Prechter`s GLOBAL MARKET PERSPECTIVE

Transcription

Prechter’s
GLOBAL MARKET PERSPECTIVE
a publication of Elliott Wave International
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Prechter’s
Global Market Perspective
Copyright © 2009 by Robert R. Prechter, Jr.
Prechter’s Global Market Perspective is published by Elliott Wave International.
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MARKETS AT A GLANCE
Stock Markets
A Primary-degree bear-market rally in U.S. stocks is underway and should
last months. By the time it ends, prices will not be near new highs, but
optimism may rival the readings registered near the October 2007 peak.
Though the European bear market has far more downside potential longterm, the strength of the rally and a completed five-wave pattern argue
that the March 9 bottom will stand awhile. European markets are rallying in fourth waves, counter to the primary trend, which remains down.
Most Asian-Pacific indexes have completed declining waves since their
2007/2008 highs. They should now rally for at least several months, although prices may pull back in the short-term.
Interest Rates
As stocks were declining into their March low, credit spreads failed to confirm the market decline, remaining narrower than their previous December
extreme. This non-confirmation along with March’s bullish reversal,
strongly supports the ongoing bear-market rally view. The United States
is now committed to the policy of printing money in order to purchase
debt issued by the Treasury. Debate about the efficacy of this program
has passed as this is now official Federal Reserve policy. The European
Central Bank has, to date, resisted calls to do the same, but leaves this
open as a policy option. The relative outperformance of European paper
has much to with this ECB policy stance. The Federal Reserve has made
a massive commitment to agency paper, and this debt should outperform
treasuries. We continue to weight short duration regardless of the asset
class. We anticipate new contract highs on the JGB and the Aussie bond,
but there is significant risk evident in Australian debt by the end of Q2.
Currencies
The dollar setback during March has run its course. The dollar is bottoming and should resume its advance from current levels.
Metals & Energy
Despite gold bugs’ insistence that an imminent surge is at hand, gold’s
countertrend rally high remains $1007.20 on February 20. The target for the
current decline is below $680. Silver too made a countertrend rally high at
$14.68 (Feb. 23). The current decline from this extreme should eventually
draw prices beneath $8.39. Crude Oil’s early March price action negated
our wave count, but not the idea that the larger downtrend has yet to run
its course. In the short-run, Crude should continue to advance before it
turns down to finish the move. Natural Gas should continue to subdivide
lower, but a period of upward consolidation should lie ahead.
Contents
World Stock Markets......................................................................7
Asia.............................................................................................35
Australia......................................................................................51
Britain.........................................................................................31
China...........................................................................................46
Europe.........................................................................................22
France..........................................................................................31
Germany......................................................................................28
Hong Kong..................................................................................48
India............................................................................................38
Japan......................................................................................43,50
Korea...........................................................................................42
Singapore....................................................................................48
Taiwan.........................................................................................40
United States...............................................................................10
World Stock Index........................................................................9
Global Interest Rates....................................................................53
Australia......................................................................................67
Europe.........................................................................................59
Japan...........................................................................................68
United States...............................................................................58
International Currency Relationships........................................69
Canadian Dollars per U.S. Dollar...............................................78
The Dollar...................................................................................72
Euro Rates...................................................................................80
Japanese Yen per U.S. Dollar......................................................79
Swiss Francs per U.S. Dollar......................................................74
U.S. Dollars per Australian Dollar..............................................77
U.S. Dollars per British Pound...................................................76
U.S. Dollars per euro..................................................................73
Metals & Energy...........................................................................83
00
Crude oil......................................................................................87
Gold & Silver..............................................................................85
Natural Gas.................................................................................88
Social Trends and Observations...................................................91
United States...............................................................................92
Europe.........................................................................................98
Asia-Pacific...............................................................................104
A Capsule Summary of the Wave Principle.............................107
Glossary of Terms.......................................................................113
Global Market Perspective provides a “snapshot” of EWI’s long-term
market opinions on Thursday before publication day. The pictures presented here are updated as needed throughout the month in EWI’s online Specialty Services products for professional and individual investors,
which includes intermediate and long-term market analysis. To access
this timely information for the market(s) you follow, please visit our Specialty Services selection tool (www.elliottwave.com/wave/SS_GMP) or
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This report utilizes data through April 2, 2009.
EDITOR’S NOTE
Both private and institutional investors need analysis based
upon ideas that work, analysis that provides a high percentage of useful
observations and accurate conclusions. Projecting today’s conditions,
trends and relationships into the future will result in errors of judgment
at the worst possible times. “Diversification” for its own sake can provide
some protection, but the more it is practiced, the closer one’s performance
comes to achieving mediocrity.
In contrast, analysis of market behavior delivers what it promises: a sensible basis upon which to make sound investment decisions,
reduce dangerous exposure and protect against risk. Such an approach
provides for fewer errors, more successes, and overall, an edge over the
competition. Thank you for adding Global Market Perspective to your
decision-making process.
Sincerely,
Robert R. Prechter, Jr.
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Global Market Perspective—April 3, 2009
ANNOUNCEMENTS
Global Market Perspective subscribers are invited to take part in
two free, live webinars. On Wednesday, April 15, Senior Currency
Analyst Jim Martens will walk you through his actual intraday
analysis of a recent trading day and show you how to apply the
Wave Principle to your markets in real time. Asian-Pacific Financial
Forecast editor Mark Galasiewski is putting together his webinar,
which he will present on Wednesday, May 6. You’re invited to participate in both of these webinars for free as a perk of your GMP
subscription. Instructions for participating will be posted on your
subscribers page the day before each event takes place.
Senior Tutorial Instructor Wayne Gorman’s highly popular Options
Trading Course series continues with Part 4, “Short Butterflies and
Condors,” on April 16. Learn more and sign up now: http://www.
elliottwave.com/wave/Options4Webinar.
Bob Prechter will be speaking at The 18th Atlanta Investment Conference April 23-25 at Chota Falls in Clayton, GA. This intimate
event always has an interesting cross section of speakers discussing
a broad variety of topics. Visit http://www.aicatchota.com for more
information or to register.
EWI’s “How to Trade in a Fast-Moving Bear Market” tutorial is
in Miami on May 1-2, San Francisco on June 5-6. Read glowing
remarks from attendees and reserve your seat now: http://www.
elliottwave.com/wave/BearMarketTutorial.
EWI’s friend and veteran trader Dick Diamond teaches his popular trading course June 7-10 in Vero Beach, FL. Dick’s March
class sold out early, and this one is already more than half full.
Learn more and sign up now: http://www.elliottwave.com/wave/
DiamondANN.
Bob Prechter’s hour-long presentation to the Canadian Society of
Technical Analysts is now available online in streaming video. Get
access now at the discounted subscribers’ price of $29 ($49 for
non-subs): http://www.elliottwave.com/wave/CSTAvideo.
WORLD STOCK MARKETS
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STOCK MARKETS
AROUND THE WORLD
A Primary-degree bear-market rally in U.S. stocks is underway
and should last months. By the time it ends, prices will not be near
new highs, but optimism may rival the readings registered near the
October 2007 peak. Though the European bear market has far more
downside potential long-term, the strength of the rally and a completed five-wave pattern argue that the March 9 bottom will stand
awhile. European markets are rallying in fourth waves, counter to
the primary trend, which remains down. Most Asian-Pacific indexes
have completed declining waves since their 2007/2008 highs. They
should now rally for at least several months, although prices may
pull back in the short-term.
Most of this Stock Market section presents the same long-term analyses that we
include and continuously update as part of our daily and intraday on-line Specialty Services. Be advised that these opinions can change intramonth, in which
case we make them instantly in Specialty Services.
Subscribers who desire constant monitoring of the outlook for stocks for all time
horizons, including daily and intraday, should visit our Specialty Services selection tool (www.elliottwave.com/wave/SS_GMP) or call customer service at
either 1-800-336-1618 (U.S.), or 770-536-0309 (international).
Stock Markets—April 3, 2009
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WORLD STOCK INDEX
The World Stock Index has a completed five-wave decline from
the 2007 top into its March low, so a significant countertrend rally
should be underway. We saw many of the usual signs that occur at
important bottoms including oversold and diverging intermediateterm indicators, extreme bearish sentiment readings plus a number
of Asian markets that did not fall to new lows in March. With the
impulsive recovery that has ensued, we can be fairly confident that
this corrective rally phase will take prices higher at least for the next
few months. We don’t have enough history on the WSI to know if
the decline of the last year+ was Primary wave A or Primary wave
1, but both counts call for a three-wave advance and then another
large wave down. Further rally toward the initial resistance zone
in the 188-203 area is a fairly conservative expectation, but odds
are that prices will eventually retrace a larger portion of the prior
decline and work closer to the 50% or 61.8% retracements at 225
and 248 later this year.
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The United States
As this long-term Dow Jones Industrial Average chart shows, stocks
are still inside the Grand Supercycle peaking process that started in
the late 1990s. One day they will leave the historic price extremes
achieved during the mania era far behind. Primary wave 2 up is
now unfolding, as the March 25 Interim Report communicated. Be
prepared: In its final weeks, the advance will re-ignite some of the
zaniness of 1999 and 2007, although the speculation may feature
some decidedly depressionistic undertones. We can envision, for
instance, public offerings comprising disabled banks’ “toxic assets.”
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By the end of wave 2, many market followers and economists will
proclaim that the bear market is dead and the boom is back. For those
who felt trapped in stocks during Primary wave 1, wave 2 will
offer a respectable place to exit. But we know from past experience
(and the chart on page 11 of the March 2008 issue) that many will
hold out for even higher prices, hoping to “break even.”
Elliott Wave Analysis
The initial leg of wave 2 is a broad-based rally with nearly all
indexes rising more or less in unison. Wave 1 lasted nearly 17
months, so wave 2 will probably last at least several months. The
extreme of the previous fourth wave surrounds the 1000 level in the
S&P and is 9000-9655 in the DJIA, two areas that should attract
prices. The final high will be determined by the wave structure and
attendant technical measures.
Near term, the (2)-(4) line, the upper line of the previous parallel
channel, crosses 700-757 in the S&P through April (chart next
page). Prices may test this line again, but as long as there is not a
significant drop back into the channel, our near-term forecast will
remain intact.
The chart showing the long-term channel formed by the Dow Jones
Industrial Average from its 1932 low is similar to Figure 5 from
the March issue of The Elliott Wave Theorist, which discusses how
prices behave as stocks move through well-defined Elliott Wave
channels. We did not draw this channel: the Dow did, and its recent
behavior suggests that it remains relevant. After the throw-over
(see text, p.73) that led to the Supercycle wave (V) peak in January
2000, Cycle wave a bottomed slightly below the upper channel line
at both the October 2002 and March 2003 lows. The rally from the
tests of the top line was Cycle wave b. Once wave c broke beneath
the upper channel in October of last year, prices crashed, finding
a temporary low at the midline of the channel, which we label as
Primary 1 of Cycle wave c. When the midline is meaningfully
breached, prices will probably be crashing again, this time in wave
3. The decline should draw the Dow beneath the lower line, which
crosses the 3800-4000 area this year.
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Momentum
An inter-market divergence sometimes occurs at significant market
turns whereby one or more indexes make a new extreme while
others do not. The wave 1 decline to the March low was led by
the DJIA, which was the weakest of the indexes shown on the
next chart. The broader S&P 500 was slightly stronger, bouncing
off its midline, while the higher-beta NASDAQ 100 and the EWI
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Hedge Fund Enablers Index, which includes five banks with the
greatest exposure to hedge funds (see page 10 of October 15, 2008
Special Report), both failed to confirm the March low in the blue
chips by remaining above their respective November lows. This
bullish portent was confirmed when all three major stock indexes
exceeded their respective two-four trendlines. In addition, March
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saw the S&P 500 make a new monthly low and then close above
February’s monthly close, creating a bullish reversal month. It was
the first bullish monthly reversal since the start of Cycle c. This
chart pattern often occurs at significant market lows.
Investor Psychology
As stocks bottomed in March, the Daily Sentiment Index (tradefutures.com) hit a record low of 2% S&P bulls (bottom line of
the chart on page 16). The percentage of bears registered in the
American Association of Individual Investors’ survey hit 70.27%,
also a record. Both polls have been around since 1987. The Investors
Intelligence survey of investment advisors (InvestorsIntelligence.
com) failed to approach its most negative weekly extremes, but
the recent readings are appropriate for the end of wave 1. Look
for across-the-board bearish records during the upcoming Primary
wave 3.
