What Recessions? It's a Wonderful Life

What Recessions? It's a Wonderful Life

By Elliott Wave International

Fund managers see no risk of a U.S. recession. Have they over-indulged on the eggnog?

"I don't have your money. It's in Tom's house...and Fred's house." This is a quote from George Bailey, the fictional bank manager in the 1946 classic movie, It's a Wonderful Life. George was replying to customers of the bank who were demanding their money back. Unfortunately, the deposits had been invested, and the bank did not have enough money to pay everyone out. As I have said to my 14-year-old daughter every year over the past decade when we settle down to watch this feel-good Christmas movie, it's probably the simplest, and therefore best, lesson about understanding the complexities of the fixed-fractional banking system. (As you can imagine, this just exacerbates the fact that, in her now-teenage eyes, I am boring, embarrassing dad.)

George Bailey did not expect all his customers to demand their money back at once. It may be a fictional story, but it accurately reflects the complacent psychology of financial institutions as an economic cycle tops out. The latest example of such complacency comes from the most recent Bank of America Merrill Lynch Fund Manager Survey. Expectations that global growth will improve in the next year jumped to a net 29% of respondents in December, the biggest two-month gain on record, and a big turnaround from the middle of the year when there was intense fear of a global recession. The survey shows that fund managers now see the least risk of a recession since the middle of 2009. That was, of course, when the U.S. was already in recession, despite central banks' machinations to inject liquidity into the financial system. The Fed has again begun pumping billions of dollars into the system since September, but the difference is that the U.S. has not experienced a recession as it did in 2008-2009. Are people just blindly accepting that the Fed will be able to keep the stock market propped up? Perhaps.

Indeed, some investors believe that because the yield curve has turned positive again, then all is well and there's no need to worry. On the contrary, the chart below shows that when the yield curve inverts and then turns positive, it is precisely the time to worry that a recession may be dead ahead.

It's a Wonderful Life ends with George Bailey realizing that there are much more important things in life than business. By this time next year, currently cock-a-hoop (adj.: boastfully, if not defiantly, elated) investors might be feeling the same way.

It's a commonly held misconception that a positive yield curve swing is a good sign for the economy, but the evidence proves otherwise. Want to see EWI's President, Bob Prechter, tackle and disprove other commonly held beliefs that could hinder your investing? Good!

Get instant, free access to Prechter's speech to the International Federation of Technical Analysts. It shows you “What Really Moves the Markets.” Watch Now

Commodities Market Direction

How Do YOU Know the Direction of a Market's Larger Trend?
Fundamental analysis versus Elliott wave analysis: the winner for predicting the 9-year long commodity bear market is clear.

By Elliott Wave International

95% of traders fail. It's a day-drinking, country-music kind of statistic. Think: "Friends in Sell-Low, Buy-High Places."
One article attempts to quantify the reasons, citing: "SCIENTIST DISCOVERED WHY MOST TRADERS LOSE MONEY -- 24 SURPRISING STATISTICS." See number 14:

"Investors tend to sell winning investments while holding on to their losing investments."

In other words, their timing is off key. And when it comes to seizing market opportunities, nothing is as important as timing. Our friends at Elliott Wave International said it best in the pages of their educational reference guide, Elliott Wave Principle -- Key to Market Behavior:

"To be a winner in the stock market, either as a trader or as an investor, one must know the direction of the primary trend and proceed to invest with it, not against it."

Which brings us to the next part: How do you know the direction of the primary trend?
The contribution of mainstream market wisdom abounds -- the best gauge of a market's trend is news events surrounding that market. These news events, called fundamentals, can vary from weather patterns, political events, supply/demand data, trade wars, earnings reports, and on. The way it works is:

A. Positive news supports price and fuels a rising trend
B. Negative news deflates price and ignites a falling trend

This supposedly applies to all markets, especially commodities where supply is physical and finite. Reality, however, is a horse of a different color.
Take the broad commodity sector in 2010-2011. At the time, commodities were enjoying a strong rebound, with the CRB Index orbiting a three-year high. Mainstream financial experts used a barrage of bullish news events -- from soaring energy costs, growing economic uncertainty, mounting inflation fears, and an accommodative Fed -- to identify a healthy, rising trend. Here, these 2010-2011 news items provide a screenshot of the bullish consensus:

