FOREX EDUCATION AND ANALYSIS

Learn to Find Trading Opportunities Using Fibonacci

2012-01-24T14:06:00.000-07:00

Elliott Wave International has just released a free 14-Page eBook, How You Can Use Fibonacci to Improve Your Trading. Created from a $129 two-volume set, it’s available free until February 6. Learn more here.
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You may be missing trading opportunities that are staring you in the face. The charts you look at every day could reveal high-confidence trade setups and market turning points, and you can learn how to find them, today.

Elliott Wave International (EWI) has just released a free eBook, How You Can Use Fibonacci to Improve Your Trading.

It features 14 chart-filled pages that explain Fibonacci and provide practical tools to help you formulate and execute your own trading strategy by combining wave analysis with Fibonacci relationships. You’ll never look at charts the same way again!

Created from a $129 two-volume eBook by EWI, this valuable report is offered free until February 6.

Don’t miss out on this opportunity to learn how Fibonacci can change the way you trade forever.

Download your free eBook now.

(Video) Bob Prechter Explains 'Triple Top' Forming in U.S. Stock Market

2012-01-16T19:28:00.000-07:00

(Video) Bob Prechter Explains 'Triple Top' Forming in U.S. Stock Market

This excerpt from the special video issue of the August Elliott Wave Theorist brings you Bob Prechter’s analysis of the triple top that has been forming in the U.S. stock market over the past 12 years. Watch as Bob himself explains what this pattern means for you and the markets.

You can get even more analysis – including an 84-yearstudy of stock values – that will help you gain perspectiveabout the recent market moves with Elliott Wave International’s FREEreport, “Reality Check: Studying the Past to BringClarity to the Future.”

You’ll get a glimpse into the in-depth analysis Robert Prechter presents each month in his Elliott Wave Theorist with 3 excerpts from his most recent issues.

Don’t let extreme market volatility leave you confused and scared. Prepare yourself for today’s critical market juncture with your FREE report from Robert Prechter.

Read Bob Prechter's FREE report "Reality Check: Studying the Past to Bring Clarity to the Future."

Five Fatal Flaws of Trading

2012-01-16T19:26:00.000-07:00

Five Fatal Flaws of Trading

January 13, 2012

By Elliott Wave International

Close to ninety percent of all traders lose money. The remaining ten percent somehow manage to either break even or even turn a profit -- and more importantly, do it consistently. How do they do that?

That's an age-old question. While there is no magic formula, EWI Senior Instructor Jeffrey Kennedy has identified five fundamental flaws that, in his opinion, stop most traders from being consistently successful. We don't claim to have found The Holy Grail of trading here, but sometimes a single idea can change a person's life. Maybe you'll find one in Jeffrey's take on trading. We sincerely hope so.

The following is an excerpt from Jeffrey Kennedy's Trader's Classroom Collection, Volume 4. Learn how to get 14 more actionable trading lessons -- FREE -- below.

Why Do Traders Lose?

If you've been trading for a long time, you no doubt have felt that a monstrous, invisible hand sometimes reaches into your trading account and takes out money. It doesn't seem to matter how many books you buy, how many seminars you attend or how many hours you spend analyzing price charts, you just can't seem to prevent that invisible hand from depleting your trading account funds.

Which brings us to the question: Why do traders lose? Or maybe we should ask, "How do you stop the Hand?" Whether you are a seasoned professional or just thinking about opening your first trading account, the ability to stop the Hand is proportional to how well you understand and overcome the Five Fatal Flaws of trading. For each fatal flaw represents a finger on the invisible hand that wreaks havoc with your trading account.

Fatal Flaw No. 1 -- Lack of Methodology

If you aim to be a consistently successful trader, then you must have a defined trading methodology, which is simply a clear and concise way of looking at markets. Guessing or going by gut instinct won't work over the long run. If you don't have a defined trading methodology, then you don't have a way to know what constitutes a buy or sell signal. Moreover, you can't even consistently correctly identify the trend.

