Why You Should Expect a Pickup in Stock-Market Volatility

Why You Should Expect a Pickup in Stock-Market Volatility
"Traders are convinced the market volatility will remain subdued"

By Elliott Wave International

When things get quiet in a horror movie, that's when you need to really brace yourself. The monster or the killer will soon be on the scene.

That's a close enough analogy to what can happen in the stock market. Just when investors get comfortable with a stretch of low volatility -- wham! -- volatility picks up in a major way.

Back on Nov. 27, 2019, our U.S. Short Term Update, a thrice weekly Elliott Wave International publication which provides near-term forecasts for major U.S. financial markets, showed a chart titled "Calm Before the Craziness," and said:

The CBOE volatility Index (VIX) closed below 12.00 for the third straight session... In fact, investors are so complacent that, paradoxically, it signals a coming pick up in volatility.

About three months later, our Feb. 24, 2020 U.S. Short Term Update noted:

The VIX surged 69% intraday and is now up 130% since the November 26 low. The VIX should eventually move even higher as stocks prices work lower.

As you may recall, a hair-raising stock market decline that had started in mid-February continued to plummet into March 23 of that year.

What does this have to do with today?

This chart and commentary from our August 15, 2022 U.S. Short Term Update provides the answer:

We have inverted the scale to align the VIX with prices. The DSI Indicator (trade-futures.com) has declined to 15, the lowest reading since March 29 (DSI of 13), which coincided with [an Elliott wave high]. The VIX itself declined to 19.12 on August 12 and traders are convinced the market volatility will remain subdued. As shown by the vertical dashed lines, the prior two times that traders were equally confident that volatility will remain muted occurred at or near prior market highs.

Indeed, an August Yahoo Finance headline reflects an example of this confidence:

10 reasons to be bullish on stocks right now, according to [a strategist at the largest U.S. bank]

That strategist may turn out to be correct.

On the other hand, volatility has already picked up since our August 15 analysis published. Of course, during periods of high volatility, there's the potential for big moves on the up- as well as downside.

Now it's time to learn what the Elliott wave pattern of the stock market is suggesting.

If you’re new to Elliott wave analysis or need a refresher, you may want to read Elliott Wave Principle: Key to Market Behavior by Frost & Prechter. Here’s a quote from the book:

It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

The ability to identify such junctures is remarkable enough, but the Wave Principle is the only method of analysis that also provides guidelines for forecasting.

You can read the entirety of this Wall Street classic for free once you become a member of Club EWI, the world’s largest Elliott wave educational community (about 500,000 worldwide members).

You can join Club EWI for free and members enjoy complimentary access to a wealth of Elliott wave resources on financial markets, investing and trading without any obligations.

Just follow this link to get started right away: Elliott Wave Principle: Key to Market Behavior – get instant access – free.

This article was syndicated by Elliott Wave International and was originally published under the headline Why You Should Expect a Pickup in Stock-Market Volatility. 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.

Too Much Stock Market Optimism

Stocks: What to Make of the "Overhanging Optimism"
This "is consistent with the early stage of a long bear market"

By Elliott Wave International

Intraday on April 27, the S&P 500 is trading 12.10% lower than it was at the start of the year.

Right -- not a huge setback -- but negative nonetheless.

Of course, it's always possible that this is just the start of a temporary correction that so many market observers mention.

Then again, the decline thus far this year could be the start of a bear market.

Corporate executives are certainly behaving in a way which is consistent with the start of a major financial downturn.

You see, history shows that companies usually buy back their own shares at a record pace near major stock market tops.

With that in mind, here's a March 22 Wall Street Journal headline:

Stock Buybacks Are on Course for Another Record

Analysts at Goldman Sachs recently said they anticipate buybacks to reach a record $1 trillion in 2022 -- at least, that's their forecast. However, investor behavior -- whether on Main Street or in corporate suites -- can change dramatically from what is expected.

Way before the end of the year, investor psychology may darken considerably.