Here’s a March 30 Bloomberg headline about the stance of a major
Wall Street broker that captures the current sentiment nicely:
Sell Best S&P 500 Rally Since ‘38
On a short-term basis, this brokerage firm skepticism confirms that
the rally has greater upside potential. But the brokerage sentiment
also betrays a longer-term shift in psychology, one that will play a
prominent role as the bear market eventually re-appears and drags
on. Suddenly, Wall Street is using the “s-word.” This illustrates a big
shift from the buy-and-hold mentality that was so firmly entrenched
at the peak and all the way down until February 2009. In the wake
of wave 1, the word “sell” is also entering academic vocabularies,
which reflects the high degree of the turn. Here’s a New York Times
headline that heralds a new assault on buy and hold:
Now The Long Run Looks Riskier, Too
According to professors Lubos Pastor, at the University of Chicago, and Robert F. Stambaugh, at the University of Pennsylvania,
stocks may not be the preferred asset class for the long run after
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all. Stambaugh is from Wharton, the business school behind the
author of Stocks for the Long Run, the bull market best seller that
concluded, “when long-term purchasing power is considered,
stocks are actually safer than bank deposits!” The message of the
latest study is that stocks are not as reliably positive as previously
believed. Considering the thumping that stocks have taken over the
last 18 months, we should not be surprised. “Other things being
equal, Professor Stambaugh says, you would probably lower your
portfolio allocation to stocks.” Socionomically, this translates to: it’s
a bear market, so the investment manifesto must change to reflect
the pessimism that is taking hold.
A Bloody Fine Signal
Back in August 2007, when stocks were still rising and only a few
bankers sensed the abyss that the economy was heading for, GMP
issued the following forecast:
Where the rising mood conceals darker emotions, the decline
draws them out. As anger grows, they become a common
preoccupation. Thus occurs the epic “fall from grace” for
many high flyers.
Since last June when “buying and selling things strictly for profit”
suddenly become an “evil act,” (see “The Devil Wears Pinstripes,”
on page 19 of June 2008), GMP has documented a swelling ire
against the financial world. In August 2008, The Elliott Wave
Theorist added:
Somewhere between six and eight years from now, we should
be at the bottom of the bear market. By that time, you are going to see a lot of anger expressed in different ways in society
when we get to that unbelievable low.
This is not that low, but it appears to be a low of some importance,
as a burst of outrage and negative attacks around the world coincided perfectly with the March bottom and thereby confirmed that
this low should hold for more than just a few weeks. The bracketed
items on the chart show some of the events, as anger finally boiled
over in various ways.
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17
One outlet that we mentioned here last month was the call for a
second Boston Tea Party. The prediction was for one to happen by
the summer. Instead, early March brought a “tea party movement” to
scores of U.S. cities. A tumultuous month of civil unrest in London
actually started on March 6, the day wave 1 ended, when Lord
Peter Mandelson, Britain’s Secretary of State for Business, took
a custard pie in the face. Note that as the public outrage began, it
carried a comedic edge. The humorous approach was on display a
day later when Saturday Night Live opened with a parody of U.S.
Treasury Secretary Timothy Geithner offering $420 million to the
“individual who comes up with a workable plan to solve the banking crisis.”
On March 12, Comedy Central’s Jon Stewart joked and grinned as
he interviewed media maven Jim Cramer, but anger clearly fueled
The Daily Show’s agenda. “Jon Stewart eviscerated Jim Cramer
for not doing a better job of warning Americans about the looming
financial crisis,” said one analysis. “Assuming the role of stern and
angry prosecutor,” Stewart went on to attack CNBC “for all the bad
advice and unreliable information the cable channel had given viewers since the economy went into meltdown in September.” Here’s
the March 14 headline from the Washington Post:
Stewart’s Time to Channel Our Anger
Satirist Accuses CNBC of Failing Its Audience
The interview clearly touched a nerve, as it went viral over the
Internet and quickly became one of the most viewed clips in the
history of Comedy Central. The satirical quality of Stewart’s manbehind-the-curtain moment is probably a subtle signal that the
March lows by no means mark an end for the bear market. GMP
has demonstrated that satire is a common post-bubble trait. By the
end of the bear market, the storm of anger will be too gruesome for
comedy TV. In the early going, society seems to broach the harsh
reality of the decline by laughing it off as best it can. One reviewer
said that CNBC deserved the pasting, as it had “totally abrogated its
journalistic responsibility in favor of entertainment and pattycake
interviews.” Maybe so, but the channel actually offers more of a
balance between buying and selling than it did at the high in 2007
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and far more than it did in 2000, when it was monolithically bullish.
Of course nobody complained then; social mood was ascending.
In November 1999, when the Dow was just two months from one
of the greatest selling opportunities in decades, GMP observed
that being bearish was a form of professional suicide (and we can
certainly attest to being emotionally drained by it).
The decline may have temporarily ended March 6, but the economic
and social consequences of a 50+% stock market selloff will not
stop with the upward reversal of the bear market rally. In fact, the
fundamental and cultural repercussion of a major decline can roll
on for weeks, despite a rising market. This is clearly happening,
as the snowballing backlash of the bear grew serious the week of
March 15-22. Revelations of a $165 million bonus to AIG executives set off a “steaming, off-with-their-heads fury. ” Here’s how
the Washington Post put it:
History will record the third week of March 2009 as Outrage
Week in Washington. Like a spring fever, outrage spread across
party lines and 86 House Republicans joined the Democratic
majority in passing a punitive 90% tax on bonuses. At the core
of all this populist outrage is a mystery: Why now, exactly?
This is a great question. The answer is that society is at a Primarydegree negative extreme in mood. In January, Merrill Lynch executives were granted bonuses of $3.6 billion, more than 20 times the
size of those at AIG, and the outrage was modest by comparison.
But now the man on the street is livid and the president says he
has a right to his anger. In fact, he wants to “channel” it. Even the
ever unflappable Federal Reserve Board chairman said that the
payment of bonuses to AIG executives is the one thing over the
last 18 months “that makes me the angriest, that gives me the most
angst,” before adding, “It makes me angry” and “I understand why
the American people are angry.”
In late March, the homes of AIG executives were picketed and a
Senator urged them to “resign or go commit suicide.” In London,
financial types now dress casually as a matter of safety; vandals
smashed up the home of a well known financier. The new thing
in France is “bossnapping.” So far, four company managers have
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been taken hostage by workers. A capitulation to violent
emotions is clearly in place;
Newsweek tacitly endorsed
the anger on its March 30
cover, “The Thinking Person’s
Guide to Populist Rage.” On
April 1, blood flowed for the
first time as a “Financial Fools
Day” rally converged on the
Bank of England. (The Cultural
Trends section explains that
protests and demonstrations are
a common bear market result).
Seven people were injured, one
died and pictures of angry riot
squads and bloodied protestor
streamed out over the Internet. The violence is still mild compared
to what is likely later in the bear market. But it is clearly the kind
of societal release Baron von Rothschild was referring to with his
famous entreaty: “Buy when blood is running in the streets.” Here’s
the socionomic interpretation offered in The Wave Principle of Human Social Behavior: “In other words, when things look darkest, it
must be a low in mood and therefore a low in stock prices.”
GMP has noted that in bear markets, negative feelings tend to attach themselves to former bull market heroes. This tendency was
demonstrated by Stewart’s focus on Cramer: even as he berated
Cramer’s forecasting record, Stewart noted several times that the
it was “not about” him, but his network, CNBC. Bull markets need
human faces to reflect the bullish aura of the public and to receive
its contempt as the transformation to a negative mood grabs hold.
The capitulation to bearish emotions is also visible in the image of
Warren Buffett. For the duration of wave 1, the granddaddy of all
the financial heroes seemed to float above the fray. The harder that
stocks fell, the more earnestly the media touted Buffett’s bullish
calls and actions. Through the last six months, Elliott Wave International repeatedly warned of a “Buffett retrenchment.” The first
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attacks hit right after stocks bottomed. On March 12, Fitch lowered
Berkshire Hathaway’s “pristine” AAA rating. “Enough of Buffett,”
says the headline over a USA Today letter to the editor. “I have
had enough of Warren Buffett commenting on the economy and
making predictions. This is not because he has been wrong just like
everyone else. He is a market manipulator. His opinions should be
viewed as disingenuous and potentially corrupt.” “Warren Buffett
suddenly seems a lot less godlike,” says Newsweek.
The Newsweek mention is actually just an aside in a broadside
against another group of bull market wonders—economists. “The
current meltdown is the demise of the economic expert, if experts they truly ever were.” Newsweek adds that most economic
practitioners were “asleep at the wheel.” It goes on to list various
perpetrators by name, including Lawrence Summers, now the
president’s chief economic advisor. This is probably just the start
of what promises to be a tumultuous period for the profession. But
it may not be all bad. A few economists may actually search out
tools that actually help forecast. Who knows, some may even be
open to socionomic subtleties, such as the way in which a sudden
attack against economic thinkers and their methods can signal a
rally in stock prices.
Within the last few days, there’s been another critical development
that fits right in with our forecast: The fury is breaking out beyond
Wall Street. Last month GMP noted that the attack on “financial
types” was just the “front edge of the hero bashing:” “As the bear
market path of destruction broadens, the backlash will spread out.”
Here’s a headline from Tuesday that shows the blame game moving
on to the manufacturing realm.
TODAY’S TARGET: DETROIT
March 30, 2009—The White House is playing serious hardball for the first time with its recovery cash.
The Obama administration auto task force today
rejected the turnaround plans of General Motors
and Chrysler and warned both could be put through
bankruptcy to slash debts.
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Obama Fires GM Boss
The announcement marked a stunning reversal for
management at both automakers and for GM investors and creditors who had bet on a softer line. GM
CEO Rick Waggoner was forced out yesterday.
More heads will roll outside the financial sector now. The stunning capitulation to the idea of a U.S. Big Three auto bankruptcy,
originally forecast in the May 2005 GMP, is another sign that the
stock market advance has some upside potential. Over the next
few weeks, a continued stock push will probably lead people to
believe that entrenched bear market forces have been beaten back or
contained. But the spread into the heart of the U.S. manufacturing
sector illustrates that this is definitely not the case. The financial
carnage is still just a window into what will be going on society
wide in the months and years ahead.
If you would like thrice-weekly coverage of U.S. stock indexes, U.S. bonds, the
U.S. Dollar Index, gold, silver and strong, low-risk opportunities in individual
stocks and indexes, we recommend you add the Financial Forecast Short-Term
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evening via fax and the Internet. You can add the Update to your GMP subscription
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or 770-536-0309 to subscribe.
22
Europe
Special Section
A REARVIEW MIRROR OR A WINDSHIELD?
Unlike many mainstream forecasters, Elliott Wave International
remained staunchly skeptical of the grand experiments that were
hatched near the top of the Grand Supercycle-degree bull market.
Chief on that list was the culmination of a political and monetary
union among countries that, just a short time before, were openly
warring with each other. The many milestones along the European
Union’s path not only helped us to substantiate the colossal magnitude of the bull market – and forecast its requisite bust – but also
helped us to pinpoint many turning points in the market’s wave
structure along the way. This chart, updated from a version we
published in December 2006, tracks some of the landmarks along
with the Dow Jones Euro Stoxx 50 index.
Here’s a sampling of EWI’s forecasts over the years regarding the
EU’s likely fate during a large-degree bear market:
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•
“[The] European union was consummated following 1,500
years of repeated conflict in the region....This multi-year pageant of apology, concession and agreement and the concurrent
wonderful atmosphere of international peace and cooperation
are consistent with my Elliott wave case that an uptrend of
Grand Supercycle degree is ending.” (emphasis added)
—The Wave Principle of Human Social Behavior, 1999,
by Robert Prechter
•
“The euro is a currency managed by a group of trading partners
who have been historically distinct if not involved in warring
with each other.”
—Global Market Perspective, May 2005,
commenting on why the Euro was not included
in EWI’s Stable Currency Benchmark
•
“During the bear market, the independent nations of Europe
will rediscover their borders and rekindle the animosities that
kept them apart for centuries.”
—GMP, May 2005
•
“Germany and Russia in the 1930s and early 1940s are examples of the extreme forms these impulses [to shut others
out] can ultimately take in extended bear market periods. The
EU expresses the opposite, inclusionary force, one that has
apparently run its course.” (emphasis added)
—SocioTimes blog by Pete Kendall, October 2007,
one week from the wave b top in the FTSE 100
But perhaps our most poignant call came in December 2006 as
Romania and Bulgaria entered the EU. Under the title, “New EU
Entrants: The Straw That Breaks Its Back,” GMP editor Pete Kendall flatly stated:
“...much of what’s come together
in Europe will come apart in coming years.”
—SocioTimes, December 2006
24
Well, the “coming years” are here, and the “coming apart” is on cue.
Details of a complete crackup will have to wait for a future issue
of Global Market Perspective, but the 60% nosedive in European
equities has clearly betrayed the early rifts in Euro-union fellowship.
What French finance minister Christine Lagarde lauded as a “zone
of security and stability” as recently as last December is now “about
to fall apart,” according to more sources than we can cite.
The reversal of Europe’s fortune
is so stark that even economists
see it. In The Economist cover
shown here, a butler unveils a
full-length menu of the EU’s
pressing problem areas to caricatures of western European
leaders. Among the delicacies:
Hungarian Ghoulash, Bulgaria
Pickled, and Baltic Bomb Surprise.