• "Commodities on Fire! Investors want assets to protect themselves against rising inflation and possible shortages in the future, so the surge in commodities looks set to continue." (April 11, 2011 Financial Post)
• "The world is in the middle of a commodity boom cycle" (June 8, 2011 Wall Street Journal)
• "Traders are shrugging-off the frightening nightmare of 2008, but instead, are riding high on the magic carpet buoyed by 'Quantitative Easing.'" (January 6, 2011 Bullionvault)

Wrote one January 2011 CNN Money:

"Commodities of all types have been running like scalded monkeys. Hard and soft commodities, and shiny and not so shiny metals are on a tear...it appears that we are in the midst of a commodity super cycle."

The fundamental markers were positive. The CRB Index's trend was up. The road ahead was higher.
Except, it wasn't. The exact opposite scenario unfolded. Between 2011 and 2016, the CRB Index plummeted more than 50% in an unrelenting bear market that has seen prices slog sideways since. It goes without saying, fundamental analysis failed at its most important job -- enabling traders to know the direction of the primary trend and "proceed to invest with it, not against it."
Alternatively, there was Elliott Wave International's chief commodity analyst and co-author of Elliott Wave Principle -- Key to Market Behavior Jeffrey Kennedy. In his September 2011 Monthly Commodity Junctures, Jeffrey identified a textbook, five-wave move coming into a top on the price chart of the Continuous Commodity Index (CCI), referred to as the "old CRB."
Chapter 2 of Elliott Wave Principle -- Key to Market Behavior (EWP) shows the basis for Jeffrey's bearish forecast -- five-wave moves up are followed by three-wave corrections -- AND his ability to identify a likely downside target for that decline: From EWP:

"No market approach other than the Wave Principle gives a satisfactory answer to the question, 'How far down can a bear market be expected to go?' The primary guideline is that corrections, especially when they themselves are fourth waves, tend to register their maximum retracement within the span of travel of the previous fourth wave of one lesser degree, most commonly near the level of its terminus."

Armed with this guideline, Jeffrey's warned the next move for commodities would be a historic trend change that would slash prices in half. His September 2011 Monthly Commodity Junctures wrote:

A BEAR MARKET IN COMMODITIES: THE TRAIN IS COMING

The monthly price chart of the CCI clearly displays another five-wave advance (chart 2). This impulse wave, which began in 1999, ended this year.

This argues that a decline in the CCI should actually target the December 2008 low of 322.53, the terminus of the previous fourth wave.

From there, prices embarked on a 50%-plus crash to 351, near the 2008 low of 322.53 area Jeffrey identified five years earlier!

Accurately identifying a market's trend is pivotal to success. Period. The odds of doing so require the right tools. Right now, our friends at Elliott Wave International have added the ultimate resource guide Elliott Wave Principle -- Key to Market Behavior to their FREE, online Club EWI library. This best-selling "bible" of all things Elliott is a mainstay for market newbies and veterans alike.
In the end, failure is not a result of "bad timing;" but rather, applying bad tools to perform market-timing. Elliott waves give you an alternative.
Get your free copy now

EWI's senior analyst Jeffrey Kennedy shares with you practical advice on what it takes to improve the quality of your trades.

By Elliott Wave International

You've heard it all before:

• If you want to trade using Elliott wave analysis, to succeed you first need to understand its rules and guidelines.
• You need a clearly defined trading strategy (what? when? how? etc.) and the discipline to follow it.
• Additionally, your long-term success depends on adequate capitalization, money management skills and emotional self-control.