The April Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets, picks up the story from here with this chart and commentary:

In the fourth quarter of 2021, S&P 500 companies bought $270.1 billion worth of their own shares. Record buybacks in the first quarter of 2000 and the third quarter of 2007 attended major tops. The latest record is a real barnburner, up a full 15.21% from the previous quarter's total. ... The Wall Street Journal reports that firms announced another $238 billion in buybacks in the first two months of 2022. ... This overhanging optimism is consistent with the early stage of a long bear market.

Of course, "overhanging" optimism refers to companies buying back shares even though the market may have already started a downtrend.

Also keep in mind that just because the market turned down severely in 2000 and 2007 after record buybacks doesn't mean it will do so again -- or immediately.

However, the recent flurry of buybacks is something to keep in mind. And, so is the stock market's Elliott wave structure, which puts the buybacks into context.

Read this quote from Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior:

Although it is the best forecasting tool in existence, the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. Nevertheless, that description does impart an immense amount of knowledge about the market's position within the behavioral continuum and therefore about its probable ensuing path. The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market's general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.

Learn more about the Wave Principle -- and how you can apply it to your analysis of financial markets -- by reading the entire online version of the book for free.

All that's required for 100% free and unlimited access to Elliott Wave Principle: Key to Market Behavior is a Club EWI membership.

Club EWI is the world's largest Elliott wave educational community and is free to join. Members enjoy free access to a treasure trove of Elliott wave resources on financial markets, investing and trading with zero obligation.

Simply follow this link to get started now: Elliott Wave Principle: Key to Market Behavior -- free and instant access.

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End of the Bull Stock Market

Stocks: Is This the "Kiss of Death" for the Bull Market?
Stock market prices usually decline after this occurs

By Elliott Wave International

Many market observers believe that the catalyst for the next bear market will be a piece of extraordinarily bad news.

However, Elliott Wave International has shown time and again that the stock market's price action is often "entirely detached from what most people assume are causal conditions."

Examples of stocks rising when the news is bad -- and falling when the news is good -- are so numerous that a library shelf of books would be inadequate to show a fair representation of them. For the most recent vivid example, just think back to March 2020, when the first wave of the pandemic hit and shuttered the entire global economy -- yet, stocks (around the world!) happily found a bottom and haven't looked back since.

No, the stock market is governed by the psychology and behavior of investors themselves.

One of the noteworthy behaviors is investors' use of margin debt.

Indeed, back in 1980, The Elliott Wave Theorist, a monthly publication which provides analysis of financial markets and social trends, said:

[A] failure of margin debt to expand in an advancing market [can be] the 'kiss of death' to a bull trend.

With that in mind, consider this chart and commentary from the recently published September Elliott Wave Financial Forecast, a monthly publication which covers key U.S. financial markets:

The arrows on the chart of the year-over-year change in New York Stock Exchange margin debt show that [The Theorist's] statement has been true at three major market tops over the last 24 years: at the market top in August 1987 ... the S&P's March 2000 top ... and at the October 2007 peak. As the latest arrow shows, a rapid expansion in margin debt has, once again, reversed trend.

Keep in mind that the stock market does not always decline after a year-over-year drop in margin debt. However, if the use of margin debt substantially falls just after reaching a record high, history does show that stock prices usually tumble thereafter.

That said, in June, margin debt reached a record high of $882 billion, which makes the July retreat of $37.7 billion especially significant.

The Elliott wave model pinpoints the patterns of investor psychology even more precisely.

As our September Financial Forecast said, the current unfolding Elliott wave of the Dow Industrials is "one for the ages."

If you'd like to learn how the Wave Principle can help you analyze and forecast financial markets, Elliott Wave Principle: Key to Market Behavior, is the go-to book for doing so. Here's a quote from this Wall Street classic:

Because applying the Wave Principle is an exercise in probability, the ongoing maintenance of alternative wave counts is an essential part of using it correctly. In the event that the market violates the expected scenario, the alternate count puts the unexpected market action into perspective and immediately becomes your new preferred count. If you're thrown by your horse, it's useful to land right atop another.