How to overcome this fatal flaw? Answer: Write down your methodology. Define in writing what your analytical tools are and, more importantly, how you use them. It doesn't matter whether you use the Wave Principle, Point and Figure charts, Stochastics, RSI or a combination of all of the above. What does matter is that you actually take the effort to define it (i.e., what constitutes a buy, a sell, your trailing stop and instructions on exiting a position). And the best hint I can give you regarding developing a defined trading methodology is this: If you can't fit it on the back of a business card, it's probably too complicated.

Fatal Flaw No. 2 -- Lack of Discipline

When you have clearly outlined and identified your trading methodology, then you must have the discipline to follow your system. A Lack of Discipline in this regard is the second fatal flaw. If the way you view a price chart or evaluate a potential trade setup is different from how you did it a month ago, then you have either not identified your methodology or you lack the discipline to follow the methodology you have identified. The formula for success is to consistently apply a proven methodology. So the best advice I can give you to overcome a lack of discipline is to define a trading methodology that works best for you and follow it religiously.

Fatal Flaw No. 3 -- Unrealistic Expectations

Between you and me, nothing makes me angrier than those commercials that say something like, "...$5,000 properly positioned in Natural Gas can give you returns of over $40,000..." Advertisements like this are a disservice to the financial industry as a whole and end up costing uneducated investors a lot more than $5,000. In addition, they help to create the third fatal flaw: Unrealistic Expectations.

Yes, it is possible to experience above-average returns trading your own account. However, it's difficult to do it without taking on above-average risk. So what is a realistic return to shoot for in your first year as a trader -- 50%, 100%, 200%? Whoa, let's rein in those unrealistic expectations. In my opinion, the goal for every trader their first year out should be not to lose money. In other words, shoot for a 0% return your first year. If you can manage that, then in year two, try to beat the Dow or the S&P. These goals may not be flashy but they are realistic, and if you can learn to live with them -- and achieve them -- you will fend off the Hand.

Fatal Flaw No. 4 -- Lack of Patience

The fourth finger of the invisible hand that robs your trading account is Lack of Patience. I forget where, but I once read that markets trend only 20% of the time, and, from my experience, I would say that this is an accurate statement. So think about it, the other 80% of the time the markets are not trending in one clear direction.

That may explain why I believe that for any given time frame, there are only two or three really good trading opportunities. For example, if you're a long-term trader, there are typically only two or three compelling tradable moves in a market during any given year. Similarly, if you are a short-term trader, there are only two or three high-quality trade setups in a given week.

All too often, because trading is inherently exciting (and anything involving money usually is exciting), it's easy to feel like you're missing the party if you don't trade a lot. As a result, you start taking trade setups of lesser and lesser quality and begin to over-trade.

How do you overcome this lack of patience? The advice I have found to be most valuable is to remind yourself that every week, there is another trade-of-the-year. In other words, don't worry about missing an opportunity today, because there will be another one tomorrow, next week and next month...I promise.
I remember a line from a movie (either Sergeant York with Gary Cooper or The Patriot with Mel Gibson) in which one character gives advice to another on how to shoot a rifle: "Aim small, miss small." I offer the same advice in this new context. To aim small requires patience. So be patient, and you'll miss small.

Fatal Flaw No. 5 -- Lack of Money Management

The final fatal flaw to overcome as a trader is a Lack of Money Management, and this topic deserves more than just a few paragraphs, because money management encompasses risk/reward analysis, probability of success and failure, protective stops and so much more. Even so, I would like to address the subject of money management with a focus on risk as a function of portfolio size.

Now the big boys (i.e., the professional traders) tend to limit their risk on any given position to 1% - 3% of their portfolio. If we apply this rule to ourselves, then for every $5,000 we have in our trading account, we can risk only $50 - $150 on any given trade. Stocks might be a little different, but a $50 stop in Corn, which is one point, is simply too tight a stop, especially when the 10-day average trading range in Corn recently has been more than 10 points. A more plausible stop might be five points or 10, in which case, depending on what percentage of your total portfolio you want to risk, you would need an account size between $15,000 and $50,000.