That these problems are just
now coming into focus highlights the disparity between
the forward-looking science of
socionomics and the backward-facing ‘dismal science’ of economics. Socionomics postulates that, in any society, trends in the stock
market, economy and culture change due to fluctuations in the mass
(or social) mood of the citizens. Positive social trends – such as
unity, peace, and tolerance – are prevalent in bull markets, while
negative social expressions, like xenophobia, anger and divisiveness, dominate in bear markets. The stock market, says socionomics, is the leading indicator of social change and is governed by the
Wave Principle. In other words, economics is a rearview mirror;
socionomics is a windshield.
Socionomics shows that bull markets lean toward inclusive behavior, while bear markets lean toward division. That explains
the thirst to expand EU membership during the run-up in the bull
25
market, despite concerns about the financial stability of prospective
entrants. In May 2004, as the wave b rally in Euro Stoxx became
fully established, no fewer than 10 countries joined the union. A
full seven were former eastern-bloc nations. While this constituted
the “single largest enlargement of the EU in terms of people and
landmass,” according to the Institute of Cultural Diplomacy, it was
the “smallest in terms of GDP” (wealth). Now, these new members
are labeled “Europe’s subprime.” Their fiscal problems were well
known at the time, but those who questioned their financial health
were ignored. The bull market’s appetite for togetherness, and the
debt bubble’s escalating need for new borrowers, guaranteed their
entry.
26
With the final additions of Romania and Bulgaria in January 2007,
the near total disregard for risk enabled EWI to forecast the zenith
of wave b optimism. As optimism faded, the market immediately
registered the decline. Stocks plunged. And along with market
value went the once-welcoming attitude toward the eastern-bloc.
The contrast is shown here on a chart of Romania’s BET and Bulgaria’s SOFFIX index.
With all due respect to both countries, contending that either was
welcomed to “pursue the reunification of our European family,”
as European Commission president, Jose Barroso, claimed at the
time, is akin to U.S. mortgage lender Fannie Mae alleging that
its loan programs helped “families reach the American dream of
homeownership.” Both declarations are political rhetoric worthy
of only the most optimistic Pollyanna. Here’s the more compelling
reason: there was profit in it. Surprisingly, Mr. Barroso admitted
as much. His quote at the top of the chart, “The European Union
enlargement process … enriched both Romania and the EU itself,”
was made during a speech before the Romanian parliament in
September 2007. The statement is largely accurate but omits one
crucially important fact: the “enrichment” he speaks of was just an
illusion fostered by debt.
Now, with optimism gone, markets down and profits from the eastern bloc nowhere to be found, attitudes have changed. We’re All
One is replaced with You’re On Your Own. At a speech in London,
former Bundesbank President Karl Otto Pohl warned that a “bailout
of a debtor country from a surplus country like Germany would be
like opening the box of Pandora.” Chancellor Merkel echoed Pohl’s
sentiment at an early March summit when Hungarian Prime Minister Ferenc Gyurcsany (since ousted by parliamentary vote) pled
for $225 billion in loans. “A resounding ‘nein,’” was her response,
reported Bloomberg figuratively. And almost every paper we read
picked up on Gyurcsany’s use of the term “New Iron Curtain,” to
describe western Europe’s abandonment of eastern Europe.
Of course, the story is clear as day—after the fact. To return to our
analogy, a rearview mirror makes an oracle out of everyone; it’s the
27
windshield that separates forecasters from historians. Up ahead in
the high beams, we can see the EU’s car wreck getting even worse.
The rally in stocks (social mood) might lessen tensions a bit, but,
by our count, the strongest part of the decline remains ahead. When
it arrives, expect the bear market to make today’s multi-car pileup
look like a mere fender-bender.
You Are Here
Perspective matters. The FTSE All-Share Index traced five waves
up from its 1974 low and culminated in the speculative mania
that surrounded the 2000 top. This entire decade since is unfolding as an a-b-c correction of the wave (III) advance. The cavalier
credit-induced speculation in 2007 perfectly fit the Elliott Wave
Principle’s b wave description of “orgies of odd-lotter mentality...”
28
as the market peaked. Presently, stocks are finishing Primary wave
1 of Cycle wave c down, which itself should display a five-wave
structure. To the right of the “You Are Here” marker is a sketch
of the Elliott wave pattern that we expect to see. This speaks to
the form that the indexes should follow as they move lower. Once
wave 1 down is complete, wave 2 will retrace a good portion of
the decline, and waves 3 through 5 will carry the index lower in
what should be the strongest part of the bear market.
Each of the primary markets we cover are at similar points in this
structure. The important point is that the bear market is just beginning. If the current rally turns into a multi-month affair, many
pundits will argue that stocks are safe again. Don’t believe them;
the market’s wave pattern says otherwise.
The DAX: A Quick Lesson For Wave Students:
For anyone who uses Elliott wave analysis, the DAX has been
near textbook-perfect since the 2007 peak. The violent descent
into October 2008 (4014 intraday) marked a fitting end to wave
8, and the index has since traced out a near-perfect contracting
triangle to complete wave 9. Last month, we identified a break of
that triangle’s lower support line and forecast the wave 0 drop that
ended on March 9 at 3588 intraday. Wave 4 is in progress.
Although the record-breaking collapse during October 2008 clearly
indicated third waves in some of the other European indexes, the
back-and-forth action from October through February hasn’t been
ideal Elliott. For students of the Wave Principle, however, the deviating action offers a great teachable moment. Bob Prechter wrote
this in July 2005:
From a theoretical standpoint, we must be careful not to
confuse Elliott waves with their measures, which are as a
thermometer is to heat. A thermometer is not designed to
gauge rapid short-term fluctuations in air temperature and
neither is an index of 30 stocks constructed so as to be able
to record every short-term fluctuation in social mood. While
we fully believe that the listed rules govern Elliott waves as a
29
collective mental phenomenon, recordings of actions that Elliott waves induce — such as buying and selling certain lists
of stocks — may not perfectly reflect those waves. Therefore
recordings of such actions could deviate from a perfect expression of the rules simply because of the imperfection of
the chosen gauge.
That is precisely the case in the Euro Stoxx 50 and the FTSE 100,
both of which have slight imperfections in their fourth-wave triangles. Taking everything into consideration, though, we are comfortable that the labels shown are the best fit for the data at hand.
30
Elliott Wave Analysis
Euro Stoxx 50
The Euro Stoxx 50 fell hard in early March as anticipated. Intermediate wave (3) has likely bottomed with wave (4) now in
progress. The parallel channel shown in the chart is built from the
lows reached during waves (1) and (3). This construction provides
an estimated upside target near 2500. A 0.382 retracement of the
five waves down would allow the index to advance above 2750. For
now, we’ll let the index get closer to these targets before assessing
the structure and deciding on a likely top.
31
FTSE 100 and CAC 40
The patterns in the FTSE 100 and CAC 40 are nearly identical to the
Euro Stoxx 50. Both are rallying in a fourth wave of Intermediate
degree. Minimum upside targets are 4400 and 3100, respectively.
32
Market Psychology
G20 Anger and the Market’s Bottom
An important question to answer is just what was the magnitude of
the market low on March 9? In the U.S., both the structure of the
decline and the market’s psychology indicate that it was a Primary
degree bottom. In Europe, only one of those pieces fit: Psychology
is gloomy enough to support an important bottom. However, the
wave structure says that more downside is needed to mark it.
To be sure, we always defer to the wave structure. And though
sentiment is dismal, it could certainly get worse. Remember, it
was the intense fear surrounding the run-up to the Iraq war that
marked the end of Cycle wave a lower. But, the angry scene at the
G20 summit in London as we go to press would also place a nice
33
exclamation point on the market’s decline thus far. So, it’s possible
that the March 9 low may be even more significant to European
markets than we currently give it credit. As we approach our upside
targets, the structure of the advance and attending psychology will
tell us if the markets can go higher.
34
As to the G20, these pictures describe the scene better than any
narrative could. The primary thing to note is where the anger is
directed – at the very bankers, both public and private, upon whom
the bull market bestowed iconic status during its heyday. Elliott
Wave International has long argued that bear markets return bullmarket heroes to zeroes. If a longer-lasting bottom was indeed
made last month, the targeted anger we’re seeing at the G20 would
fit the pattern well.
To complement your monthly coverage of the European markets, we recommend
you add three-times-weekly analysis with The European Short Term Update. It publishes every Monday, Wednesday and Friday evening via fax and the Internet. You
can add ESTU to your GMP subscription for just $30/month. Call 800.336.1618
or 770.536.0309 to subscribe risk-free.
35
Asian-Pacific OVERVIEW
Here are some of the reasons why we believe that Asian markets
have formed an important low:
•
Last month, we showed how pattern, price, time and sentiment considerations were pointing to the end of multi-month,
five-wave declines in most major Asian-Pacific indexes by late
March. The March 23 Interim Report reported that those lows
have likely been achieved.
•
The daily bar chart of a regional index, the MSCI AC AsiaPacific Index, shows how a five-wave decline ended at the point
where wave (5) would equal wave (1) on a percentage basis (log
scale), which is a common relationship.
•
Momentum in wave (5) slowed compared with that in wave
(3), which fulfills a guideline of wave personality described in
Elliott Wave Principle: “Fifth waves...usually display a slower
maximum speed of price change” (see p. 80).
•
The MSCI AC Asia-Pacific Index bottomed on March 10, just
eight trading days ahead of the March equinox, our time target
for a possible end to the correction.
36
•
On that day, the 21-day moving average of our regional sentiment measure, the Nikkei 225 Daily Sentiment Index, also
reached 7.62% bulls, by far an all-time low.
In short, all the pieces are in place to support a multi-month rally.
The rally in the MSCI Asia Index has since broken above the upper
line of the trend channel that contained the decline of the past year.
Such a breakout helped to identify the start of a bull market in China
back in December (see Shanghai Composite chart on p. 6). Prices
in the rest of the region should now advance in a similar fashion,
with wave 1 of the advance ending soon, if it has not already. In
some cases, prices may then pull back to the upper channel line in
a second wave retracement, as happened in China in November.
From a pattern perspective, the minimum likely target is the end
of the previous fourth wave of one degree smaller (i.e., the January wave (4) high). From a Fibonacci price perspective, the likely
minimum is the 38.2% retracement of the entire decline, which
lays several percent above the end of wave (4), near 100 in the
MSCI AC Asia-Pacific Index. [Due to the size of the bear market
decline, we have calculated the minimum 38.2% retracement target on a percentage basis (log scale).] Above that, other possible
targets are 50% and 62.8% retracements near 110 and 122.
Momentum, viewed as RSI, reached the high end of its recent range
but that is not as much of a concern as it was near the 2007 high
and the ends of waves (2) and (4) of the decline. Here’s why, as
explained on Disc 5 of the Elliott Wave Educational Series:
Sometimes wave one [of a nascent rally] will show you the
best overbought condition that you’ve seen in quite some time
relative to the previous correction.
For example, following the 2003 low in the MSCI Asia-Pacific
Index, the RSI breached the 75 level after only seven trading
days, and prices continued to advance for almost a year before an
Intermediate-degree correction. But since the rally in the MSCI
Index is countertrend, we do not expect prices to repeat that performance this time. (For more information about the 10-disc Elliott
37
Wave Educational Series, see http://www.elliottwave.com/wave/
EWEduSeries.)
Separating the Bulls From the Bears
Now that Asian-Pacific markets have hit important lows, we believe
that a few markets are candidates for long-term investment opportunities. In this issue we identify four of them. Current subscribers already know about our bullish long-term forecast for India’s
SENSEX from reading last week’s Interim Report. Longer-term
readers may already know a few of the others.
A few trading days after the end of the 2008 crash, we wrote:
October’s selloff divided Asian-Pacific stock markets into two
clear groups: those now clearly in long-term bear markets and
those that investors should consider for long-term investment.
The bears are Japan, Singapore, Hong Kong, China, and Australia. The potential baby bulls are India, Taiwan, New Zealand
and, possibly, Korea.
Conservatively, in recent months we assumed that all markets would
complete five-waves down. New Zealand fell below its 2001 low,
thereby joining the long-term bear camp, but our original assessment
of the other eight indexes has so far been correct: The “bears” have
now all completed five waves down since their 2007 highs, while
the “potential baby bulls” completed only three waves down from
their respective highs, which makes them strong candidates to rally
back to at least near their all-time highs—if not beyond.
Let’s now outline the case for new bull markets in India, Taiwan,
Korea—and a fourth special situation: Small Cap Japan.
38
INDIA
The SENSEX declined in three waves to the October low, where it
retraced approximately 50% of its 2003-2008 rally on a percentage
basis (log scale). The index has also just broken out of its downward
trend channel on arithmetic scale. Those pattern and price relationships, in combination with the fractal analogy to the 2003-2004
period that we reviewed in March’s Interim Report, are the best
argument for a resumption of the bull market in Indian stocks.
In addition, the wave counts for markets surrounding India also support the bullish case. The weekly chart shows how three other Asian
markets connected to the Indian Ocean—which together with India
represent almost one-quarter of the world’s population—show the
same short-term and long-term relative strength as India’s market.