Do you meet these qualifications, yet still struggle in the markets? If so, you may find some helpful advice in this quick trading lesson from Trader's Classroom editor, Jeffrey Kennedy:

We all know that the Elliott Wave Principle categorizes 3-wave moves as corrections and, as such, countertrend moves. We also know that corrective moves demonstrate a stronger tendency to stay within parallel lines, and that within A-B-C corrections the most common relationship between waves C and A is equality. Furthermore, we know that the .618 retracement of wave 1 is the most common retracement for 2nd waves, and that the .382 retracement of wave 3 is the most common retracement for 4th waves.
Knowing that all of these are traits of countertrend moves, why do traders take positions when a pattern demonstrates only one or two of these traits? We do it because we lack patience. We lack the patience to wait for opportunities that meet all of our criteria, be it from an Elliott wave or another technical perspective.
What is the source of this impatience? It could be from not having a clearly defined trading methodology, or not being able to control emotions. However, I think impatience stems more from a sense of not wanting to miss anything. And because we're afraid of missing the next big move, or perhaps because we want to pick up some lost ground, we act on less-than-ideal trade setups.
Another reason traders lack patience is boredom. That's because -- and this may sound odd at first -- "textbook" Elliott wave patterns and ideal, high-confidence trade setups don't occur all that often. In fact, I have always gone by the rule of thumb that for any given market there are only 2-3 tradable moves in your chosen time frame. For example, during a normal trading day, there are typically only two or three trades that warrant attention from day traders. In a given week, short-term traders will usually find only two or three good opportunities worth participating in, while long-term traders will most likely find only two or three viable trade setups in a given month, or even a year.
So as traders wait for these "textbook" Elliott wave patterns and ideal, high-confidence trade setups to occur, boredom sets in. Too often, we get itchy fingers and want to trade any chart pattern that comes along that looks even remotely like a high-confidence trade setup.
The big question then is, "How do you overcome the tendency to be impatient?" Understand the triggers that cause it: fear of missing out, and boredom.
The first step in overcoming impatience is to consciously define the minimum requirements of an acceptable trade setup and vow to accept nothing less. Next, feel comfortable in knowing that the markets will be around tomorrow, next week, next year and beyond, so there is plenty of time to wait for the ideal opportunity. Remember, trading is not a race, and over-trading does little to improve your bottom line.
If there is one piece of advice I can offer that will improve your trading skills, it is simply to be patient. Be patient and wait for only those textbook wave patterns and ideal, high-confidence trade setups to act. Because when it comes to being a consistently successful trader, it's all about the quality of your trades, not the quantity.
Developing patience isn't easy -- yet, if you are serious about improving the quality of your trades, it is vital.
How much more successful would you be if you could develop the patience to act only on high-confidence trade setups?

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Want more? How about 14 more trading lessons like these -- 100% free? Get 14 more lessons in Jeffrey Kennedy's popular Best of Trader's Classroom eBook. You'll get 14 of the best lessons from his 6-volume Trader's Classroom Collection eBooks. Need a free login? Get free, instant access to the Best of Trader's Classroom eBook >>

This article was syndicated by Elliott Wave International and was originally published under the headline How to Build Consistent Trading Success. 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.

High-Confidence Stock Trading Opportunities

How to Spot High-Confidence Trading Opportunities in a "Pinch"!
Why this single moving average chart pattern belongs in your technical toolbox today

By Elliott Wave International

When it comes to the world of technical market analysis, the biggest obstacle isn't a lack of quality, but rather, an abundance of choice. There are literally hundreds of technical tools out there, with digital libraries and chat boards devoted to the many variations of individual components.

If you used them all, your technical pages would look like the motherboard of the Starship Enterprise. And you'd need Spock himself to interpret the massive influx of data.

So, where on planet Earth do you start? How do you curate the right technical tools to support your trading style and maximize your ability to spot high-confidence setups in real-world markets?

Well, that's where our Trader's Classroom editor Jeffrey Kennedy comes in. In his August 9 video lesson titled "Pinch Me! How to Build Your Ideal, Custom Technical Indicator Page," Jeffrey shares one of his top three favorite technical chart patterns: the moving average "pinch.”

Right away, Jeffrey stresses the two main functions of any technical indicator page:

1. Identify the trend
2. Identify areas of oversold and overbought conditions

The moving average (MA) "pinch" accomplishes both, and here's how: First, the pinch occurs when all three MA lines -- green, red and grey -- come together and appear to form one single line. Then ... well, you'll just have to watch this free video to find out.

Jeffrey shows you several real-world examples of MA pinches, including this one in late 2018 price action of Big Board listee Chipotle Mexican Grill (ticker symbol CMG).

In the free video, Jeffrey highlights the area of compression where the pinch occurred and describes it as a "beautiful little bullish set-up," confirmed by the powerful advance that followed.