Simply put, I believe that many traders begin to trade either under-funded or without sufficient capital in their trading account to trade the markets they choose to trade. And that doesn't even address the size that they trade (i.e., multiple contracts).

To overcome this fatal flaw, let me expand on the logic from the "aim small, miss small" movie line. If you have a small trading account, then trade small. You can accomplish this by trading fewer contracts, or trading e-mini contracts or even stocks. Bottom line, on your way to becoming a consistently successful trader, you must realize that one key is longevity. If your risk on any given position is relatively small, then you can weather the rough spots. Conversely, if you risk 25% of your portfolio on each trade, after four consecutive losers, you're out all together.

Break the Hand's Grip

Trading successfully is not easy. It's hard work...damn hard. And if anyone leads you to believe otherwise, run the other way, and fast. But this hard work can be rewarding, above-average gains are possible and the sense of satisfaction one feels after a few nice trades is absolutely priceless. To get to that point, though, you must first break the fingers of the Hand that is holding you back and stealing money from your trading account. I can guarantee that if you attend to the five fatal flaws I've outlined, you won't be caught red-handed stealing from your own account.

Get 14 Critical Lessons Every Trader Should Know
Learn about managing your emotions, developing your trading methodology, and the importance of discipline in your trading decisions in The Best of Trader's Classroom, a FREE 45-page eBook from Elliott Wave International.
Since 1999, Jeffrey Kennedy has produced dozens of Trader's Classroom lessons exclusively for his subscribers. Now you can get "the best of the best" in these 14 lessons that offer the most critical information every trader should know.
Find out why traders fail, the three phases of a trader's education, and how to make yourself a better trader with lessons on the Wave Principle, bar patterns, Fibonacci sequences, and more!
Don't miss your chance to improve your trading. Download your FREE eBook today!

The European Debt Crisis and Your Investments

2012-01-10T16:32:00.001-07:00

The European Debt Crisis and Your Investments

A look back on 18 months of analysis and reports on the European Credit Crisis
January 10, 2012

By Elliott Wave International

In 1999, 11 European countries surrendered their currencies for the euro and a shared monetary authority. Barely a decade later, the once-celebrated EU is in the midst of a credit crisis and its currency is facing collapse.

Elliott Wave International's analysts have been anticipating and tracking the credit contagion across the European nations for the past two years. EWI subscribers were first alerted to the still-developing European debt crisis back in December 2009.

The following is excerpted from a December 2010 report from The European Debt Crisis, a new report from EWI. This free report provides important analysis from February 2010 through today that helps you understand what the European economic crisis can mean for your investments. Plus, you'll get a unique perspective on what's ahead. Find out how to access this free report below.

The Credit Crisis Spreads -- December 2010

The credit crisis is escalating as expected. Back in January 2010, when ratings agency Moody's bestowed "investment grade" status on a widely followed index of sovereign bonds, The European Financial Forecast argued that a renewed Primary-degree decline would in fact aim the credit crisis directly at this critical new realm.

Our case for the looming sovereign debt debacle rested primarily on two pieces of evidence: (1) Primary wave 3 (circled) had begun in Europe's peripheral markets, and (2) premiums for credit-default swaps on European sovereigns (think of an insurance policy against a national default) were already signaling the next phase of the crisis by surpassing their 2008-09 price extremes.

The February 2010 issue of EFF published a chart showing rising Greek, Spanish and Italian swaps and offered this description of how Europe's credit crunch would escalate: "The theme during Primary wave 1 (circled) was default at the individual, corporate and quasi-government level. The theme for Primary wave 3 (circled) will be default at the sovereign level."

Today, the credit crunch is clearly angling itself away from mere corporations and toward whole countries. On November 15, Bloomberg announced the escalation with this headline:

Companies Safer Than Sovereigns as
Crisis Cracks 'Old Order'
-- Bloomberg, November 15, 2010
London credit strategist Greg Venizelos tells Bloomberg that the "old order" was the one where investors believed large sovereign nations to be better credit risks than corporate borrowers.