In contrast to most global markets, all four have so far declined in
only three waves from their all-time highs. All four also trade well
39
above their highs of the 1990s or early 2000s. The long bear market
that they experienced until the early 2000s—10 years in Pakistan
(1991-2001), 11 years in India (1992-2003), 9 years in Sri Lanka
(1992-2001), and 12 years in Indonesia (1990-2002)—may also
argue for a bull market lasting longer than the run to their most
recent all-time highs. The bull markets of the 1980s and 1990s in
the United States and many European countries may have lasted as
long as they did precisely because they endured long bear markets
during the 1960s and 1970s.
40
We are bullish not only on India, but also on this Indian Ocean
regional group. Even if the declines from their all-time highs later
turn out to be only the first legs of a larger correction, the threewave corrections at present—should they hold—imply significant
rallies in the intermediate term. We should then be able to reassess
the long-term wave count from higher levels.
TAIWAN
Taiwan’s Cycle Wave V has begun. The monthly chart shows how
the 1989-2008 correction is a textbook fourth wave, as it mirrors
the idealized contracting triangle form shown in Figure 1-42 of
Frost & Prechter’s 1979 Elliott Wave Principle (another example
of which unfolded during 1973-1977 in an Intermediate wave (4)
correction).
The daily chart shows how volume has increased in wave 3 compared to that in wave 1. China’s Shanghai Composite recently
demonstrated how such an increase is typical of third waves (see
41
page 46). As happened recently in China, we’ll look for a pullback
in a fourth wave and then a fifth wave advance on lower volume
sometime in April or May.
42
KOREA
The KOSPI declined in three waves to its October low, where prices
retraced almost 61.8% of the 2003-2008 advance. In December,
we observed how the inverted Korean won-U.S. dollar cross rate
failed to confirm new lows in the KOSPI at three major lows in the
past. At the March low, the won and the KOPSI again diverged, but
this time the KRW/USD made new lows while the KOSPI did not.
That pattern characterized the April 2001 low in the KOSPI, which
turned out to be only an intermediate-term low. So that makes us
bullish Korea, but cautiously bullish. It could be that five waves
down from the 2007 high are just taking a longer time to unfold
than in the rest of the region.
43
SMALL CAP JAPAN
While the large-cap Nikkei 225 and broad-market TOPIX indexes have recently been plumbing multi-decade lows, Japan’s
small capitalization indexes are still well above their 1998 lows.
That relative strength may put them in position to outperform the
large-cap indexes. For instance, the Nikkei JASDAQ index made
its lows in 1998, after which it rocketed up during the tech boom
of late 1999 and 2000. Since then, it has corrected in three waves.
Because the index began only in 1983, we can only speculate about
its wave count above Primary degree. But given the impulsive look
of the 1998-2000 advance, it is possible that the small cap indexes
are now beginning a third-wave advance that will take them to new
all-time highs.
44
Global Market PersPective—April 3, 2009
THERE’s ALWAYs A PHOEniX sOMEWHERE
Several subscribers have inquired as
to how the SENSEX (or any other
Asian market) could begin a bull
market while the U.S. markets are
still in a long-term bear market. This
table and monthly chart should answer that question. During the U.S.
bear market from January 1966 to
July 1982, the Dow Jones Industrial
Average suffered several major declines and ultimately lost 14%. Over
the same period, Japan’s Nikkei 225
gained 389% and India’s stock market gained 233%. Smaller markets
such as Hong Kong and Singapore
achieved even bigger gains. The following table summarizes
the performance of several Asian-Pacific markets during the
U.S. bear market from 1966 to 1982.
The only factors you need to consider when forecasting the
direction of an index are its own long-term and short-term
wave patterns. Ralph Nelson Elliott came to that conclusion
after observing the divergent behavior of several different
sectors and asset classes within the United States during the
1920s and 1930s. Consider, for example, how stock markets
in Taiwan and Japan stayed mired in bear markets for almost
20 years from 1989 (see charts on pp. 41 and 43) while that
of the United States—their main export market—boomed. Or
how Australia’s stock market recovered to new all-time highs
in 1934, just five years after the 1929 top. Or even how the
SENSEX now trades 68% above its year 2000 high while the
S&P 500 trades 45% below its own.
Individual indexes follow their own wave paths because each
society generates its own mood internally. Or, as Bob Prechter
puts it in the Socionomics Institute’s new DVD:
45
[The major world indexes] tend to ebb and ﬂow together,
but that doesn’t mean that their structures are exactly the
same. One structure may be beginning, say, a Degree One
[for example, Supercycle Degree] bear market period
and another is going to have a Degree Three [Primary
Degree] pullback and then go up during the rallies in the
bear-market period.
Although spoken in 2004, those words aptly describe the present relationship of Asian-Pacific markets compared with those
in other parts of the world, including the United States. (For
more information, see Toward a New Science of Social Prediction: Robert Prechter at the London School of Economics at
http://www.socionomics.net/films/london/moreinfo.aspx).
46
Now that we have discussed the prospects for the baby bulls in the
Asia-Pacific region, let’s turn to the long-term bears: China, Hong
Kong, Singapore, Japan, and Australia.
CHINA
Last month we said that the explosive volume during China’s advance in February indicated a third wave. Volume can again help
us to confirm the wave count. Volume during the March and April
advance has so far been less than February’s advance. Elliott Wave
Principle observes that “in a normal fifth wave below Primary
degree, volume tends to be less than in the third wave” (see p. 76).
The 2005-2007 rally in the Shanghai Composite displays at least
a few examples of this phenomenon. Notice how volume trailed
off at the end of wave (1), wave 1 of (3), and at the end of wave 5
itself. Since that pattern is occurring again, the impulse up from the
November lows in China is likely to be in its terminal stage. New
volume highs in the rally would suggest that wave 5 is extending, as
p.76 of Elliott Wave Principle also states, “If volume in an advancing fifth wave of less than Primary degree is equal to or greater than
that in the third wave, an extension of the fifth is in force.”
47
Another indication that China’s mood may be nearing a point
of temporary excess was the news on March 6 that the nation’s
stock market regulators “may soon end a moratorium on initial
public offerings after the Shanghai Composite Index rallied 20
percent this year to become the world’s best-performing stock
benchmark.” The authorities had imposed the ban in September
after the index had fallen more than 60% to become the world’s
then worst-performing stock benchmark. Elliott Wave International has long demonstrated how government is “the ultimate
trend-follower,” because it reacts to trends only after they are
mostly over. If the regulators give their signal soon, it could be
a short-term sell for Chinese stocks.
In labeling the advance an impulse, we ignore the slight intraday
overlaps of the bottom of wave 4 with the top of wave 1 in the
Shanghai Composite. We feel comfortable doing that because many
other Chinese general indexes, including the CSI 300, the Shenzhen
Composite, and the Shenzhen Small & Medium Enterprise (SME)
Index, all show no overlap and have advanced in clearly impulsive
patterns. Wave 5 may hit our long-standing minimum target at 2700,
near the top of the trend channel. If it doesn’t do so now, it should
do so later in wave B. The SME Index’s advance may end near
the 61.8% retracement of the 2007-2008 decline.
The small-cap growth index’s rapid rebound is encouraging for
the long-term in China. Following the 1973-1974 bear market, the
Nasdaq Index may have foretold the next growth cycle by recovering to new all-time highs in 1979, three years before the Dow Jones
Industrial Average. For the long-term, economic health of the region,
it is encouraging that small company growth indexes in the region’s
two largest economies (Japan and China) are outperforming their
large-cap peers.
48
SINGAPORE & HONG KONG
The daily chart of Singapore’s Straits Times Index shows the
breakout from the declining trend channel that is typical of many
indexes in the region. The Hang Seng Index failed to fall to new
bear market lows in March. But most other Hong Kong indexes
did, such as the Hang Seng Hong Kong Composite, Large Cap,
Mid Cap, and the MSCI Hong Kong indexes. So, although it’s not
a perfect fit, we are going to consider the decline to the March low
in the Hang Seng Index to be a truncated fifth wave. On log scale,
the minimum target for the rally is the 38.2% retracement of wave
A near 16,900.
Hong Kong’s First Criminal Trial for Insider Trading
The daily chart shows another indication of the severe sentiment
surrounding the end of wave A down. On March 12, two days after
the low in the Hang Seng, Hong Kong convicted a former BNP
Paribas Peregrine Capital Ltd. banker in the territory’s first criminal trial for insider trading. The banker’s transgression occurred
in 2006, during the bull market. This development fits nicely with
49
how Charles Kindleberger described swindling in his 1978 book,
Manias, Panics and Crashes:
In a boom, fortunes are made, individuals wax greedy and
swindlers come forward to exploit that greed.... Swindling
grows with prosperity.
The break of the scandal during the bear market also fits with the
socionomic hypothesis that changes in behavior follow changes
in mood: Only after the stock market started falling did a whistleblower dare to expose the crime. The eagerness of the Hong Kong
authorities to penalize rule-breakers heavily at this time is also
likely related to the decline in the stock market. Interestingly, it
was following the 2003 low in the Hang Seng that Hong Kong
upgraded insider trading to a criminal offense. As The Elliott Wave
Theorist observed of financial scandals during the bear market of
1998, “these stories can ‘now be told’ because people are disposed
to listen to them.”
50
JAPAN
Japan’s Nikkei 225 has broken above its declining arithmetic trend
channel before, only to roll over soon thereafter. So perhaps the
current breakout means nothing. But we will give the rally view
the benefit of the doubt now, considering our bullish outlook for
the region.
Yet Another Scandal Revealed By a Bear Market
Japan’s ruling Liberal Democratic Party has taken a mauling during
the bear market, having turned over the prime ministership twice
in a little more than 18 months. But on March 3, just days from
the low, the opposition Democratic Party of Japan proved that the
stock market axiom that “there is nowhere to hide in a bear market”
also applies to politics, as an aide to party chief Ichiro Ozawa was
arrested on suspicion of taking illegal political donations from a
construction company.
51
AUSTRALIA
The final subdivisions of wave (5) down in Australia’s ASX All
Ordinaries were imperfect, but we are going to overlook those
imperfections in deference to the larger regional trend, which is
up. The index has just broken out of its trend channel on arithmetic
scale. The 38.2% retracement of wave A on log scale is 4166.
(Be sure to read our commentary about the Reserve Bank of Australia in the Interest Rate section on page 55.)
GLOBAL INTEREST RATES
54
INTEREST RATES
AROUND THE WORLD
As stocks were declining into their March low, credit spreads failed
to confirm the market decline, remaining narrower than their previous December extreme. This non-confirmation along with March’s
bullish reversal, strongly supports the ongoing bear-market rally
view. The United States is now committed to the policy of printing
money in order to purchase debt issued by the Treasury. Debate
about the efficacy of this program has passed as this is now official
Federal Reserve policy. The European Central Bank has, to date,
resisted calls to do the same, but leaves this open as a policy option.
The relative outperformance of European paper has much to with
this ECB policy stance. The Federal Reserve has made a massive
commitment to agency paper, and this debt should outperform
treasuries. We continue to weight short duration regardless of the
asset class. We anticipate new contract highs on the JGB and the
Aussie bond, but there is significant risk evident in Australian debt
by the end of Q2.
This Interest Rates section presents the same long-term analyses that we include
and continuously update as part of our daily and intraday on-line Specialty Services.
Be advised that these opinions can change intramonth, in which case we make
them instantly in Specialty Services.
Subscribers who desire constant monitoring of the outlook for interest rates for
all time horizons, including daily and intraday, should subscribe to Specialty
Services Interest Rates. To choose the Specialty Services Interest Rates coverage
that is right for you, visit our Specialty Services selection tool (www.elliottwave.
com/wave/SS_GMP) or call customer service at either 1-800-336-1618 (U.S.),
or 770-536-0309 (international).
Interest Rates—April 3, 2009
55
Special Section
Think That Central Banks Move the
Markets? Think Again
Conventional wisdom says that central banks can influence or even
direct financial markets and the macroeconomy. The very existence
of Elliott waves challenges such assumptions. For if markets responded to every central bank directive, how could Elliott waves
exist? Parallel trend channels, Fibonacci price relationships, the
similarity of form between waves of different sizes and time periods—none of that would be possible. Central bank decisions would
have to coincide perfectly with turning points in Elliott waves, and
we know that just doesn’t happen. (Bob Prechter makes a similar
observation about news events in the Socionomics DVD; see page
45). But even without using waves, we can expose the conventional
wisdom for the fallacy that it is.
Take, for example, this assertion in a recent article in a U.K. economic weekly: “Part of the aim of central banks in driving down
interest rates is to encourage a greater risk appetite among investors.” Two key assumptions underlie that statement: a) central banks
determine interest rates; and b) lower interest rates can increase
society’s appetite for risk.
56
To see how the first assumption is false, let’s take a look at the daily
chart of Australian interest rate data. It duplicates a study that Elliott Wave International has often done with U.S. interest rate data.
It shows how movements in the cash target rate set by Australia’s
central bank, the Reserve Bank of Australia (RBA), appear to follow
those in 3-month Australian Treasury Bills. After decisive moves up
in T-bills from 2006 to early 2008, for example, the RBA faithfully
raised its target. T-bills have since led the RBA during the financial
crisis of the past year. In fact, the record indicates that the RBA
almost always follows T-bills over time.