In fact, during the time of the pinch's formation in Chipotle, Jeffrey featured the market in his January 10, 2019 Trader's Classroom. There, Jeffrey homed in on the narrow and choppy price action in CMG, a six-month long sideways move that barely retraced 50% of the preceding rally, magnified here:

The same period of compression identified as a MA "pinch" was confirmed by all the characteristics of counter-trend price action -- the latter of which led Jeffrey to include Chipotle in his "I Like It!" market list for a strong move higher.

The next chart captures the volatile upside explosion that has seen a doubling in value of CMG prices to new record highs:

The first step to identifying a moving average "pinch" is to understand the mechanisms of the moving average indicator. In his August 9 Trader's Classroom video "Pinch Me!" Jeffrey lays the groundwork with a user-friendly lesson covering all the need-to-know basics.

Jeffrey also shows you how an MA pinch preceded three major buying opportunities in 2013, 2016 and 2019 in the tech-giant Apple.

Plus, you'll see how an MA pinch underway right now in the Healthcare Select Sector SPDR fund (XLV) suggests an "exciting" period of volatility may be ahead.

Free, watch Jeffrey Kennedy's Trader's Classroom “Pinch me!” video lesson now -- and see why the MA pinch is the first step to building a custom technical indicator page.

No, this isn't a dream; the power of the pinch is very real!

Using Moving Averages with Elliott Wave Analysis

Moving Averages and the Wave Principle
Improve your Elliott wave pattern identification skills with this lesson from Jeffrey Kennedy 

By Elliott Wave International

Moving averages are one of the most widely-used methods of technical analysis because they are simple to use, and they work. Among Elliott wave traders, you will likely find an especially high percentage of investors and traders who incorporate moving averages into their Wave analysis.

Here's why: you can use moving averages to identify Elliott waves.

Senior Analyst Jeffrey Kennedy knows how to take complex trading methods and teach them in a way you can immediately understand and apply -- his step-by-step tutorials are beneficial to traders at any level of experience. Jeffrey is also well-known for combining ancillary technical tools to strengthen his Elliott wave analysis.

The following lesson provides a powerful example of how moving averages can strengthen your ability to identify Elliott Patterns. It is excerpted from Jeffrey's free 10-page eBook, How You Can Find High-Probability Trading Opportunities Using Moving Averages. (Click here to get your copy of this free eBook now.)

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If you're new to the Wave Principle, I recommend using a moving average to get you started, and the reason why is that a moving average overlaid on a price chart will help train your eye to see developing Elliott wave patterns.
For an example of a schematic Elliott wave, look at the figure below:

If you've read The Elliott Wave Principle by Robert Prechter and A.J. Frost, you know that wave patterns are illustrated as line diagrams.
When you look at a real price chart rather than a schematic, the basic chart is typically an open-high-low-close price chart. Each price bar represents a single period and is illustrated by a vertical line with a small mark to the left and a small mark to the right as seen in the next figure:

The little lower line on the left-hand side of the vertical bar is the open; the little upper line on the right-hand side of the vertical line is the close; the top of the line is the day's high or that trading period's extreme; and the bottom of the line is that trading period's low.
Here's the thing: Whenever you're making the transition from looking at a textbook diagram to actually counting Elliott waves on a real price chart, it can be confusing to the eye. If you use a moving average, it will help you to see the wave pattern more easily.
Let me prove my case more thoroughly with this chart of Corn:

The blue line is an 8-period simple moving average of the close, which clearly shows that a five-wave decline has unfolded from the upper left-hand side of this price chart. With the aid of a moving average, the subdivisions within this selloff are more easily discernible than with the untrained naked eye.
Also, notice that the slope of the move up in wave 4 is shallow. This detail is important because one of the key characteristics of countertrend price action is that it moves slowly, thus its slope will be inherently more shallow than what one can expect to encounter when a motive wave is in force.

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Learn How to Trade the Highest Probability Opportunities: Moving Averages No matter what your level of experience in the markets, you'll be amazed at how quickly you can benefit when you include moving averages in your Elliott wave analysis. Now you can learn how to apply them to your trading and investing in this free 10-page eBook. Learn step-by-step how moving averages can help you find high-probability trading opportunities. Begin to improve your trading and investing with Moving Averages today! Download Your Free eBook Now >>

Discover 5 Reliable Setups in Just 26 Minutes (Free Video)

Did you know 60-80% of price action unfolds in just 5 core Elliott wave patterns? It's true.

