Forecasting Stock Markets

Here's Why You Can Forecast Markets Just by Looking at Chart Patterns
Here are two illustrations of the fractal form of financial markets

By Elliott Wave International

Nature is full of fractals.

Fractals are self-similar forms that show up repeatedly. Consider branching fractals such as blood vessels or trees: a small tree branch looks like an approximate replica of a big branch, and the big branch looks similar in form to the entire tree.

Fractals also form in the price charts of financial markets, at all degrees of trend, in both up- and downtrends. In fact, without knowing the time or price labels, you can't tell if you're looking at a 2-minute chart, a daily chart -- or a yearly one.

Fans of Elliott wave analysis have been using this information to their advantage for decades. Our March 2020 Elliott Wave Theorist gave subscribers two important real-time examples of fractals at work. Here's the first one along with the commentary:

This figure offers a good illustration of the fractal nature of markets. It shows the correction in T-bond futures of 2016-2018 on a weekly chart against the correction in the last four months of 2019 on a daily chart. They look quite similar, and each one led to a run to new highs.

And here's the next example, along with commentary from the March Theorist:

This figure shows another example of the market's adherence to forms. The top graph shows the 10-minute range for the S&P futures contract on March 4, and the bottom graph shows the same for March 5. Don't they look similar?

In fact, however, the trend of the market in the top graph was up, and the trend shown beneath it was down. We simply inverted the bottom graph for our illustration. Prices rose on March 4, and they fell on March 5, in the same pattern.

Here's what this means for investors and traders: The fact that price charts unfold in repetitive and recognizable patterns makes financial markets predictable.

As Elliott Wave Principle: Key to Market Behavior by Frost & Prechter noted:

Scientific discoveries have established that self-similar pattern formation is a fundamental characteristic of complex systems, which include financial markets. Some such systems undergo "punctuated growth," that is, periods of growth alternating with phases of non-growth or decline, building into similar patterns of increasing size.

Learn more about these self-similar pattern formations and how they can help you to anticipate turns in widely traded financial markets, including the stock market.

You can do so by reading the online version of Elliott Wave Principle: Key to Market Behavior, 100% free.

All that's required is a Club EWI signup. Club EWI is the world's largest Elliott wave community and allows you access to a wealth of Elliott Wave International's resources on investing and trading. Club EWI membership is also free.

Just follow the link to start reading the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Here's Why You Can Forecast Markets Just by Looking at Chart Patterns. 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.

Emerging Markets Stock Trend

An Eye-Opening Perspective: Emerging Markets and Epidemics

By Elliott Wave International

People across the entire planet remain very much aware of the COVID-19 health threat.

The global disruption associated with the pandemic far surpasses other major health scares in modern history.

Even so, you may recall 2009 news articles similar to this one from the New York Times (June 11, 2009):

It came as no surprise [on June 11, 2009] when the World Health Organization declares that the swine flu outbreak had become a pandemic.

The disease has reached 74 countries ... .

And, going further back in time, the World Health Organization provided this July 5, 2003 update on the Severe Acute Respiratory Syndrome, known as SARS:

To date, 8439 people have been affected, and 812 have died from SARS.

The reason for briefly reviewing the swine flu and SARS is to point out that, as surprising as it may be, both outbreaks marked not the start, but the end of a downtrend in emerging markets stocks.

That's a big reason why, amid the COVID-19 scare, Elliott Wave International's April 2020 Global Market Perspective, a monthly publication which covers 40+ worldwide financial markets, showed this chart and said:

The dramatic drop has created an enormous [bullish] opportunity in the form of a completed contracting triangle pattern in emerging markets overall, as shown by the Vanguard FTSE Emerging Markets ETF, which is the largest emerging markets ETF by market capitalization.

The current, May Global Market Perspective follows up with this chart of the MSCI Emerging Markets Index. The last quarterly bar shows the substantial jump in prices since the March lows. Our global analyst remarked:

That this [price rise] has begun amid the COVID-19 pandemic only adds to the evidence supporting it: Asian-Pacific and emerging markets also began bull markets amid the SARS epidemic of 2003 and the Swine Flu pandemic of 2009, as the chart shows.

Of course, COVID-19 and past outbreaks didn't "cause" stock prices to climb. The point -- as our Global Market Perspective has said -- is that epidemics tend to occur at the end of major sell-offs.

"Tend to" is the key phrase here, of course. There are no guarantees in financial markets. Besides, this outbreak is a full-blown pandemic with social and economic consequences that have already far surpassed anything we saw in 2003 or 2009.

Having said that, emerging markets did rebound, which is something Global Market Perspective subscribers were prepared for, and it's worth noting. What happens next depends on the Elliott wave patterns in market psychology, which our global analysts are tracking in emerging markets (and developed ones) right now.

You can get free access to analysis from our global market experts in "5 Global Insights You Need to Watch," which is a short, 5-video series (plus, two quick reads).

You get our latest forecasts for cryptocurrencies, crude oil, interest rates, deflation and the future of the European Union -- all in just 13 minutes.

The 5 videos and 2 excerpts are straight from the Global Market Perspective -- so yes, this is premium, subscriber-level.

All that's required to access "5 Global Insights You Need to Watch" is a free, Club EWI membership.

Changes in Social Mood

Gold and Silver: Pay Attention to This Noteworthy Record High
Here's what usually occurs in related financial markets when "big changes in social mood are afoot"

By Elliott Wave International

Related financial markets tend to move together. For example, gold and silver.

Or, consider stocks. When the Dow Industrials are up on a given trading day, the NASDAQ is usually in the green too. The same applies when the Dow is down. Other major stock indexes tend to close in negative territory as well.