The proper conclusion to draw is not that the RBA has orchestrated
the decline in rates since the early 1980s—but that it’s been riding
it. During good times, central bankers look like geniuses; during
bad times, they get tarred and feathered. Closer to the truth is that
their interest-rate decisions are not proactive, but reactive, and that
they continually follow in the footsteps of the market for lack of
any other useful guide.
Now let’s look at the second assumption: that lower interest rates
increase society’s appetite for risk. A simple glance at the weekly
chart shows this assumption to be false. After the 1987 crash, the
ASX All Ordinaries actually rallied for two years on rising rates
and then sold off through 1990 on falling rates. Stocks then rose in
57
1991 on continued falling rates and sold off in 1992 on even lower
rates. Continue following the chart to the right and you will see that
there is no consistent correlation between the direction of interest
rates and that of the stock market.
The myth of central bank potency is so pervasive that conventional
analysts can’t even imagine a better explanation for price trends:
that the market is the dog wagging its central bank tail, not the
other way around.
58
U.S. Treasuries
Since 2005, GMP has used the spread between the Moody’s
Corporate BAA bond yield and the 30-year U.S. Treasury yield
to successfully assess credit market seizures. It’s been a handy
guide to helping us forecast stock trends too, as a widening spread
between the two credit instruments oftentimes accompanies or
precedes stock market downturns. In line with its past form, the
spread deteriorated with the wave (5) decline to the March lows in
stocks. Note, however, that the spread did not make a new low with
stocks, creating a bullish non-confirmation. This type of behavior
is consistent with a temporary stock market low. We can anticipate
that as wave 2 in stocks progresses, the Moody’s-Treasury spread
should firm up. A break below the December extreme will be the
first hint that the next round of credit blow-ups is starting and that
the rally in stocks is probably ending.
59
The Bund
German exports have decined drastically through March; unemployment is now over 8%. This number is rather benign when
compared to the double-digit unemployment data across the rest
of Europe. Heading into the G20 meeting, the German chancellor
Angela Merkel is resisting the call for aggressive stimulus spending. Of all things, she said she is worried about taking on too much
debt! Japanese prime minister, Taro Aso, is offering advice to Ms.
Merkel about stimulus spending; ironically, his country undertook
and failed at the great stimulus spending experiment in the 1990s.
Japan propped up failing banks and buried itself under a mountain
of infrastructure cement, only to see the recession drag on. Japan
60
now carries the highest burden of national debt relative to GDP
(170%) than any other developed country.
Following the new high bunds saw last month, price has consolidated in what is likely to be a contracting triangle. Basis
June, this count projects a thrust higher in wave 5 of (c) within
the 126.01/127.03 area over the coming weeks. The 122.73 level
is important support for this count; the pattern is invalid below
121.71.
61
The Bobl
Wave structure off the early March peak is decidedly corrective,
and the rally off the 115.340 low has enough impetus to carry to a
new. We are confident in a new high for the Bobl against 115.800
basis June.
62
The Long Gilt
Substantial volatility has marked Gilt wave action of late, following the Bank of England’s announcement that it was to purchase
government debt. Under the guise of quantitative easing, the failure
of debt auctions led to this monetization of the debt. There has
been little political appetite in the UK for this policy outside the
bond desk.
63
Our wave (5) target is the 126.93/128.12 area. Basis June, we should
not again test 121.92 support under this count.
64
Short Sterling
The corrective decline off the January peak ended at the early
March low of 98.000 basis June. The current wave v rally should
persist over the balance of April; the 98.895 level is the minimal
target for the advance with confidence against 98.475. The 98.315
mark is critical support.
65
TNOTE-BUND SPREAD
We still believe that a lasting shift in trend is at hand. Following the
decade-long, three-wave decline, the spread should return to levels
last seen in 1999. The US Treasury is announcing debt sales at the
clip of $100 billion a month, and the Bund has begun to outperform.
The spread has rapidly approached the 0.400 Fibonacci resistance
target basis June futures, and we look for this trend to continue with
high confidence against -0.049 support.
66
BOBL-BUND SPREAD
We maintain that wave 5 of (a) is complete on the weekly chart
at the -0.832 February low, however, wave structure is not compelling from that mark. If the spread fails to narrow appreciably this
month above firm, Fibonacci resistance at -0.580, then the -0.832
low will likely give way to a new low at -0.866. The 0.757 level
remains important support.
67
Asia
Australia
Corrective wave structure off the January high keeps our focus
higher. If the correction is complete, as we favor, then the Aussie
bond should see strength over the coming weeks above 95.880 Fibonacci resistance. The 95.425 level basis June is critical support
this month in order to maintain this outlook. The 96.335/615 area
remains the wave (5) of a target.
68
Japan
The JGB continues to trudge higher, and we expect the advance to
continue through mid-Q2 to at least 141.17. The second half of 2009
could see a reversal of this trend. Basis June, the 137.00 Fibonacci
support level is still important.
INTERNATIONAL
CURRENCY RELATIONSHIPS
70
CURRENCIES
AROUND THE WORLD
The dollar setback during March has run its course. The dollar is
bottoming and should resume its advance from current levels.
This Currencies section presents the same long-term analyses that we include and
continuously update as part of our daily and intraday on-line Specialty Services.
Be advised that these opinions can change intramonth, in which case we make
them instantly in Specialty Services.
Subscribers who desire constant monitoring of the outlook for currencies for
all time horizons, including daily and intraday, should subscribe to Specialty
Services Currencies. To choose the Specialty Services Currencies coverage that
is right for you, visit our Specialty Services selection tool (www.elliottwave.
com/wave/SS_GMP) or call customer service at either 1-800-336-1618 (U.S.),
or 770-536-0309 (international).
Currencies—April 3, 2009
71
Introduction
After advancing for two months, the buck retreated. The Dollar
Index was down by as much as 7.8% from high to low. The euro
benefited greatly, gaining as much as 10.5%, followed by sterling
(+8.2%) and the franc (+6.7%). Does this rally signal a change
in trend, or is it simply a correction of the dollar’s run during the
second half of 2008?
The individual pairs argue that it’s merely a pause in the dollar’s
rally. As we’ll show, the gains registered still fit within the confines
of a normal correction. Sterling failed to even exceed its early
February high. There is not enough evidence to proclaim the dollar’s rally over.
The question, then, is whether the dollar’s setback is over. The wave
structure says that is possible; let’s look at some anecdotal evidence
to help answer the question.
The Chinese government’s comments in regard to a replacement
for the U.S. dollar as the world’s reserve currency may not have
come as a surprise as we’ve heard this type of talk before. When
the dollar was falling last year, there was talk by unfriendly
oil-producing countries that they’d like to be paid in something
other than dollars. What is new this time is that the U.S. initially
expressed a willingness to discuss the idea. Treasury Secretary
Geithner quickly corrected himself, but the interim market action
was interesting. The dollar fell on the initial comment, but did not
reach a new low. It has since staged the largest recovery in a month
— this suggests that downside pressure has been exhausted.
72
The Dollar
The sharp decline in March has led some to question whether it
represents an end to the rally from last year. Instead, we see the
move as the end of a flat correction that began at the mid-February
peak. The decline falls within the confines of a typical correction,
having fallen a bit below support in the area of the prior fourth
wave but not below the 61.8% retracement of the rally off the
December low.
A push above 87.00 would favor that the buck is about to make
new highs on the year. A rally similar to the December-to-February
move would target 93.00. This would represent the loftiest level for
the dollar since November 2003.
73
EUR$ Dollar per EURO
EUR$ is the Dollar Index, inverted. The flat correction from midFebruary is also visible here and it retraced a bit more than half the
prior decline. The break in the euro that followed the comments
from Secretary Geithner is the largest in a month and that may be
a signal that it is more than a correction.
Unless EUR$ manages to break out above the March 19 high of
1.3736 look for the market to fall.
74
$CHF SWISS FRANCs per Dollar
$CHF also pulled back in a flat. The correction in the Dollar Index
and EUR$ followed the completion of a terminal thrust from a
triangle. In $CHF, the peak followed a diagonal triangle. Just as
that made the “call” for a top fairly easy, subsequent price action
also supports the idea that the setback is a correction.
75
The initial three-wave setback in early March could have been all
of the correction but it was shallow. The clue that a larger correction was due was the subsequent run to a new high above 1.1884. It
unfolded in three waves and ended on news that the Swiss National
Bank was willing to step in to stem further gains by the franc. None
of the other pairs followed suit. The lack of a coordinated move
suggests that the rally was a trap — wave (b) of a flat correction.
The subsequent dive that followed completed the pattern. This too
supports our strong US dollar opinion.
76
GBP$ Dollar per BRITISH POUND
There is nothing bullish about the chart of cable. The three-wave
recovery from January into February was enough to signal that the
dominant trend was still toward lower levels. Since then, moves in
both directions have been corrective. Whether cable consolidates at
lower levels before thrusting to a new low or pushes to the 1.5135
area first, we expect a new low beneath 1.3505.
77
AUD$ Dollar per AUSTRALIAN DOLLAR
AUD$ traced out a flat correction from October-to-January, but that
may just be part of a larger combination. A few weeks from now,
after additional consolidation below 72.67 or from the 75.00 area,
the bear trend will resume and AUD$ will fall well below .6000.
78
$CAD CANADIAN DOLLARs per Dollar
Prices moved to new highs in early March as anticipated, and while
the recent peak could be the important top that was forecast, we
don’t yet see solid evidence that the trend has turned down. It’s
possible to count a completed five-wave advance from the 2007
low, but what so far looks like a three-wave decline raises an alternative scenario that calls for one more push to new highs before a
top forms. If so, a modest new high above 1.3063 could complete
wave 5. Under the more immediately bearish count, prices are correcting the advance from the 2007 low and should decline toward
1.1500 or lower. Prices will have to quickly drop below the 1.2400
area to put this interpretation back on firm footing. Until then the
immediate trend can be considered up.
79
$JPY JAPANESE YEN per Dollar
$JPY did pull back during March as anticipated, but the structure
of the setback to 93.55 is corrective. Allowing for a push above
99.69, upside potential may prove limited. If a flat is unfolding
from December, as the double bottom in mid-January suggests,
the push to a new high should represent wave 0 of C, the end of
the recovery.
Our alternate count reflects the potential for an increased appetite
for dollars. A leg higher similar to the January-to-March rally would
target the 106.10 area.
80
EURO RATES
EURCHF SWISS FRANCs per EURO
The euro easily outperformed the franc in March as EURCHF rallied
from under 1.4600 to as high as 1.5447. The subsequent setback
looks corrective, far different than the nearly vertical rally, and has
retraced just about 38.2% of those gains. Expect a test of the high
established in December at 1.5882.
81
EURJPY JAPANESE YEN per EURO
The euro continued to outperform the yen throughout March, but
that is about to change as a large flat correction spanning October
to March may have just ended. The net recovery has retraced just
about 38.2% of the impulsive decline from 169.97, the July 2008
high. Look for the yen to reverse its weakness and for EURJPY
to head lower.
82
EURGBP BRITISH POUND per EURO
In February, we pointed to .9520 and .8638 as the key levels to
watch. The lower level held and EURGBP has risen sharply to the
middle of those levels. Barring a decline below .8638, the euro is
likely to continue to outperform.
As stated in the March Global Market Perspective, a rally above
.9520 would bolster the “three waves down” scenario and the bullish case. A new high above .9803 would likely follow, as would the
once widely-held outlook for a return to parity.
METALS & ENERGY
84
METALS & ENERGY
AROUND THE WORLD
Despite gold bugs’ insistence that an imminent surge is at hand,
gold’s countertrend rally high remains $1007.20 on February 20.
The target for the current decline is below $680. Silver too made
a countertrend rally high at $14.68 (Feb. 23). The current decline
from this extreme should eventually draw prices beneath $8.39.
Crude Oil’s early March price action negated our wave count, but
not the idea that the larger downtrend has yet to run its course. In
the short-run, Crude should continue to advance before it turns down
to finish the move. Natural Gas should continue to subdivide lower,
but a period of upward consolidation should lie ahead.
This section presents the same long-term analyses that we include and continuously
update as part of our daily and intraday on-line Specialty Services. Be advised
that these opinions can change intramonth, in which case we make them instantly
in Specialty Services.
Subscribers who desire constant monitoring of the outlook for metals, energy or
commodities for all time horizons, including daily and intraday, should subscribe
to Specialty Services Metals, Specialty Services Energy and Specialty Services
Commodities. To choose the Specialty Services coverage that is right for you,
visit our Specialty Services selection tool (www.elliottwave.com/wave/SS_GMP)
or call customer service at either 1-800-336-1618 (U.S.), or 770-536-0309
(international).
Metals & Energy—April 3, 2009
85
GOLD & SILVER
The single most inflationary event of the past 50 years, and the
largest in the history of the country, by far, occurred last week when
the U.S. Federal Reserve created $300 billion out of thin air, which
it will use to make several purchases of U.S. Treasury bonds over
the next six months. A similar pump-priming effort was attempted
in the early 1960s. According to the Fed’s own study, the scheme
known as Operation Twist, which attempted to drive down long-term
rates with up to $500 million in longer-dated Treasury purchases,
was considered a failure.