If you can get familiar with just those five, you'll be able to quickly scour you price charts. When one of those patterns shows up, you will have identified a potential high-confidence set-up.

So says Elliott Wave International's senior instructor and Trader's Classroom editor Jeffrey Kennedy. Jeffrey's FREE video lesson "Discover 5 Reliable Setups in Just 26 Minutes" is designed to reveal those five patterns to you.

In his free 26-minute video, Jeffrey uses five well-known stocks to show you the core patterns. And he shows you what those set-ups mean for the immediate future.

This is one of Elliottwave.com's most popular videos on its website. Now, we're making it available to you. Don't miss it.

Watch it now -- free.

. . . .

Opportunity in Silver

The 'Silver Lines' of Opportunity
How to turn a simple chart into a near-term road map

By Elliott Wave International

On February 20, Variety Magazine's "Film News Roundup" announced a new thriller coming to theaters near you: "The Silver Bear."

Funny enough, that same day, another kind of thriller was playing out in the theater of finance; its name, the Silver Bull!

The chart below captures the action: Since the start of 2019, silver prices had been on a tear, soaring to $14, $14.50, $15, $15.50 and then $16 per ounce in late February in a white-hot winning streak that has outperformed even gold.

Thanks to a wide array of supportive fundamentals including a softening U.S. dollar, a dovish Federal Reserve, increased economic uncertainty and a subsequent rise in demand for traditional "safe havens" such as gold and silver -- mainstream news outlets captured the Silver Bull sentiment on high:

"Is Silver About to Explode?" (Feb. 21 Seeking Alpha)
"Silver Market Steadily Building Up Momentum" (Feb. 19 Commodity Trade Mantra)
"Silver Experiences A Bullish Development that Points to Higher Prices" (Feb. 20 ETF Daily News)

Yet, off the mainstream screen, we had a very different take on silver's rally. On February 21, our Metals Pro Service identified a classic Elliot wave "impulse" underway from the November 2018 low to the February 20 high above $16 per ounce. And, it was close to being finished.

For newbies, here is an idealized diagram of an impulse wave, defined as a five-wave move labeled 1 through 5 that adheres to three cardinal rules:

• Wave 2 can never retrace more than 100% of wave 1.
• Wave 3 is never the shortest among waves 1, 3 and 5.
• And wave 4 can't end in the price territory of wave 1.

The February 21 Metals Pro Service labeled the impulsive rise on silver's price chart and warned of a pending reversal:

"Silver may have topped...at 16.19 and be correcting the entire rise from 13.98 now."

So, what should you expect after a five-wave impulse is complete?

By their very nature, an impulse move is followed by a correction, often unfolding in three waves (A-B-C) and pushing back into the span of travel of the prior fourth wave. See diagram below:

Wrote our Metals Pro Service on February 21:

"The move should develop in three waves and reach the 15.35 area over the coming days."

The white metal followed in-step, embarking on a powerful, two-week long selloff to below $15 per ounce.

Then, on March 7, our Metals Pro Service turned near-term bullish. Why?

Because now the three-wave, A-B-C correction was complete, too. On March 7, Metals Pro Service silver outlook set the stage for gains:

"On the upside, an impulsive rally above 15.17 will hint that a bottom is in place and that the larger-degree uptrend has re-ignited."

From there, silver regained its shine right into our cited upside target area on March 21 -- before turning back down.

So, where are silver prices likely headed from here?

Our Metals Pro Service analysis reveals that right now. Watch our Metals expert, Tom Denham, discuss his exciting analysis and exactly what he sees next for this precious metal in his March 28 Metals Pro Service subscriber update. Sign up now for instant access.

Pot Stocks to Invest In

Cannabis Stocks: Don't Let Your Opportunity Go Up in Smoke
Here's when society expresses greater acceptance toward marijuana

By Elliott Wave International

In the 1973 song "The Joker," the Steve Miller Band sang:

"I'm a joker. I'm a smoker. I'm a midnight toker."