However, debt is being repriced, he says, and today "corporates are now better credit quality than sovereigns in the periphery." Indeed, swaps on Italian government bonds are more expensive than 75% of the Italian companies contained in the iTraxx Europe Index of European corporations. In Spain, traders deem Spanish sovereign debt to be riskier than all six Spanish companies in the index.

Even in the supposedly safe core European country of France, 5-year swaps tied to French government bonds climbed to an all-time high of 105 basis points in November. At that level, more than half of the 25 French companies in the iTraxx index trade tighter than the French sovereign, according to Bloomberg.

The chart above shows another way to view the escalation of the credit crisis. By plotting the difference, or "spread," between swaps on European corporations versus those on European sovereigns, the rising line shows derivative traders' increasing fear over sovereign default relative to corporate borrowers.

So, yes, the old order of safer sovereigns is over. But notice, too, that the debt crisis began escalating when the continent's peripheral markets started topping way back in October 2009. The billion-euro question is, "Who is next?" The media is clearly focusing on Portugal, as 5-year credit default swaps tied to Portuguese bonds are setting all-time records. But charts show that so too are swaps tied to Spanish and Italian bonds.

Five-year swaps on Belgian debt also reached an all-time high last month. Either one of these countries could be next. Maybe they'll all go down together, but in the larger scheme of things, it doesn't matter. The most important thing to observe is that even core European countries like France and Germany exhibit spiking default insurance premiums, too. These countries are the largest contributors to the �440 billion Facility, the same one that backstops the rest of Europe.

The June 2010 European Financial Forecast said unequivocally that before the storm is over, "at least one, but more likely several, G8 nations will capsize." We stand by our forecast.

The European Debt Crisis is affecting investments across the globe. Gain a valuable perspective on the European debt crisis and get ahead of what is yet to come in this FREE resource from Elliott Wave International.
Read Your Free Report Now: The European Debt Crisis and Your Investments.

How DEEP Will Cuts in Government Services Go?

2012-01-09T11:51:00.001-07:00

How DEEP Will Cuts in Government Services Go?
Plus: The check is STILL in the mail.
January 9, 2012

By Elliott Wave International

"Localities have chopped 535,000 positions since September 2008..."
USA Today (10/18)

Cuts in government services became conspicuous after the 2007-2009 financial crisis.

The first edition of Robert Prechter's Conquer the Crash saw this coming, even though the book published nearly a decade ago:

"Don't expect government services to remain at their current levels...The tax receipts that pay for roads, police and jails, fire departments, trash pickup, emergency (911) monitoring, water systems and so on will fall to such low levels that services will be restricted." (p. 257)

Households throughout Massachusetts know exactly what Prechter is talking about.

In a boston.com article (12/7), the president of the Massachusetts Taxpayers Association said this about the state's municipalities: "Revenues have been virtually flat, while their costs have grown, which has meant cuts in schools, public safety, and other basic services for most cities and towns.’’

The same article reports that "Worcester has cut about 450 municipal jobs, including approximately 60 police officers, 60 firefighters, and 100 public works employees..."

Detroit's WWJ-TV reports (12/6) "Budget deficits and declining personnel are the major forces behind the Detroit Police Department’s decision to end free funeral escorts."

November 9 saw the biggest municipal bankruptcy in U.S. history, when officials in Jefferson County, Alabama voted to file for Chapter 9. Reuters said the county's debt exceeded $5 billion; Jefferson County is home to Birmingham, the state's biggest city and economic hub.

Financial troubles are also leading to federal cut backs. The U.S. Postal Service has decided to close about half of its 487 mail processing centers:

"The post office had bad news on Monday for all those who like to pop a check into the mail to pay a bill due the next day: don’t count on it.
"The United States Postal Service said it planned to largely eliminate next-day delivery for first-class mail as part of its push to cut costs and reduce its budget deficit. Currently, more than 40 percent of first-class mail is delivered in one day."
New York Times (12/5)

The pace of the deteriorating economic trend appears to be accelerating. Our analysis suggests that it's part of a larger deflationary trend that has a long way to go.