In total, the Fed announced that it will increase its balance sheet by
$1.15 trillion, much of which will undoubtedly go to purchasing
lower-quality debt instruments. The unprecedented attempt to inflate
away the credit crisis did not go unnoticed by gold lovers. “Cash
in a Mattress? No, Gold in The Closet,” headlined a multi-page
Newsweek article on the benefits of owning gold. No one seems
very impressed by EWI’s study showing a long-standing relationship between falling gold prices and a slumping economy. It seems
86
that the worse that the economy becomes, the deeper is the commitment to gold. A story on “How to Play the Coming Gold Jump”
explains that gold is “about wealth preservation—it does well in
time of crisis. In good times there are better ways to make money
than buying gold. However equities are volatile, house prices are
falling and current interest rates make savings unattractive.” One
newspaper describes the “new” gold rush emerging in California,
as “unemployed people are heading for the hills to prospect for
gold.” The Wall Street Journal says, “Bearish Big Investors Catch
Gold Bug.”
You’ve heard us say many times, contrary to what most economists
believe, news does not create the trend. The gold market appears
to be constructing one of the all-time great illustrations of just how
detrimental this false belief can be. Almost no single piece of news
could possibly be more bullish for gold prices than the Fed signaling
that it will print money and do whatever it needs to get the economy
rolling again. In the face of these announcements, however, gold
made a near-term high at $967.95 (March 20) that was lower than
the high of February 20 ($1007.20), which itself was lower than the
high of March 2008 ($1033.00). This came as no surprise to Short
Term Update subscribers, as the March 18 STU placed gold near
the end of an upward flat correction and said, “The wave structure,
if we have interpreted it correctly, suggests that gold will not make
a new high and in fact may be ending the rise right now.” Gold’s
behavior is indicating that deflationary forces remain stronger than
the Fed’s printing press. The February 20 high likely marks the top
of a (B) wave rise from October. Prices should decline to beneath
$680. Once they get there, we will assess the overall structure and
sentiment to determine the next significant move.
Last month GMP cited a “very clear” wave structure in silver,
along with a break of a rising exponential curve and stated that its
countertrend rally was over. Since the February 23 high ($14.68),
prices have traced out subwaves one and two of a still-developing
impulse pattern lower. The next significant move should be a thirdwave decline that draws prices well toward the October low ($8.39).
Only a push past the February highs in both gold and silver would
indicate that the upward correction was extending prior to turning
lower again.
87
CRUDE Oil
Last month’s immediately bearish wave count was quickly negated,
but it’s hard for us to adopt a longer-term bullish stance given the
lack of a clean ending pattern. The advance from the February low
fits best as the final leg of an ongoing corrective retracement.
88
Wave Count Analysis
The double zigzag Primary wave 2 retracement is still our favored
interpretation, but the early March price action has forced a revision. WTI’s minimum upside target for wave C of (B) is the prompt
month’s wave A peak (58.31 basis May). Common objectives are
62.79 and 67.02 where wave C equals 1.618 times wave A from
a continuation and May contract perspective. Brent’s comparable
levels are 58.50 (basis May) and 65.25 and 66.02 (basis May). Once
wave (B) is complete, we’ll be looking for wave (C) to terminate
below the December continuation low.
NATURAL GAS
Natural Gas stuck to last month’s script and should work its way on
down to finish the move. In the interim though, the market looks in
need of further consolidation to finish a proportional countertrend
correction.
Wave Count Analysis
We see the market in Intermediate wave (C) of the flat Primary
wave A decline. Within wave (C), we suspect that we’ll get a
89
more proportional wave 4 retracement. Barring a triangle, the
minimum upside objective is the prompt month’s wave a peak
(4.754 basis May).
SOCIAL TRENDS
& OBSERVATIONS
92
THE U.S. ECONOMY & DEFLATION
The stock market is bouncing, but the economy may not follow—
at least not right away. If economic figures do revive somewhat, it
probably won’t happen until the countertrend rally is peaking or
possibly over. Within days of the start of the stock rally on March
6, slight upticks in durable goods orders and consumer spending
were hailed as signs that the global economy was out of the woods.
Inventories usually fall as economies emerge from recession; so a
“collapse” in U.S. inventories, or more precisely a 0.9% February
decline in stockpiles of factory goods, caused one chief economist
to say, “There is hope.” The decline produced the first decrease in
the inventories-to-sales ratio in seven months. The chairman of the
Federal Reserve, Ben Bernanke, says that the recession will be over
by the end of the year. According to an Intrade.com contract, which
trades on the prospects of an economic depression (defined as a 10%
decline from a peak 2009 GDP reading), the likelihood of such an
occurrence declined from about 50% toward the end of February
to 18% by the end of March. Never mind what gold and silver say,
the U.S. Treasury and the Federal Reserve believe that if they buy
up the best and worst that the bond market has to offer, demand
will necessarily follow. As contorted and historically unsuccessful
as this logic is, many are buying it. A New York Times columnist
argues that it might just work: “I think it could put a real floor on
the price of the bad assets and change the market psychology so
that securitized assets can begin to trade again, which is important
to get credit flowing.” We beg to differ.
Market psychology is something we know a little about, and one
key aspect is that government doesn’t create psychological trends,
it follows them. By that we mean that government is controlled by
social mood, but the alternate meaning is true, too. Sometimes when
a trend is over, government will take action that is consistent with
the expired trend, which is almost always harmful to unsuspecting
participants. At this point, for instance, it is doing everything in its
power to get people to borrow when the right thing for them to do,
and the thing that most smart people are doing, is getting out of debt
and conserving buying power. This chart shows that in the fourth
quarter of 2008, total household credit market debt declined for the
first time in more than 50 years. The chart is a graphic representaTo learn more about subscribing to EWI's monthly Global Market Perspective,
Social Trends & Observations—April 3, 2009
93
tion of the new conservatism that was predicted in Conquer the
Crash. In a billion different ways, the trend is conspiring to thwart
the government’s bid. Some acts of sabotage are even sponsored by
government itself. Consider, for instance, new federal regulations to
curb “egregious” credit card company practices. In December, rules
that allow issuers to raise rates on existing balances “at any time,
for any reason,” were changed. But the changes don’t take effect
until July 2010. In the meantime, card issuers “are using the time
to toss anchors to their flailing customers.” Issuers are hiking fees
and slashing credit lines for creditworthy customers. As lenders’
“appetite for risk wanes,” credit scores are dropping, which reduces
94
credit lines by millions. Meanwhile, credit card defaults have risen
to 20-year highs, which reduces the appetite for consumer loans
even more. At least one card company is even paying customers to
close their accounts.
A similar self-reinforcing spiral has finally been spotted in commercial real estate. Reports call the field a “new source of write-down
and failures.” Prices are falling fast. Boston’s John Hancock Tower,
the tallest building in New England, just sold for $661 million, about
half of what its value was just three years ago.
The Fed gambit will not work because it tinkers with a symptom
of the decline, rather than its cause, which CTC identified ahead of
time as “the population’s mental state.” As a group, people simply
are not interested in expansion. Just as CTC anticipated, a “desire to
conserve” is taking over. Earth Hour, a global effort to turn out lights
for one hour on March 28, is a simple but revealing manifestation of
its presence. The second annual event included 400 cities around the
world and was hailed as a great success by organizers. The symbolism takes us back to July 2007, when GMP first remarked on the
“lightswitch”-fast start to the credit crisis. The switches are flashing
across the breadth of the economy, where coupon clipping is “back
in vogue”; companies are making “savage reductions in dividends”;
barter is growing fast on Craigslist.com; “cheap chic” is the fashion
rage; and the secret to publishing survival is to hawk “money saving tips.” The protest photo shows that some members of society
are just plain outraged about consumerism. This is another one of
those be-careful-whatyou-ask-for positions
that tends to be adopted
as a trend changes and
then is deeply regretted
when it actually occurs. The vociferousness with which it is
now being demanded
suggests that the ensuing consumer strike
will be a whopper.
95
Newspapers are excellent leading economic indicators, probably
because advertising is one of the first things to go in tough times.
The news game is also extremely susceptible to the deflationary
trend, as the Internet is eating away at the paper economy. Since
2000, Elliott Wave International has used newspapers’ fortunes to
successfully anticipate the future status of the economy. In February, The Elliott Wave Theorist counseled that instead of cutting staff
and news coverage by 50%, news services should “cut salaries by
50% and retain full service.” The New York Times might be listening, because it just slashed salaries across the board by 5%. Hearst
Corporation, publisher of the Houston Chronicle and other papers,
just announced cost cuts of 20% across the board. Of course, we
said 50%. But the across-the-board nature of the cuts hints at an
escalating series of jolts to the gathering forces of deflation. For
further evidence, consider that in March, the Rocky Mountain News
printed its last edition, and the Chicago Sun-Times filed for bankruptucy. Chicago’s other major daily was already in bankruptcy. Many
papers such as the Detroit Free Press and Seattle Post-Intelligencer
are scaling down their staffs and moving to Internet-only editions.
The scope of the contraction is clearly enormous, as all five papers
have been around since at least the Civil War.
The new cliché among business operators is, “Flat is the new up.”
Many use this comment to indicate that they have adjusted their
expectations and can make a go of it without substantial gains
in sales and earnings. But everything suggests that flat is far too
strong a word for what is happening. In many businesses, losses
are already getting close to the 55% hit the stock indexes took
from October 2007 to the March lows. In Detroit, for instance, the
baseball teams’ season-ticket sales have plunged 44 percent from
last year’s all-time high of 27,000. Chrysler car sales in the U.S.
are down 50%. Revenue at the Roxy diner in lower Manhattan is
off 40%. Since June, wholesale milk prices are down 47.5% while
the retail price for a gallon of gas is off 47% from a year ago.
Finnish customs authorities say that the value of exports to Russia
went down in January by about 50% compared with January last
year. Equipment maker John Deere expects unit sales to be down
50% (way more than the previously expected 5%). In Japan, when
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January’s decline in industrial production “improved” from a record 10.2% plunge to a 9.2% decline in February, it was reported
that “output may have already hit bottom.” Anyone who believes
this scenario needs to take another look at the chart of consumer
debt. As everyone knows, consumers’ willingness to pile on debt
carried the day in the mid-2000s, but the quarterly rate-of-change
at the bottom of the chart shows a sharp dissipation in the quarterto-quarter increases. It is now breaking lower, and the reversal of
an exponential rise is seldom gentle. As banks face the weakness in
consumer lending, and now commercial property markets, they’ll
tighten further and deflation will seep into just about every previously untouched sector of the economy.
U.S. CULTURAL TRENDS
Here’s a quote from shortly after the start of Cycle wave a:
If a moderate sell-off yields this kind of negative emotional
release after just a few weeks, imagine what a grinding decline
over the course of a few years will yield. By the end of the bear
market, protests will turn to violent confrontation.
—Global Market Perspective, May 2000
The comment refers to a relatively tame protest outside an
International Monetary Fund meeting in Washington D.C. in
April 2000. That response to the emergence of the new negative mood after the first leg down from the NASDAQ’s all-time
high was more of a three-ring circus than a protest. GMP observed that the demonstrators lacked a unified focus with anti-trust,
anti-globalization and anti-genetic engineering factions making
demands. Nine years later, the bear market continues to grind lower,
as GMP predicted, and we don’t have to imagine the burgeoning
conflict, we can watch it on TV. The pessimistic extreme reached in
March brought civil unrest to France, Greece, the Czech Republic,
London and the United States. In the U.S., the Tea Parties mentioned
above were rather like, well, tea parties. In France, the demonstrations are large, but the tone is not yet violent. According to Time
magazine, millions marched in that country but the disruption was a
“comparatively modest nuisance.” In London, the “Financial Fools
97
Day” protest against the G-20 was much larger and more focused
than the April 2000 demonstration against the IMF. And this time
things turned ugly fast: “At first, jazz bands, jugglers and drummers
lent a carnival atmosphere to the gathering, but within an hour,
anger at the collapse of the financial system turned to violence.”
But the protest is a long way from the violent bear market finale
that GMP was referring to in 2000. At this point, the movement is
just “a vague attack on consumerism, coupled with anti-capitalist
rhetoric,” which Daniel Finkelstein of the London Times points out
is “a total dead end,” revolution-wise. When the bottom is at hand
or already in place, the rage will be greater and more widespread,
and there will be no question what the rebellion is about.
98
THE European ECONOMY AND DEFLATION
A Macroscopic Flight to Safety
For anyone holding out hope for a quick recovery in the UK’s
banking sector, the following chart should put that notion to rest.
Since the start of the decade, the external liabilities of UK banks
(the total funds held in the UK on behalf of foreign investors) have
fallen in only two quarters – Q2 of 2001 and Q3 of 2003. At $54.3
billion and $9.8 billion, respectively, both withdrawals were small,
relatively speaking. In all the other quarters shown, foreign investors viewed the UK as sufficiently safe to warrant increasing their
London-based deposits.