Of course, "midnight toker" referred to pot smoking. Back then, there were plenty of midnight tokers, but most of them feared getting "busted."

Thirty years later, in 2003, the Elliott Wave Theorist predicted:

"Eventually, possession and sale of recreational drugs will be decriminalized."

Then, in July 2009, The Socionomist (the monthly publication of the Socionomics Institute, a sister organization of Elliott Wave International) published a study titled "The Coming Collapse of Modern Prohibition," which reviewed the repeal of Prohibition during the bear market psychology of the early 1930s.

This study also shed insight as to why the Socionomics Institute's analysts were predicting greater acceptance toward marijuana use. Here's an excerpt:

"Social mood influences people's actions and their social judgments. In times of positive mood, people have the resources to enforce their social desires. They can afford to express the black and white moral issues preferred during bull markets, and drug abuse is a favorite target.

During times of negative mood, on the other hand, society's priorities change. People have other, bigger worries and begin to view recreational drugs as less dangerous, if not innocuous in offering stress relief, pain reduction and the ability to cope with the pressures of negative social mood.

Over the past 100 years, governmental activities have manifested these changing attitudes. During periods of rising mood, policymakers stepped up regulation of cannabis. During periods of falling mood, they eased those same stances.

Keep in mind that when the July 2009 Socionomist published, society had just experienced its worst "falling mood" period since the '30s.

So, analysts at the Socionomics Institute were not at all surprised by what happened in 2012. That was the year that Colorado and Washington became the first states where citizens voted to legalize marijuana for recreational use. Even though pot remains illegal at the federal level, since 2012, other states have also legalized pot for recreational or medical use.

In 2019, the investing public can choose from a number of cannabis stocks.

There are no shortage of stories like this one from U.S. News & World Report (March 1, 2019):

6 Best Cannabis Stocks to Buy on U.S. Exchanges

On the other hand, a March 20 Forbes headline reads:

Cannabis Stocks Are Full Of Hot Air

So, are cannabis stocks a good investment idea or not?

Well, from the Socionomics Institute's perspective, there's not an across the board "yes," or "no" answer. However, according to our analysis, there is opportunity.

Indeed, EWI has just published a special report titled "The Golden Age of Cannabis," which consists of 7 pages and 21 charts.

You will find analysis of the largest marijuana stocks by market capitalization in the United States, Australia, Canada and the UK.

Sign up today and get instant access to an excerpt from this "must read" special report -- 100% FREE.

Falling Trade Deficit and the Stock Market

Falling Trade Deficit is Good for Stocks: True or False?

By Elliott Wave International

A common claim from economic and stock market observers is that a rising trade deficit is injurious to the economy -- hence, bearish for stocks. On the other hand, a falling trade deficit is commonly believed to be bullish for stocks.

Sounds like common sense, but the price action of the main stock indexes often defy reason.

For example, on March 27, CNBC reported, "The U.S. trade deficit fell much more than expected in January to $51.15 billion, from a forecast $57 billion. The decline of 14.6 percent represented the sharpest drop since March 2018... ." Yet on the day the news was released, the main U.S. stock indexes closed lower.

Over the years, countless economists and investors have been baffled when the stock market has risen on bad news and fallen when the news was good. This has happened time and time again with news regarding the expansion or contraction of the trade deficit.

Consider the following news items from the past four decades and contextual comments in brackets (courtesy of Robert Prechter's 2017 book The Socionomic Theory of Finance):

March 28, 1981

The Commerce Department... reported the nation's balance of trade deficit had improved in February. [The second of back-to-back recessions began just five months later.]

March 1, 1984

"... the trade deficit is an economic disaster," said [a] chief economist. [An eight-year boom was just getting going.]

April 12, 1985

The secretary of state said, "We can break the back of the trade deficit only through...a stronger worldwide recovery...." [Precisely the opposite was true; the trade deficit rose during the strong worldwide recovery.]

May 26, 1990

The better-than-expected trade performance sent many economists scurrying to revise their trade forecasts. [A recession started a month later.]

February 22, 2002

The nation's trade deficit narrowed by 11.4 percent in December. [The stock market was peaking and collapsed to new lows in October.]