However, when a trend is near exhaustion -- whether bullish or bearish -- "non-confirmations" often happen. A non-confirmation occurs when one market makes a new high (or low), but a related market does not.

Let's stick with the example of stocks as we look at this chart and commentary from Elliott Wave International's November 2019 Global Market Perspective:

Notice that while the FTSE 100 is off 6% since its May 2018 high, the Small-Cap index and the AIM 100 are down 9% and 23%, respectively. These non-confirmations are important, because markets almost always splinter when big changes in social mood are afoot. ... It's only a matter of time before the broad indexes abandon the bull-market party.

As we all know, abandon it they did -- in a very dramatic way.

Now, let's look at what's going on with gold and silver.

Here's a chart and commentary from EWI's April 27, 2020 U.S. Short Term Update:

Gold is massively overvalued relative to physical commodities and the ratio of gold-to-silver recently jumped to a record high. There remains a large non-confirmation between gold and silver.

Even so, here's an April 21 headline (CNBC):

Bank of America raises gold forecast by a whopping $1,000 to $3,000 because of zero rates

Well, this major bank's outlook for gold might turn out to be correct.

On the other hand, it's obvious -- as you've just seen -- that the gold and silver markets are significantly splintered.

Plus, the Elliott wave model is also providing clues about the next big moves in the gold and silver markets.

And, speaking of Elliott wave analysis, EWI has just made available a 1-hour course titled: The Wave Principle Applied. You can access this valuable resource 100% free through May 15, 2020.

How?

Simply join Club EWI. Membership is also free.

When you avail yourself of The Wave Principle Applied, you will learn how to spot Elliott wave patterns on a price chart. Plus, you'll acquire trading insights.

As Frost & Prechter's Elliott Wave Principle: Key to Market Behavior noted:

After you have acquired an Elliott "touch," it will be forever with you, just as a child who learns to ride a bicycle never forgets. Thereafter, catching a turn becomes a fairly common experience and not really too difficult. Furthermore, by giving you a feeling of confidence as to where you are in the progress of the market, a knowledge of Elliott can prepare you psychologically for the fluctuating nature of price movement and free you from sharing the widely practiced analytical error of forever projecting today's trends linearly into the future. Most important, the Wave Principle often indicates in advance the relative magnitude of the next period of market progress or regress.

Simply follow the link for your free membership into Club EWI, and then you can access The Wave Principle Applied -- 100% free -- through May 15 (EWI normally sells the course for $99).

This article was syndicated by Elliott Wave International and was originally published under the headline Gold and Silver: Pay Attention to This Noteworthy Record High. 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.

Stocks as a Safe Investment

You Won't Believe WHEN Pension Funds "Embraced Stocks as a Safe Investment"

By Elliott Wave International

Pension funds were already in a highly precarious position before the DJIA's February 12 high and the subsequent start of the high drama in stock moves.

The 2018 edition of Robert Prechter's Conquer the Crash noted:

The bull market in stocks has gone on so long that pension funds, formerly boasting conservative portfolios, have embraced stocks as a safe investment. ... This is a setup for disaster.

Fast forward to Nov. 5, 2019 when the Wall Street Journal said:

Public Pension Plans Continue to Shift Into U.S. Stocks

Discussing the same theme, our January 2020 Elliott Wave Financial Forecast showed this chart and said:

At the end of the third quarter, alternative investments such as private equity and who-knows-what made up 5.6% of [U.S.] public pension fund portfolios, a new record. At 47.3% in 2019, equities exceed the allocation at the stock market peak of 2007. " ... As in 2008, pension funds are doubling down. Once again, the strategy will prove a miserable failure.

Yes, deficit-plagued pension funds were nearly half invested in stocks -- just when the main indexes started to plunge a few weeks ago.

On March 9, the Guardian, a British newspaper, put a positive spin on pensions and the market's rapid downturn:

How badly has my pension been hit?

It's bad, but not as grim as the headline falls in the FTSE or Dow suggest. As a rule of thumb, for every 10% fall in the FTSE, the value of your pension investments falls by about 5% to 6%.

Well, whether one chooses to call it "bad" or "grim," one thing's for sure: the British and U.S. stock markets have fallen even more since that article published.

Many observers believe the coronavirus "triggered" the big plunge in stock values. However, you may be interested in knowing that the Elliott wave model pointed to a big decline in the equity market well before the coronavirus became widespread frontpage news.

As example, our January 2020 Elliott Wave Financial Forecast (published Jan. 10) said:

The new year has coincided with new highs in the Dow Jones Industrial Average, but key pieces of evidence indicate that the rally is at or very near an end. ... Now is the time to be prepared for a change of trend, which very few investors are currently anticipating.

Indeed, that "change of trend" did occur.

Now is the time to find out what EWI's analysts anticipate for the stock market in the weeks ahead.

Elliott Wave International has been guiding investors through bull and bear markets since 1979. From that long experience, we know that at certain market junctures, we can help the most by giving everyone our latest analysis free.

Now is one of those market junctures.

Elliott Wave International has just made the entire "Stocks" section of our flagship market letter, the monthly Elliott Wave Financial Forecast, available to all Club EWI members, free. Your membership in Club EWI is also free.

It's a rare opportunity to see what EWI's subscribers are reading.

Read the Financial Forecast excerpt now, free

This will help you understand how the markets got to this juncture -- and, more importantly what's likely next.

Also, please feel free to share this special excerpt with friends and family.

Again, here's that link:

Read the Financial Forecast excerpt now, free