See what we're seeing so you can prepare and protect yourself
Discover Robert Prechter's views on the unfolding deflationary trend by reading the 90-page report, The Guide to Understanding Deflation. This guide will help you survive a major deflationary trend, and even equip you to prosper.
Plan and prepare for your financial future. Download Your Free 90-Page Deflation Survival Guide eBook.

Why Choose the Wave Principle?

2012-01-08T18:22:00.000-07:00

Why Choose the Wave Principle?
Robert Prechter reveals why he embraced the Wave Principle.
January 4, 2012

By Elliott Wave International

Robert Prechter is the widely recognized authority on the Elliott Wave Principle.

Read how he learned about the Wave Principle and why he embraced it in the edited excerpt from his book Prechter's Perspective below (Q&A format):

--------------------

Question: What was it about Elliott that captured your attention?
Robert Prechter: I had seen some mentions of the Wave Principle in a few market newsletters and a couple of obscure books, and I decided that either this was someone's elaborate fantasy or it was an amazing discovery. I wanted to reject it from what evidence I could find or include it as part of my growing arsenal of technical analytical methods.
Q: How long did it take you to develop your "eye" for discerning these waves?

RP: About 30 minutes -- when I plotted my first hourly chart covering a few months. Apparently, there is such a thing as an eye for patterns. One person told me he had trouble finding the fives and threes. The key is to keep a chart. Most people have no trouble seeing the Principle at work.
Q: You accepted it just like that?
RP: When you begin to see the five-wave impulses and the three-wave corrections unfold over and over, it does not take long for you to say either "I see, but I refuse to believe it," or "This is obviously what's happening; let's see how far it continues." It took about a year and a half of applying it until I knew that Elliott was absolutely right. I'm pretty hard-headed, and it takes substantial reason for me to accept a new idea. By that time, I decided I had seen what amounted to proof. I then said to myself, "This is unbelievable. How come no one is commenting on this? The market is pulling back to points he said it should pull back to in the patterns. It is rising up to levels he said it should, in ways he said it should."
Q: What was it that convinced you?
RP: The Wave Principle proves itself when you merely keep a chart. Once I did that, I recognized what was going on rather quickly. The wave patterns are repetitive and at times, over protracted periods, they are easily discernible.
--------------------

The basic Elliott wave pattern 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 consists of three subwaves and moves against the trend of the next larger size.

As the chart below shows, these basic patterns link to form five- and three-wave structures of increasingly larger size.

The Elliott Wave Principle helps to identify turning points in the trends of financial markets.

It does not provide certainty, yet the Wave Principle does provide a way to assess the probabilities of possible future paths of a given financial market.

Learn more in the free Elliott Wave Basic Tutorial
The Elliott Wave Basic Tutorial is a 10-lesson comprehensive online course with the same content you'd receive in a formal training class -- but you can learn at your own pace and review the material as many times as you like!
Get 10 FREE Lessons on The Elliott Wave Principle that Will Change the Way You Invest Forever

What Is Backing Your Deposits in the Bank?

2011-12-09T10:34:00.001-07:00

Understanding Fibonacci

2011-10-09T18:29:00.001-07:00

Understanding Fibonacci
Learn to apply Fibonacci ratios to calculate price targets in stocks
October 06, 2011

By Elliott Wave International

The Fibonacci ratio can be an invaluable tool for calculating price retracements and projections in your analysis and trading. This excerpt from The Best Technical Indicators for Successful Trading explains the origins of the Fibonacci sequence and how you can apply it to the markets.
You can read the entire Fibonacci section -- plus 7 more lessons on how to use technical indicators to improve your trading for FREE -- see below.

Leonardo Fibonacci da Pisa was a thirteenth-century mathematician who posed a question: How many pairs of rabbits placed in an enclosed area can be produced in a single year from one pair of rabbits, if each gives birth to a new pair each month starting with the second month? The answer: 144.

The genius of this simple little question is not found in the answer, but in the pattern of numbers that leads to the answer: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, and 144. This sequence of numbers represents the propagation of rabbits during the 12-month period and is referred to as the Fibonacci sequence.