But bear markets bring with them a tidal shift in depositors’ perceptions of safety. According to the Bank of England, the fourth quarter
2008 witnessed a staggering $597 billion aggregate withdrawal from
UK banks. Added to the record loss of $682 billion in the second
quarter, London banks saw more than $1 trillion flee their coffers
in the last nine months of the year. Often, it’s not change per se,
but the velocity of change that’s the killer. Banks can adjust to slow
change. They go bust during rapid change.
“One of the great ironies of banking,” says Bob Prechter in Conquer
the Crash, “is that the more liquid a bank, the less likely it is that
99
depositors will conduct a run on it in the first place.” Of course, the
opposite also holds: the more illiquid the bank – and therefore the
more vulnerable it is to a run – the more likely it is that depositors
will conduct one. During deflation, depositors’ paramount concern
turns toward safety. As it does, they transfer capital out of institutions perceived to be fragile and into those seen to be strong. Weak
banks are made weaker; strong banks are made stronger.
What these withdrawal figures show is the concept of a bank run
on a macro scale – not across one bank or a few banks, but across
countries. True or not, the UK’s economy is perceived to be weak.
Now, Darwinian “survival of the fittest” finance virtually guarantees
that British banks will become weaker still.
This month, the British government raised its stake in Lloyd’s
Banking Group to 65%. Its stake in Royal Bank of Scotland now
sits at 70%. Prior to this partial nationalization, only the bank’s
bond and equity holders – those who purchased their stakes willingly – were on the hook for the losses. Now the entire British tax
base is burdened by them. And we suspect that even this injustice is
still not enough. Ultimately, a full 100% of the banks’ weight will
be hoisted onto the backs of the British taxpayer. But this remedy,
too, will fail – for the same reason that the September Elliott Wave
Theorist (EWT) argued that it would fail in America:
[The financial system] is too soaked with bad debt for a government bailout to work, and the market won’t let politicians
get away with assuming all the bad debts. It may take some
time for the market to figure out what to do about it, but as
always, there is no such thing as a free lunch. The only question is who pays for it.
In Britain, what the market is “doing about it” is refusing to lend
money to a drunken sailor. Last week, the first conventional gilt
auction failure in 14 years made headlines. In essence, the British government tried to borrow more money than investors were
comfortable lending to them. The failure shows how the market,
not government, dictates the course of an economy. And it argues
against those who believe that central banks can simply inflate the
money supply at will. Said EWT, “If investors begin to fear the
100
government’s ability to pay interest and principal, they will move
out of Treasuries the way they moved out of mortgages.”
Gilt investors, it appears, do indeed “fear the government’s ability
to pay.” This fear, together with the Bank of England’s data shown
above, tell why the once unthinkable possibility of a British default
is bandied about so casually today.
european CULTURAL TRENDS
The Blowoff Phase of Government Growth
If an exchange-traded fund were created to track the price of red
tape, we’d surely be tempted to champion a buy-and-hold strategy.
Without a doubt, government growth remains the surest, most steady
upward trend in existence today. Open Europe, an independent think
tank set up by a group of British business people, recently published
a report about the cost of government regulation in Europe. At 73
pages, “Out of Control” finds that the price tag has reached stratospheric proportions. The statistics will nauseate those with even a
weak attachment to liberty; but, for those with strong stomachs,
we recommend the report (http://www.openeurope.org.uk/research/
outofcontrol.pdf) and offer the following two charts.
101
From an Elliott wave perspective, what’s compelling about these
charts is the near total lack of fluctuation in the data. Both graphs
are typical of the report’s many others: they display almost no ups
and downs. The Elliott Wave Principle states:
...mankind’s progress...does not occur in a straight line, does
not occur randomly, and does not occur cyclically. Rather,
progress takes place in a ‘three steps forward, two steps back’
fashion, a form that nature prefers.
But according to “Out of Control,” 21st century government, visà-vis the European Union, displays no corrective patterns whatsoever – no triangles; no flats; no zigzags of any kind; nothing but
an exponentially rising trend with seemingly no end in sight. The
key question is: Can it last?
For a possible answer, recall the research on heart attacks and epilepsy victims cited in The Wave Principle of Human Social Behavior
(HSB). Studies show that “fractal irregularity” is the hallmark of
a healthy heart. Said HSB, “a reduction in the fractal irregularity
of the heartbeat is a signal of an impending heart attack.” So too
does the brain require a large degree of irregularity. If not, you have
epilepsy, say researchers.
102
Extrapolating to stocks, HSB offered this finding:
As it happens, the life of a stock market uptrend also depends
upon persistent fluctuation.... As with an unnaturally smooth
stride, heartbeat or brainwave, an unusually smooth rise in
stocks is a precursor to the death of a bull market from old
age or to a market heart attack or epileptic fit in the form of
a crash.
Government health, too, may depend on fluctuation. While far from
certain, Open Europe’s data reminds us of the blowoff phase that
we witnessed during the late-’90s stock mania. Then, the abrupt
end of healthy reversals proved to be a sort of fiscal angina – a
signal that told of the market’s approaching coronary. So, too,
might today’s “smooth stride” of the EU and other states be a sort
of federal tic – a signal telling of world government’s approaching
grand mal seizure.
Indeed, smaller seizures across Europe are occurring with increasing
regularity. Last week, a no-confidence vote in parliament ousted
the center-right government of the Czech Republic. Similar collapses happened in Hungary and Latvia. In almost every major
European city, protests (often violent) against ruling parties are
now part of everyday life. This week, the Financial Times reported
on an “unprecedented level of activity among anarchist groups”
ahead of the G20 summit. And, according to recent Amazon.com
data, sales of Ayn Rand’s novel Atlas Shrugged, a virtual bible for
those distrustful of government, spike in concert with every new
announcement of taxpayer-funded bailouts (see The Economist,
Feb. 26). All of these cues affirm what the Elliott Wave Theorist
reiterated back in September:
Social mood has entered wave c of a Supercycle-degree decline, and voters are likely to become far less complacent, and
more belligerent, than they have been for the past 76 years.
Our expectation is that the current rally in European markets will
run higher. If it does, anticipate these expressions of declining social mood to decrease. Backlash against government may subside
for a time, but our interpretation of the longer-term wave structure
103
argues that the strongest part of the decline is still to come. Wave
1 lower has begun the process of pillorying our potent directors.
It has also bagged some smaller political game. Wave 3 lower,
when it arrives, will set its sights on larger targets. Then, the exponentially rising regulation as seen in Open Europe’s charts will
likely reverse just as violently.
104
Asian-Pacific CULTURAL TRENDS
One question we get from subscribers: How can a bull market resume in South Asia when the mood there is so low and the violence
so rampant? The answer is that fundamental conditions are usually
dismal at major lows. Let’s look at what may be a current example
of this phenomenon.
A Peak in Radical Islam
In early March, Newsweek’s cover proclaimed, “Radical Islam Is a
Fact of Life. How to Live With It,” a headline that probably marks
not only a major low in two key Islamic stock markets but also an
exhaustion of the trend toward Islamic extremism of the past year.
Here’s why.
Over the past year, Jordan’s Amman General Index and Pakistan’s
Karachi Stock Exchange 100 (KSE-100) have been excellent proxies for the mood in Islamic Arabia and Islamic Central Asia—the
two major centers of Islamic extremism. Major advances in these
105
markets have tended to temper extremist activities, while major
declines have tended to excite them. (For more information, see
our special report “The Waves of War” in the subscriber section of
elliottwave.com).
The long-term wave patterns in both stock indexes suggest that they
have recently reached major lows—if not the end of bear markets.
The Amman General has completed wave (C) of its correction
since 2005, having retraced on log scale approximately 38.2% of
its 2000-2008 advance (or slightly less than 38.2% of its 2000-2005
advance), a typical retracement in a correction. The KSE-100 recently reversed near a round number (5000), near both the 38.2%
retracement of its 1998-2008 rally and the end of a prior fourth wave
of smaller degree, levels that often mark the end of corrections.
Violent events, which have tended to erupt near major lows in the
indexes, have also fallen in place to fill out the picture of a completed correction. The war between Hamas and Israel over Gaza
in December and January occurred after declines of about 50% in
the Amman General and 50% in Israel’s Tel Aviv 100. Following
the wave (A) decline in the KSE-100, Pakistani terrorists attacked
the Marriott Hotel in Islamabad and multiple centers in Mumbai.
The high-profile attack on the Sri Lankan cricket team in Lahore
in early March appears to have been a lagging effect of the low
of wave (C). The same could be said of Pakistani Taliban leader
Baitullah Mehsud’s promise this week to attack Washington D.C.
“soon,” which—if carried out—would offer a good test of the
bullish case.
Paul Montgomery of Universal Economics has long demonstrated
the tendency of social trends to make the cover of popular newsmagazines just as those trends are nearing their peaks. Most of his
research focuses on financial trends, but the same principle applies
to other areas of social activity: Editorial staffs are most likely to
acknowledge a trend on their cover when their readership is already
convinced of it. And, because of the dynamic nature of social trends,
that’s usually just about the time that the trend is near its end.
106
By definition, dismal financial images are a sure lure near stock
market lows. But so are covers about a national leader when his or
her approval rating is near an all-time high. Newsweek’s capitulation to the reality of Islamic extremism fits into that “other social”
category. Interestingly, it was dated March 2, 2009, one day before
the low in the Amman General Index.
Middle Eastern and Central Asian extremists probably do have
one or two big tricks up their sleeves yet, since the mood in the
early stages of a bull market tends to stay negative for some time.
The same may hold true for Southeast Asian extremists, if we use
the Jakarta Composite as a measure. But from a pure wave pattern
perspective, these provocateurs will now have to wage their battle
uphill since societies tend to lose their tolerance for antisocial
behavior during bull markets.
april’s air stirs in
willow-leaves... a butterfly
floats and balances
—basho
A CAPSULE SUMMARY
OF THE WAVE PRINCIPLE
108
A Capsule Summary of the Wave Principle
109
A CAPSULE SUMMARY OF THE WAVE PRINCIPLE
The Wave Principle is Ralph Nelson Elliott’s discovery that social,
or crowd, behavior trends and reverses in recognizable patterns. Using
stock market data as his main research tool, Elliott isolated thirteen
patterns of movement, or “waves,” that recur in market price data. He
named, defined and illustrated those patterns. He then described how
these structures link together to form larger versions of those same
patterns, how those in turn link to form identical patterns of the next
larger size, and so on. In a nutshell, then, the Wave Principle is a catalog
of price patterns and an explanation of where these forms are likely to
occur in the overall path of market development.
Pattern Analysis
Until a few years ago, the idea that market movements are patterned
was highly controversial, but recent scientific discoveries have established that 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 fractally into similar
patterns of increasing size. This is precisely the type of pattern identified in market movements by R.N. Elliott some sixty years ago.
The basic pattern Elliott described consists of impulsive waves
(denoted by numbers) and corrective waves (denoted by letters). An
impulsive wave is composed of five subwaves and moves in the same
direction as the trend of the next larger size. A corrective wave is
composed of three subwaves and moves against the trend of the next
larger size. As Figure 1 shows, these basic patterns link to form fiveand three-wave structures of increasingly larger size (larger “degree”
in Elliott terminology).
In Figure 1, the first small sequence is an impulsive wave ending
at the peak labeled 1. This pattern signals that the movement of one
larger degree is also upward. It also signals the start of a three-wave
corrective sequence, labeled wave 2.
Waves 3, 4 and 5 complete a larger impulsive sequence, labeled
wave (1). Exactly as with wave 1, the impulsive structure of wave
(1) tells us that the movement at the next larger degree is upward and
signals the start of a three-wave corrective downtrend of the same
degree as wave (1). This correction, wave (2), is followed by waves
(3), (4) and (5) to complete an impulsive sequence of the next larger
110
Figure 1
degree, labeled wave 1. Once again, a three-wave correction of the
same degree occurs, labeled wave 2. Note that at each “wave one”
peak, the implications are the same regardless of the size of the wave.
Waves come in degrees, the smaller being the building blocks of the
larger. Here are the accepted notations for labeling Elliott Wave patterns at every degree of trend:
Within a corrective wave, waves A and C may be smaller-degree
impulsive waves, consisting of five subwaves. This is because they
move in the same direction as the next larger trend, i.e., waves (2)
111
and (4) in the illustration. Wave B, however, is always a corrective
wave, consisting of three subwaves, because it moves against the
larger downtrend. Within impulsive waves, one of the odd-numbered
waves (usually wave three) is typically longer than the other two. Most
impulsive waves unfold between parallel lines except for fifth waves,
which occasionally unfold between converging lines in a form called
a “diagonal triangle.” Variations in corrective patterns involve repetitions of the three-wave theme, creating more complex structures that
are named with such terms as “zigzag,” “flat,” “triangle” and “double
three.” Waves two and four typically “alternate” in that they take different forms.