Always invest with the preferred wave count. Not infrequently, the two or even three best counts comfortably dictate the same investment stance. Sometimes being continuously sensitive to alternatives can allow you to make money even when your preferred count is in error. For instance, after a minor low that you erroneously consider of major importance, you may recognize at a higher level that the market is vulnerable again to new lows. This recognition occurs after a clear-cut three-wave rally follows the minor low rather than the necessary five, since a three-wave rally is the sign of an upward correction. Thus, what happens after the turning point often helps confirm or refute the assumed status of the low or high, well in advance of danger.

You can read the entire online version of the book for free when you become a Club EWI member. Club EWI is the world's largest Elliott wave educational community and is free to join. Members enjoy free access to a wealth of Elliott wave resources on financial markets, investing and trading.

Get started by following this link: Elliott Wave Principle: Key to Market Behavior -- free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Stocks: Is This the "Kiss of Death" for the Bull 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.

What drives Gold prices?

What Drives Gold Prices? (Don't Say "the Fed!")

By Elliott Wave International

Excerpted from Elliott Wave International's new FREE report "Gold Investor's Survival Guide: 5 Principles That Help You Stay Ahead of Price Turns."

There is a glaring hole in the popular understanding of what drives gold's price.

Mainstream finance believes the Federal Reserve's monetary and interest rate policies shape the trend.

That sounds like a solid explanation... except, the Fed officials themselves disagree!

Consider their own statements:

In July 2013, Fed chairman Ben Bernanke told Congress he "doesn't pretend to understand gold prices... nobody does."

Bernanke's successor Janet Yellen later concurred: "I don't think anybody has a very good model of what makes gold prices go up or down."

And at the 2014 New Orleans Investment Conference, perhaps the most famous Fed chair, Alan "the Maestro" Greenspan, explained that gold's "value...is outside the policies conducted by governments." (You know, like the highly revered quasi-government institution he used to be the head of.)

Despite the uncertainty voiced by the three most recent Fed chairs, mainstream analysts today still believe the Fed's monetary policy pushes around gold's price.

Investors accept this idea as fact because they hear it endlessly. But the notion is simply not accurate. As a result, these investors find themselves on the wrong side of the trend time and time again.

Fortunately, you don't have to be one of them.

Principle #1: Forget the fallacy that "gold follows the Fed."

Consider this chart of gold prices alongside the Fed's monetary policy since 2011.

First red arrow: In 2011-2015, gold prices plunged 40%. By mainstream logic, gold's freefall must have coincided with hawkish Fed -- because higher rates make other investments besides gold more attractive, so gold prices fall. Right?

In fact, it was just the opposite. During the same period, in 2011-2015, the Fed left interest rates at their lowest level ever, 0% to .25%. But that's not all. The Fed also injected $4.5 trillion in stimulus into the markets and economy during this time via quantitative easing. According to conventional wisdom, either action should have pushed gold's price higher -- and together, MUCH higher.

Yet... gold fell over 40%!

First green arrow: Now look at December 2016 - August 2019, when gold prices moved mostly higher. That must mean the Fed was LOWERING interest rates at the time -- right?

Nope! During this time, the Fed RAISED rates eight times -- and QE had long been retired. Gold rose anyway.

Second green arrow: Next, look at November 2019 - July 2020. The Fed cut rates five times and launched QE4 in January 2020. Gold fell, right?

Ha! Despite the dovish Fed and the new QE, gold's rally resumed.

Second red arrow: Lastly, look at August 6, 2020. The Fed said it'd keep rates near 0% indefinitely and inject trillions in new stimulus money. Did gold rally?

Yeah, right! Gold prices peaked and turned down.

If anything, since 2011, the mainstream's understanding of the Fed/gold relationship has been backward.

Except, there is an even better explanation. Read it now in EWI's new "Gold Investor's Survival Guide." You'll learn an objective method to help you forecast gold's price moves, how to identify and stick with gold's trend and more. A $49 value, yours FREE. Get it now at elliottwave.com.

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

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.
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