

Stock Market Thinking


Discover a New Way of Thinking About Society and the Stock Market

By Elliott Wave International

Editor's note: This video was excerpted from a new multimedia report, "The New Financial Theory that Could Make the Difference in Your Investing Success," from Elliott Wave International, the world's largest financial forecasting firm. Authored by Robert Prechter, the full report demonstrates the failures of the modern investing paradigm and suggests a radically new approach that can make the difference in your investing success. Click here to read and watch the full, four-part multimedia report -- it's free.

The director of the Socionomics Institute, Mark Almand, came up with an analogy to help explain socionomic causality in people. And I'm so jealous that he came up with this idea, because it's so cool. I just love it. So I'm privileged to be able to embellish on it and present it to you now.

It goes like this: Suppose you got a job -- you're down and out, you finally got offered a job, so you take it -- as a sentinel on an oil rig in the Gulf of Mexico. Your bosses tell you, "Look, we just want you to watch the seas all the time. We don't know what could happen -- maybe some radical greens might come up -- so we just want you to keep an eye on things. Just let us know if there's anything out of the ordinary."

Well, you can't stay awake 24 hours, so you've got another guy who's doing it with you, and you trade shifts. And so you're out there, and you're looking at the ocean, and everything is calm and normal, when all of a sudden, over toward the left side of the horizon, you see this little group of people, apparently standing on top of the water. You watch for your eight-hour shift, then you come back the next day, and you notice they've moved a little bit farther. So you're watching this, and as the days go by, you see this little group of people, and they're not swimming; they're not really walking; they're just standing around on the water. But they're moving around as the days go by.

After a few more days go by, you notice a barge floating out in the sea. So you start talking to your buddy about this.

You say, "Look, I've noticed that these people seem to be floating around; they're moving around the ocean. And I noticed this barge out there. It always seems to be about the same distance from the people, but I can't tell if there's a relationship between these two weird things happening. Tell you what: When I'm on, I'm going to take this big blackboard here, and I'm going to write on it. I'm going to follow the path where the people are going and the barge, and then when I'm sleeping and you're up here, you do the same thing, and we'll sort of graph it and see what we end up with."

So they agree to do this. Pretty soon, this is the picture that they've drawn.

The dotted line is the path that the people have taken, moving around on the surface of the water. And the dashed line -- the thick dashed line -- is the path that this barge has taken. And sure enough, the people are still there every day, and the barge is still there every day, and they're just doing these seemingly random moves, but the barge is still back there.

You start thinking, "What could explain what's going on here?"

Your friend says, "Well, I've been thinking about it, and I've got a theory." He tells you his theory, and you kind of look at him oddly, and say, "Well, that's kind of a weird idea you have." And here's the theory that he gives you: The barge has its own engine and goes where it wants. The people are psychic, and they are anticipating where that barge is going to go. They don't do it perfectly, so they kind of wander around in front of it. But as the barge follows, it proves that they have foreknowledge of where that barge is going. And that's my theory."

You say, "Well, I've been thinking about it, too. I have an explanation for this, because I really don't believe people can walk on the water, and you're kind of accepting that as magic. I don't think people are psychic, either. You're kind of accepting these ideas, but I think, somehow, we have to deal with reality here. So I have a different idea.

"I'm a socionomist, and here's the way I see it: There must be a hidden variable, something we can't see that's making this pattern happen. I'm postulating there's a submarine under the people. They're not walking. They're not swimming. They're just standing around. And there's probably some sort of towing device, a chain or something, between the submarine and the barge. And this kind of explains it: Wherever this submarine wanders, that chain pulls the barge, but it doesn't follow immediately. It's not on the exact same path, because this is a long distance, so it's kind of roughly following in the same path."

He tells you, "You're crazy!" I don't see any submarine. And you say, "Well, no, we can't see it. But this would explain it without the magic, without the psychic stuff and the walking on water; you know, everything is taken into account."

"I just can't see it," he says.

Well, why am I showing you this analogy? Because this is exactly what we get in terms of the way economists explain what the stock market is doing. They say the economy is the driver, and the stock market follows in advance. How does it do that? Investors are psychic. Seriously. They say investors are looking into the future, three to six months, and they're buying or selling their stocks in accordance with what they will do. The economy is running on its own. It's got its own engine, and these people are just somehow psychic. They know what the economy is going to do three to six months in advance. And that's the accepted explanation for why the stock market is a leading indicator.