The ratio between consecutive numbers in this set approaches the popular .618 and 1.618, the Fibonacci ratio and its inverse. (Relating non-consecutive numbers in the set yields other popular ratios - .146, .236, .382, .618, 1.000, 1.618, 2.618, 4.236, 6.854....)

...In addition to recognizing that the stock market undulates in repetitive patterns, R. N. Elliott also realized the importance of the Fibonacci ratio. In Elliott's final book, Nature's Law, he specifically referred to the Fibonacci sequence as the mathematical basis for the Wave Principle. Thanks to his discoveries, we use the Fibonacci ratio in calculating wave retracements and projections today.

How to Identify Fibonacci Retracements
The primary Fibonacci ratios that I use in identifying wave retracements are .236, .382, .500, .618 and .786. Some of you might say that .500 and .786 are not Fibonacci ratios; well, it's all in the math. If you divide the second month of Leonardo's rabbit example by the third month, the answer is .500, 1 divided by 2; .786 is simply the square root of .618.

There are many different Fibonacci ratios used to determine retracement levels. The most common are .382 and .618. However, .472, .764 and .707 are also popular choices. The decision to use a certain level is a personal choice. What you continue to use will be determined by the markets.

...It's worth noting that Fibonacci retracements can be used on any time frame to identify potential reversal points. An important aspect to remember is that a Fibonacci retracement of a previous wave on a weekly chart is more significant than what you would find on a 60-minute chart.

See charts that show the application of Fibonacci ratios, plus 7 other lessons on technical indicators, by accessing your free report now.

Learn the Best Technical Indicators for Successful Trading

In this free report, you will learn the tools of the trade directly from the analysts at Elliott Wave International. Using both video lessons and reports, they teach you how to incorporate technical indicators into your analysis to improve your trading decisions.

You will learn:

How to employ Fibonacci ratios to calculate possible turning points.
How to interpret technical indicators such as Moving Average Convergence/Divergence -- MACD.
How to exploit trendlines to uncover trading opportunities when stock charting.
Technical patterns that can alert you to major moves, and how to know if it�s a legitimate pattern.

And more -- 8 lessons in all!

Get your Technical Indicators report now>>

The Single Most Reliable Indicator

2011-08-10T16:09:00.000-07:00

The Single Most Reliable Indicator

In this video excerpt, Elliott Wave Financial Forecast Editor
Steve Hochberg explains one of the most important things to keep in mind when
assessing a market, "Extreme opinions, shared widely, constitute the single
most reliable indicator of an impending change of direction for a market." Enjoy
your video excerpt.

To find out more about the Wave Principle, be sure to watch the Club EWI video
series: Learn the Why, What and How of Elliott Wave Analysis. This 3-video series
is a great way to get started with the Wave Principle. You can watch these
videos free with a Club EWI Membership.

Watch the Club EWI video series: Learn the Why, What and How of Elliott
Wave Analysis. This 3-video series is a great way to get started with the Wave Principle. You can get these videos free with a Club EWI Membership.

Watch your free video now>>

Credit Crisis in Europe

2011-07-20T17:59:00.000-07:00

Credit Crisis in Europe: How the Stability of an Entire Region is Teetering on the Edge of a Major Collapse

By EWI's European Financial Forecast editor Brian Whitmer (excerpt)

Panic Now and Avoid the Rush -- July 30, 2010

The market's collective sigh of relief is also reflected in authorities' stress testing of 91 European banks. In case you missed last Friday's results, their message is clear: relax.

The Committee of European Banking Supervisors (CEBS) gave passing grades to nearly every bank on its list. The group, for example, passed both Irish banks and all four UK banks that it evaluated. The CEBS gave clean bills of health to all four Portuguese banks, all five Italian banks, and five out of six Greek banks that it analyzed.

Even with share prices that sit 29%-66% beneath their 2009 countertrend highs, the CEBS says that the Bank of Ireland, Piraeus Bank, Banco Popolare, and Banco Santander are all in good shape. In fact, just seven of the 91 banks failed to make the grade. Five were in Spain, one in Greece, and one, Germany's Hypo Real Estate, is entirely owned by the German government anyway. Everyone else -- 84 institutions in all -- are supposed to be strong enough to withstand another economic shock.