February 15, 2008

[A chief economist] said that the smaller December trade deficit will help to boost overall economic growth. [The second-worst financial crash and economic contraction in a hundred years were already underway.]

And, on July 14, 2010, USA Today said:

Rising trade deficit could drag down U.S. recovery.

But, as we know, the economic recovery continued.

The below chart and commentary provide even more evidence.

As published in The Socionomic Theory of Finance

The chart reveals that had economists reversed their statements and expressed relief whenever the trade deficit began to expand and concern whenever it began to shrink, they would have quite accurately negotiated the ups and downs of the stock market and the economy over the past 40 years. The relationship, if there is one, is precisely the opposite of the one they believe is there. Over the span of these data, there has been a consistently positive--not negative--correlation among the stock market, the economy and the trade deficit.

The trade deficit’s widely presumed effect is 100% myth.

This is just one misconception in a long list of market myths… Do earnings really drive stock prices? Can the FDIC actually protect you? Is portfolio diversification a smart move? Read our free report "Market Myths Exposed" now and find out whether your portfolio is built on flawed foundations.

the Stock Market and the Fed

Elliott Wave: Fed Follows Market Yet Again

By Steve Hochberg and Pete Kendall

Back in December, we wrote an article titled "Interest Rates Win Again as Fed Follows Market."
In the piece, we noted that while most experts believe that central banks set interest rates, it's actually the other way around—the market leads, and the Fed follows.
We pointed out that the December rate hike followed increases in the six-month and three-month U.S. Treasury bill yields set by the market.
What happened with this week's Fed announcement? Well, you guessed it—the Fed simply followed the market yet again.

The chart above is an updated version of the one we showed in our last article. The red line is the U.S. Federal Funds rate, the yellow line is the rate on the 3-month U.S. T-bill and the green line is the rate on the 6-month U.S. T-bill. The latter two rates are freely-traded in the auction arena, while the former rate is set by the Fed.
Now observe the grey ellipses. Throughout 2017-2018, the rates on 3-and-6-month U.S. T-bills were rising steadily, pushing above the Fed Fund's rate. During the period shown on the graph, the Fed raised its interest rate six times, each time to keep up with the rising T-bill rates. The interest-rate market is the dog wagging the central-bank tail.
Now note what T-bill rates have been doing since November of last year; they've stopped rising. Rates have moved net-sideways, which was the market's way of signaling that the Fed would not raise the Fed Funds rate this week.
Too many investors and pundits obsess over whether the Fed will raise or lower the Fed Funds rate and what it all supposedly means. First, if you want to know what the Fed will or will not do, simply look at T-bills, as shown on the chart. Second, whatever their action, it doesn't matter because the Fed's interest-rate policy cannot force people to borrow.
See Chapter 3 of The Socionomic Theory of Finance for more evidence.

Trump Impeachment Stock Market

Will Negative Social Mood Oust Trump? Watch the Stock Market

By Elliott Wave International

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Special Q&A With Alan Hall on Elections and Impeachment
At the end of this article you'll have the opportunity to hear Alan discuss his impeachment research with ETV Correspondent Dana Weeks.
You cannot afford to miss Alan's insightful political analysis. Please login to view the interview after reading the article.

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Those who want President Trump to stay in office should hope the stock market rises, and those who want him ousted should hope it crashes.
Why? History shows that the stock market is a useful indicator of people's attitudes toward the president. Socionomic theory proposes that society's overall mood regulates both stock prices and the public's perceptions of its leaders. Positive social mood makes society feel optimistic, bid up stock prices and credit leaders for their good feelings. Negative social mood makes society feel pessimistic, sell stocks and blame leaders for their bad feelings.
These tendencies are evident in presidential re-election outcomes. Presidents Hoover and Carter, for example, lost bids for re-election during trends toward negative social mood as reflected by declining stock prices. In fact, the stock market is a better re-election indicator than inflation, unemployment and GDP growth combined, as my colleagues at the Socionomics Institute demonstrated in a 2012 paper.
Social mood's influence is also evident in the results of U.S. presidential impeachments and near-impeachments. Twice in history the U.S. House of Representatives has voted to impeach a president. In both cases social mood was trending positively, as reflected by rising stock prices, and in both cases the Senate voted for acquittal.