On the other hand, socionomic theory says social mood is the driver. The stock market leads, because its follows directly from social mood. And the economy follows at a distance, because it takes times to make economic decisions. There's no magic, no psychic. One thing follows another. It is direct causality. I kind of like that, because I think it puts things into perspective.

Most of the economists are saying, "You guys are on the fringe." Well, I think when you look at this kind of explanation, maybe it's they who are on the fringe.

Editor's note: This video was excerpted from a new multimedia report, "The New Financial Theory that Could Make the Difference in Your Investing Success," from Elliott Wave International, the world's largest financial forecasting firm. Authored by Robert Prechter, the full report demonstrates the failures of the modern investing paradigm and suggests a radically new approach that can make the difference in your investing success. Click here to read and watch the full, four-part multimedia report -- it's free.


This article was syndicated by Elliott Wave International and was originally published under the headline (Video) Socionomics Explained: The Hidden Engine Behind Society and its Markets, and the Science that Helps You Navigate Both Safely. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.


12 June 2015

14 March 2015

Here's What Stock Market Bulls Might Be Overlooking
A growing economy is not necessarily bullish -- see for yourself

By Elliott Wave International

Editor's note: You'll find a text version of this story below the video.
Learn how you can get our FREE, 53-page State of the Global Markets report now >>

On Friday (Feb. 27), the 4th quarter U.S. GDP was revised downward to 2.2% from the original 2.6%.
"U.S. stock markets shrugged off the revision," wrote Fox Business. And why wouldn't they -- after all, the conventional wisdom says that as long as the economy is growing, so is the stock market.
Except, it's not exactly true.
See, if that notion were true, then you'd have to assume that the U.S. economy was in a bad shape in 2007, when the stock market began its biggest decline since the Great Depression. But the facts show the opposite.
When the Dow topped in October 2007, key economic measures were indeed strong:
  • In the quarter preceding the market peak, GDP expanded at 2.7%
  • Unemployment in 2007 was 4.6%
  • Consumer confidence was very strong, too (top red circle; chart: Bloomberg)
If a strong economy means a strong stock market, then stocks should have continued higher. They didn't. The Dow fell more than 50% over the next year and a half:
If you think that's counterintuitive, then fast forward to early 2009. That's when we saw the opposite economic picture:
  • Consumer confidence fell to an all-time low (the second red circle on the blue chart)
  • GDP growth fell to a negative 5.4%
  • Unemployment rate more than doubled to almost 10%
Because of such terrible economic data, few mainstream economists were optimistic in early 2009. And yet the stock market bottomed in March of that year.
This reminds me of a quote from our monthly Elliott Wave Theorist:
"Suppose you were to possess perfect knowledge that next quarter's GDP will be the strongest rising quarter for a span of 15 years, guaranteed.
"Would you buy stocks?
"Had you anticipated precisely this event for 4Q 1987, you would have owned stocks for the biggest stock market crash since 1929.
"GDP was positive every quarter for 20 straight quarters before the 1987 crash -- and for 10 quarters thereafter.
"But the market crashed anyway."

State of the Global Markets Report

Get our FREE State of the Global Markets Report -- 2015 Edition

We invite you to read our free State of the Global Markets report to learn what's ahead for the U.S., European and Asian-Pacific stock markets.
Learn how you can get this FREE, 53-page report now >>

10 March 2015

Forex Traders: The Only Question You Should Be Asking
Elliott wave analysis foresaw the USDJPY's recent rally. Find out what else we're expecting for the world's leading forex markets (plus stocks, gold, oil and bonds) -- absolutely FREE