It's not so much the stellar results that expose the optimism of a Primary degree rally, but rather the Banking Committee's stress tests themselves. They are notable primarily because they failed to test for any real stress in the first place. As the chart shows, the Committee's "adverse scenario" regarding economic performance assumed a mere 3% deviation from the European Commission's GDP forecast.

Another test looked at banks' resilience to a sovereign risk shock, yet the analysis merely used conditions similar to those of May 2010. In other words, just like the UK budget office, the CEBS is utilizing a woefully diluted version of the economic deterioration that is about to grip the continent.
______________________________

FREE REPORT: Discover what Europe's debt crisis means for the future of the continent and your investments. Get your FREE 6-page report filled with unique analysis on Europe, the PIIGS and the sovereign debt crisis. EWI's European Financial Forecast editor Brian Whitmer gives you the context for what's happening in Europe and gets you up to speed on the reality of the situation. Download your free report now.

How to Find and "Hook" Potential Trade Setups

2011-07-15T12:44:00.000-07:00

Here's anothr free lesson on how deploy the Elliott Wave Princple in your trading plan...

Happy Trading!!

How to Find and "Hook" Potential Trade Setups

A Free Lesson on How to Combine Technical Indicators with Elliott Wave Analysis
July 11, 2011

By Elliott Wave International

Trading using technical indicators -- such as the MACD, for example, Moving Average Convergence-Divergence -- can do one of two things: help you or hinder you.

Using them as a forecasting method alone can be about as predictable as flipping a coin. But when you combine them with other forms of technical analysis (i.e. the Wave Principle), the same MACD can be your new best friend.

Technical indicators are meant to do exactly what the name implies: "indicate" that a buy or sell signal may be in place. (Don't confuse "indicate" with "guarantee": They are not called "technical guarantors" for a reason.)

Elliott Wave International's Futures Junctures editor Jeffrey Kennedy shows you how he uses technical indicators to his advantage in his FREE eBook, The Commodity Trader's Classroom:

"Rather than using technical indicators as a means to gauge momentum or pick tops and bottoms, I use them to identify potential trade setups."

Jeffrey goes on to describe his favorite indicator, the MACD:

"Out of the hundreds of technical indicators I have worked with over the years, my favorite study is the MACD [which] uses two exponential moving averages (12-period and 26-period). The difference between these two moving averages is the MACD line. The trigger or Signal line is a 9-period exponential moving average of the MACD line."

Figure 10-1 gives you an example of the MACD indicator in Coffee futures.

One of the signals of a potential trade setup that the MACD often introduces is what Jeffrey refers to as the Hook. Here's another quote from the free eBook:

"A Hook occurs when the MACD line penetrates, or attempts to penetrate, the Signal line and then reverses at the last moment. In addition to identifying potential trade setups, you can also use Hooks as confirmation. Rather than entering a position on a cross-over between the MACD line and Signal line, wait for a Hook to occur to provide confirmation that a trend change has indeed occurred. Doing so increases your confidence in the signal, because now you have two pieces of information in agreement."

Figure 10-4 gives you an example of the Hook at work in live cattle futures.

"A Hook should really just be a big red flag, saying that the larger trend may be ready to resume. It’s not a trading system that I follow blindly. All I'm looking for is a heads-up that the larger trend is possibly resuming."

Learn more about other technical indicators that you can use to your advantage, as well as the other important lessons in the FREE 32-page eBook, The Commodity Trader's Cl

2011-07-14T10:57:00.000-07:00

With QE3 back on the table I thought this would be a nice refresher...

A Four-Chart Lesson in Spotting Trade Setups

2011-06-29T21:30:00.000-07:00

A Four-Chart Lesson in Spotting Trade Setups

June 29, 2011

By Elliott Wave International

You can find low-risk, high-probability trading opportunities by trading with the trend. The trick is to find the end of market corrections, so you can position yourself for the next move in the direction of the trend.