Figure 1

Figure 1 illustrates the timing of the first presidential impeachment. On March 2, 1868, the House of Representatives formally agreed to eleven articles of impeachment against President Andrew Johnson. The Senate took three separate votes, and each fell one vote short of the two-thirds majority necessary to remove Johnson from office. The Senate acquitted Johnson on May 26, 1868, during a stock rally that added to the 250% increase since October 1857.

Figure 2

Figure 2 shows that a substantial trend toward positive social mood preceded President Bill Clinton's impeachment in the House and subsequent acquittal in the Senate. Note that some of the most serious events in the Monica Lewinsky scandal coincided with the largest downturn in the Dow during Clinton's presidency. Yet, as the Dow recovered, so did Clinton's approval ratings. And despite a $70-million prosecution of Clinton's related perjury and obstruction of justice charges, the Senate acquitted the president as positive social mood lifted the Dow, Dow/gold and Dow/PPI to important peaks.

Figure 3

President Richard Nixon's near-impeachment and resignation from office serves as a textbook case of how social mood influences the fortunes of public figures. Figure 3 shows the Dow Jones Industrial Average surrounding his time in office. The soon-to-be infamous Watergate break-in occurred toward the end of a strong 67% rally in the Dow from May 1970-January 1973. That trend toward positive mood helped Nixon win re-election in a landslide. But as mood trended toward the negative, the public's view of its leader darkened, its appetite for scandal increased, the investigation accelerated, and Nixon's fortunes changed. With almost certain impeachment looming, Nixon became the first president to resign from office on August 9, 1974.

Figure 4

What does this history tell us about the probability that President Trump will serve a full term in office? We considered this question in the June 2017 issue of The Socionomist. Figure 4 is a chart from that issue, updated to the present. It depicts the trend of social mood as reflected by the Dow. We left the gray arrows showing our 2017 analysis in place, and we added red arrows to indicate the possibilities going forward. In July 2017, Congressman Brad Sherman formally introduced an article of impeachment against the president in the House of Representatives. Yet as the market rose during 2017, President Trump--despite low approval ratings, tremendous staff turnover, unrelenting criticism from the political left and numerous indictments and charges of Trump associates in the ongoing Mueller investigation--did not face an impeachment vote. After the stock market peaked on January 26, 2018, however, the tone changed, and even some on the political right became more critical of the president.
Since the October 3 stock market peak, disapproval of the president has grown steadily louder and more strident. At the same time, the Mueller investigation has implicated more and more of the president's inner circle in illegal activities. The Democrats won control of the House in the 2018 midterms. A November 26 Gallup poll revealed Trump's disapproval rating had hit an all-time high. On December 10, Fox News's senior judicial analyst Andrew Napolitano said Trump could be charged with "three separate crimes and could be indicted while serving as president." By December 17, the Mueller investigation had issued more than 100 criminal counts and charged 34 people, 10 of whom have been found guilty. That same day, Wired published its list of "All 17 (Known) Trump and Russia Investigations" and said, "it's increasingly clear that, as 2018 winds down, Donald Trump faces a legal assault unlike anything previously seen by any president."
In the weeks since, the Trump Foundation agreed to dissolve, and Secretary of Defense James Mattis and diplomat Brett McGurk have resigned. On December 24, Time reported, "National Christmas Tree to Stay Dark During Holiday Due to Government Shutdown," and several news organizations ran stories with versions of The Atlantic's headline, "President Trump's Nightmare Before Christmas," as the stock market plunged. Of course, stalwart supporters of the president remain. Yet the number of oppositional voices is rising. A December 19 NBC News/Wall Street Journal poll found that 41% of Americans favor impeachment hearings.
We don't know what the Mueller investigation will ultimately reveal, but for Trump, the facts may not matter as much as the social mood. Fasten your seatbelt and keep your eyes on stock market indexes, our best reflection of the trend of social mood.
Q & A With Alan Hall on Elections and Impeachment
You've read his essay, now hear from Alan Hall himself -- including how he connects the dots from election research to impeachment, plus how he hopes to "get thru" to people whose minds are already made up.
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This article was syndicated by Elliott Wave International and was originally published under the headline Will Negative Social Mood Oust Trump? Watch the Stock Market. 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.