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.

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