Each type of market pattern has a name and a geometry that is
specific and exclusive under certain rules and guidelines, yet variable
enough in other aspects to allow for a limited diversity within patterns
of the same type. If indeed markets are patterned, and if those patterns have a recognizable geometry, then regardless of the variations
allowed, certain relationships in extent and duration are likely to recur.
In fact, real world experience shows that they do. The most common
and therefore reliable wave relationships are discussed in Elliott Wave
Principle, by A.J. Frost and Robert Prechter.
Applying the Wave Principle
The practical goal of any analytical method is to identify market
lows suitable for buying (or covering shorts), and market highs suitable
for selling (or selling short). The Elliott Wave Principle is especially
well suited to these functions. Nevertheless, the Wave Principle does
not provide certainty about any one market outcome; rather, it provides
an objective means of assessing the relative probabilities of possible
future paths for the market. At any time, two or more valid wave interpretations are usually acceptable by the rules of the Wave Principle.
The rules are highly specific and keep the number of valid alternatives
to a minimum. Among the valid alternatives, the analyst will generally
regard as preferred the interpretation that satisfies the largest number
of guidelines and will accord top alternate status to the interpretation
satisfying the next largest number of guidelines, and so on.
Alternate interpretations are extremely important. They are not
“bad” or rejected wave interpretations. Rather, they are valid interpretations that are accorded a lower probability than the preferred count.
They are an essential aspect of investing with the Wave Principle, because in the event that the market fails to follow the preferred scenario,
the top alternate count becomes the investor’s backup plan.
112
Fibonacci Relationships
One of Elliott’s most significant discoveries is that because markets
unfold in sequences of five and three waves, the number of waves that
exist in the stock market’s patterns reflects the Fibonacci sequence of
numbers (1, 1, 2, 3, 5, 8, 13, 21, 34, etc.), an additive sequence that
nature employs in many processes of growth and decay, expansion and
contraction, progress and regress. Because this sequence is governed
by the ratio, it appears throughout the price and time structure of the
stock market, apparently governing its progress.
What the Wave Principle says, then, is that mankind’s progress
(of which the stock market is a popularly determined valuation) does
not occur in a straight line, does not occur randomly, and does not occur cyclically. Rather, progress takes place in a “three steps forward,
two steps back” fashion, a form that nature prefers. As a corollary, the
Wave Principle reveals that periods of setback in fact are a requisite
for social (and perhaps even individual) progress.
Implications
A long-term forecast for the stock market provides insight into
the potential changes in social psychology and even the occurrence of
resulting events. Since the Wave Principle reflects social mood change,
it has not been surprising to discover, with preliminary data, that the
trends of popular culture that also reflect mood change move in concert with the ebb and flow of aggregate stock prices. Popular tastes in
entertainment, self-expression and political representation all reflect
changing social moods and appear to be in harmony with the trends
revealed more precisely by stock market data. At one-sided extremes
of mood expression, changes in cultural trends can be anticipated.
On a philosophical level, the Wave Principle suggests that the
nature of mankind has within it the seeds of social change. As an example simply stated, prosperity ultimately breeds reactionism, while
adversity eventually breeds a desire to achieve and succeed. The social
mood is always in flux at all degrees of trend, moving toward one of
two polar opposites in every conceivable area, from a preference for
heroic symbols to a preference for anti-heroes, from joy and love of life
to cynicism, from a desire to build and produce to a desire to destroy.
Most important to individuals, portfolio managers and investment
corporations is that the Wave Principle indicates in advance the relative
magnitude of the next period of social progress or regress.
113
Living in harmony with those trends can make the difference
between success and failure in financial affairs. As the Easterners say,
“Follow the Way.” As the Westerners say, “Don’t fight the tape.” In
order to heed these nuggets of advice, however, it is necessary to know
what is the Way, and which way the tape. There is no better method
for answering that question than the Wave Principle.
To obtain a full understanding of the Wave Principle including the
terms and patterns, please read Elliott Wave Principle by A.J. Frost
and Robert Prechter, or take the free Comprehensive Course on the
Wave Principle on the Elliott Wave International website at www.
elliottwave.com.
GLOSSARY
Alternation (guideline of) - If wave two is a sharp correction, wave four will
usually be a sideways correction, and vice versa.
Apex - Intersection of the two boundary lines of a contracting triangle.
Corrective Wave - A three-wave pattern, or combination of three wave patterns, that moves in the opposite direction of the trend of one larger degree.
Diagonal Triangle (Ending) - A wedge-shaped pattern containing overlap
that occurs only in fifth or C waves. Subdivides 3-3-3-3-3.
Diagonal Triangle (Leading) - A wedge-shaped pattern containing overlap
that occurs only in first or A waves. Subdivides 5-3-5-3-5.
Double Three - Combination of two simple sideways corrective patterns,
labeled W and Y, separated by a corrective wave labeled X.
Double Zigzag - Combination of two zigzags, labeled W and Y, separated by
a corrective wave labeled X.
Equality (guideline of) - In a five-wave sequence, when wave three is the
longest, waves five and one tend to be equal in price length.
Expanded Flat - Flat correction in which wave B enters new price territory
relative to the preceding impulse wave.
Failure - See Truncated Fifth.
Flat - Sideways correction labeled A-B-C. Subdivides 3-3-5.
Impulse Wave - A five-wave pattern that subdivides 5-3-5-3-5 and contains
no overlap.
Impulsive Wave - A five-wave pattern that makes progress, i.e., any impulse
or diagonal triangle.
Irregular Flat - See Expanded Flat.
One-two, one-two - The initial development in a five-wave pattern, just prior
to acceleration at the center of wave three.
114
Overlap - The entrance by wave four into the price territory of wave one. Not
permitted in impulse waves.
Previous Fourth Wave - The fourth wave within the preceding impulse wave
of the same degree. Corrective patterns typically terminate in this area.
Sharp Correction - Any corrective pattern that does not contain a price
extreme meeting or exceeding that of the ending level of the prior impulse
wave; alternates with sideways correction.
Sideways Correction - Any corrective pattern that contains a price extreme
meeting or exceeding that of the prior impulse wave; alternates with sharp
correction.
Third of a Third - Powerful middle section within an impulse wave.
Thrust - Impulsive wave following completion of a triangle.
Triangle (contracting, barrier) - Corrective pattern, subdividing 3-3-3-3-3
and labeled A-B-C-D-E. Occurs as a fourth, B, X (in sharp correction only)
or Y wave. Trendlines converge as pattern progresses.
Triangle (expanding) - Same as other triangles, but trendlines diverge as
pattern progresses.
Triple Three - Combination of three simple sideways corrective patterns
labeled W, Y and Z, each separated by a corrective wave labeled X.
Triple Zigzag - Combination of three zigzags, labeled W, Y and Z, each
separated by a corrective wave labeled X.
Truncated Fifth - The fifth wave in an impulsive pattern that fails to exceed
the price extreme of the third wave.
Zigzag - Sharp correction, labeled A-B-C. Subdivides 5-3-5.
A WORD ABOUT BOND NOTATION
GMP is directed toward an institutional bond audience. As such, some of the expressions
used may seem counterintuitive at the outset, specifically the terms “support” and “resistance.”
Every bond yield has an equivalent value on a cash or Futures chart and these levels are
often expressed interchangeably. But the same level cannot be both support and resistance.
In technical theory, a support level is where buying is expected to come into a market while
a resistance level is where selling is to be expected. If bond buying takes place, a yield chart
will go lower due to the inverse relationship between the price and yield. It would therefore
be counterproductive to call the yield level from where the buying took place resistance
since selling of bonds would actually take the yield chart higher. The same holds true with
the use of the terms “bullish” and “bearish.” A decline on a yield chart is bond bullish since
it implies that prices are going higher. On the opposite side, an upside move on a yield chart
means bond prices are declining and this is therefore referred to as bond “bearish.”
Robert R. Prechter, Jr., CMT
The founder and president of Elliott Wave International, Robert R. Prechter, Jr., has been publishing Elliott Wave commentary since 1976. During
the 1980s, Prechter won numerous awards for market timing as well as the
United States Trading Championship, culminating in Financial News Network
(now CNBC) granting him the title, “Guru of the Decade.” Bob served for
ten years on the Board of Directors of the national Market Technicians Association and in 1990 was elected its president. He also served on the Board
of Directors of the Foundation for the Study of Cycles and is a member of
Mensa and Intertel. Before starting out independently, Bob worked with
the Merrill Lynch Market Analysis Department in New York as a Technical
Market Specialist. He obtained his degree in psychology from Yale University
in 1971. Bob serves as managing editor of Global Market Perspective.
Steven Hochberg
Steven Hochberg began his professional career with Merrill Lynch and
joined Elliott Wave International in 1994, providing institutional commentary for global markets. He can be heard as a regular guest commentator
each Thursday morning on www.webfn.com. Steven is a graduate of the
University of Vermont and received his MBA degree from Northeastern
University. For Global Market Perspective, Steven provides commentary on
the U.S. stocks and precious metals markets. He also edits the Elliott Wave
Short Term Update.
Robert Kelley
Robert Kelley began his career in 1987 as a futures broker. He joined EWI
in 1990 and edited The Elliott Wave Short Term Update, the Currency and
Commodity Hotline and the currency section of The Elliott Wave Currency
and Commodity Forecast newsletter. In 1994, he left EWI for New York to
become a Vice President of JP Morgan (Securities), where he was in charge
of the technical market research department. He later served as a consultant
for HSBC Securities and thereafter developed a proprietary options trading
system. In May 2000, Robert rejoined EWI where he now provides analysis for
the World Stock Index for Global Market Perspective and daily and intraday
analysis for the on-line Specialty Service Stocks coverage.
Brian Whitmer
Brian Whitmer's analytical proficiency extends to two professions: He
received a degree in civil engineering from the University of Maryland and
has served as a designer, planner, and project manager for $100-million-plus
civil and residential developments. Brian also is an Elliott-savvy technical
analyst who is proficient in socionomics, the science of history and social
prediction. He describes himself as self-educated in Austrian economics and
thus well-versed in the misunderstandings of mainstream economics. Joining
Elliott Wave International in 2009, Brian serves as editor of The European
Financial Forecast and contributes the European stock section of Global
Market Perspective.
Mark Galasiewski
Mark Galasiewski (gala-SHEV-ski) began his analytical career in 2001,
at an institutional brokerage in Stamford, Connecticut, researching company
fundamentals for a broker who specialized in short-sell recommendations.
After joining Elliott Wave International in 2005, Mark contributed to Robert
Prechter’s Elliott Wave Theorist before joining EWI’s Global Market
Perspective team covering Asian stock indexes. For six years during the
1990s he lived in Japan, where he observed that country’s extended bear
market first-hand. Mark has traveled to many of the countries whose markets
he analyzes. A graduate of Middlebury College in East Asian Studies, he is
fluent in Japanese and conversant in Mandarin Chinese.
William F. Fox
Bill Fox originally joined Elliott Wave International in 1994 after managing assets for the institutional trust division of SunTrust Bank. He has also
managed futures money for a diverse clientele. Bill has been involved in
market analysis since graduating in 1988 from Vanderbilt University, where
he received a Bachelor of Arts degree with a major in Communication. For
Global Market Perspective, Bill provides commentary on the European fixedincome markets. He also provides full coverage of European fixed-income
markets for EWI’s on-line Specialty Services Interest Rates coverage.
Jim Martens
Jim Martens began using the Elliott Wave Principle in 1985 and by 1989
was making insightful market calls for his metals trader colleagues on the Commodity Exchange Center in New York. Jim joined Elliott Wave International
in 1993 as a commodity specialist. He also oversaw EWI’s currency analysis
before joining Nexus Capital Ltd., a Soros-affiliated hedge fund in 2001. He
rejoined EWI in 2005. Jim received a degree in finance from Florida Atlantic
University. He covers currency relationships for Global Market Perspective
and provides full coverage of dollar rates and major cross rates in EWI’s
on-line Specialty Services Currencies coverage.
Steven Craig
Steve has been involved with the energy industry for well over a decade
and joined EWI in January 2001 as senior energy analyst. His industry focus
was on trading and risk management, and he is intimately familiar with the
production and consumption side of the business. Steve’s most recent positions were at Central and South West (now American Electric Power) and
with Kerr-McGee. His extensive experience with the physical and financial
aspects of crude oil, natural gas and electricity adds a valuable dimension to
his analytical approach. He is responsible for EWI’s on-line Specialty Services
Energy coverage, and his crude oil and natural gas views are featured each
month in Global Market Perspective.
Peter M. Kendall
Peter Kendall served as a financial reporter and columnist from 1983 to
1992. He wrote the “On the Money,” a column for The Business Journal
from 1991 to 1997. Pete joined Elliott Wave International as a researcher
in 1992 and has been contributing to GMP since 1995. Pete is Director of
EWI’s Center for Cultural Studies, where he focuses on popular culture and
the new science of socionomics. Pete graduated from Miami University in
Oxford, Ohio with a degree in Business Administration. For Global Market
Perspective, Pete provides commentary on cultural trends, the economy and
the U.S. stock market.

Prechter`s GLOBAL MARKET PERSPECTIVE

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