By Elliott Wave International

I can't help it. Whenever I read the mainstream financial news, I feel like I'm eavesdropping on a job interview at Microsoft.
In case you don't remember -- Microsoft was made famous, in part, for asking prospective employees one single question: Why is a manhole cover round?
They wanted to assess how a person approaches a question that has many answers. And, many answers are what they got, from the most practical (i.e. "Because a manhole is round") to the most philosophical (i.e. "The circle is the most aesthetically pleasing shape for the human eye.")
I'll now take you back to the world of mainstream finance where those in charge are regularly asked to answer this basic question: Why did market "X" move this way today? And, many answers are what they give.
Take, for a real-world example the March 9-10 upsurge to a 7-and-1/2 year high in the Dollar/Yen currency exchange pair. As for why the USDJPY rallied, the experts offered up these (and many more) explanations:
  • A February 6 robust U.S. jobs report
  • A February 9 hawkish speech by outgoing Dallas Federal Reserve President
  • A February 9 triple-digit rally in U.S. stocks
  • A February 8 government report showing Japan's fourth-quarter GDP was lower-than-expected
The truth is, anyone can come up with endless reasons to explain market action -- after the fact.
But what about anticipating the market's next move -- before it occurs? That is a question only EWI's Currency Pro Service is equipped to answer. Case in point: At 9:44 a.m. on March 9, Currency Pro Service posted intraday analysis for USDJPY that identified a bullish contracting triangle on the pair's 15-minute price chart.
For newbies, an Elliott wave contracting triangle is a sideways pattern comprised of 5 waves, A-B-C-D-E. They most commonly form in 4th wave or B wave position. And when one ends, the resolution is usually sharp and swift. Here is an idealized diagram:
The March 9 Currency Pro Service pinpointed the contracting triangle on the USDJPY chart and set the stage for a powerful near-term rise:
"The pattern can be counted complete, which suggest USDJPY will thrust higher toward the 121.84 high established in early December."
The next chart shows you how the post-triangle thrust propelled prices right into the cited upside target at 121.84.
The mainstream experts always give you plenty of reasons why a certain market did what it did.
But EWI's renowned Currency Pro Service analysts enable you to anticipate what a certain market likely will do in the coming hours, days, weeks and more.
And, there's no better time to experience the incredible resource first hand. Why? Because for the second-time only, EWI has launched a Pro Service Open House event. Open, as in you get complete, no-cost access to Pro Service's premier forecasts for not only Forex -- which Investopedia calls "the most traded market in the world" -- but also the world's leading energy, metals, interest rates, and stocks.
This amazing one-week opportunity begins on Tuesday, March 10. Find out what's in store for the markets you follow, free! Simply join the thousands of Club EWI members already taking part in the Pro Service Open House as we speak.

This article was syndicated by Elliott Wave International and was originally published under the headline Forex Traders: The Only Question You Should Be Asking. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

19 January 2015

Stock Trading with Trendlines

How a Simple Line Can Improve Your Trading Success
Elliott Wave International's Jeffrey Kennedy explains many ways to use this basic tool

By Elliott Wave International

The following trading lesson has been adapted from Jeffrey Kennedy's eBook, Trading the Line -- 5 Ways You Can Use Trendlines to Improve Your Trading Decisions. You can download the 14-page eBook here.

"How to draw a trendline" is one of the first things people learn when they study technical analysis. Typically, they quickly move on to more advanced topics and too often discard this simplest of all technical tools.

Yet you'd be amazed at the value a simple line can offer when you analyze a market. As Jeffrey Kennedy, editor of Trader's Classroom service, puts it:

"A trendline represents the psychology of the market, specifically, the psychology between the bulls and the bears. If the trendline slopes upward, the bulls are in control. If the trendline slopes downward, the bears are in control. Moreover, the actual angle or slope of a trendline can determine whether or not the market is extremely optimistic or extremely pessimistic."

In other words, a trendline can help you identify the market's trend. Consider this example in the price chart of Google.

That one trendline -- drawn between the lows in 2004 and the lows in 2005 -- provided support for a number of retracements over the next two years.

That's pretty basic. But there are many more ways to draw trendlines. When a market is in a correction, you can draw a trendline and then draw a parallel line: in turn, these two parallel lines can create a channel that often "contains" the corrective price action. When price breaks out of this channel, there's a good chance the correction is over and the main trend has resumed. Here's an example in a chart of Soybeans. Notice how the upper trendline provided support for the subsequent move.

For more free trading lessons on trendlines, download Jeffrey Kennedy's free 14-page eBook, Trading the Line -- 5 Ways You Can Use Trendlines to Improve Your Trading Decisions. It explains the power of simple trendlines, how to draw them, and how to determine when the trend has actually changed. Download your free eBook.