This excerpt from Jeffrey Kennedy's free 47-page eBook How to Spot Trading Opportunities explains where to find bullish and bearish trade setups in your charts and how to zero-in on these opportunities. If this lesson interests you, the full 47-page eBook is free through July 6.

On the left-hand side of the illustration below, there are two bullish trade setups. As traders, we want to wait for the wave (2) correction to be complete so we can catch the move up in wave (3) – this is the trade. What we are trying to do in this bullish trade setup is anticipate the potential for profits on the buy-side as prices move up in wave (3). Another bullish trade setup is at the end of wave (4).

As traders, we are looking to buy the pullback and position ourselves within the direction of the larger up-trend. Remember, three-wave moves are corrections, which means that they are countertrend structures. On the other hand, five-wave moves define the larger trend. As traders, we want to determine what the trend is and trade in the direction of the trend. Our buying opportunity to rejoin the trend is whenever the trend pauses and forms a correction.

Now, let’s look at the right-hand side of the illustration where we see two bearish setups. When a five-wave move is complete, it is retraced in three waves as a correction. The end of the five-wave move presents the first trading opportunity that we can take advantage of the short side (or the sell side) as the wave (A) down begins.

Notice the second bearish trade setup gives us another shorting opportunity as wave (B) tops.

So, within the classic wave pattern of five waves up and three waves down, we have four high-probability trading opportunities in which we are either positioning ourselves in the direction of the trend or identifying termination points of a trend. I want to share with you some tricks I have picked up over the years about how to analyze corrective waves and their termination points. The single most important thing I’ve learned from analyzing corrections is that corrective or countertrend price action is usually contained by parallel lines.

As shown above, draw the parallel lines by beginning at the origin of wave A and going to the extreme of wave B. You draw a parallel of that line off the extreme of wave A. So basically you have a small, slightly angled downward price channel. This will show you the containment region for wave C. It also shows you an area toward the bottom of the lower trend line where you can expect a reversal in price.

Here is another example. Again, you draw the parallel lines off the origin of wave A, the extreme of wave A and the extreme of wave B.

Toward the upper end of the upper trend line, you will usually see a reversal in price.

This example shows how countertrend price action is contained by parallel lines in the British pound, 60-minute, all sessions. Why is it important to know parallel lines contain the corrective or countertrend price action? Number one, it will increase your confidence that you are indeed labeling a countertrend move properly. Number two, it identifies areas where you will likely see prices reverse. For example, we see this reversal up near the top.

This brief trading lesson is just a small example of the opportunities you can find once you learn to identify key market patterns. Learn more in your free 47-page eBook, How to Spot Trading Opportunities. This valuable eBook is regularly $79, but you can get it free through July 6. Download your free copy of How to Spot Trading Opportunities now.

What Will Happen to the Stock Market When QE2 Ends?

2011-06-28T18:09:00.000-07:00

What Will Happen to the Stock Market When QE2 Ends?

Club EWI's free "Independent Investor eBook, 2011 Edition" offers you an unorthodox view of the Fed's quantitative easing program

June 28, 2011

By Elliott Wave International

The second round of the Federal Reserve's quantitative easing program, better known as QE2, will expire this week.

The QE2 policy was officially announced on November 4, 2010, and has been widely credited with subsequent stock market gains. And now, according to rumors, the end of this "experimental" program will kill the stock rally -- with potential impact across all markets.

Let's think about that.

For starters, there is little "experimental" about QE2. As EWI's November 2010 Elliott Wave Financial Forecast pointed out to subscribers, "In Japan, the very same remedy the U.S. is applying today -- rate cuts followed by quantitative easing -- finds its stock market still down more than 75% from its December 1989 peak."

Also, this chart, from EWI president Robert Prechter's January 2011 Elliott Wave Theorist, shows "the effect" the first round of quantitative easing (QE1) had on the market:

But investors have short memories. And even many of those who remember how powerless the Fed was during the 2007-2009 crash are convinced that "it's different this time."

What do the facts and the evidence say? Read the expanded, 2011 edition of our popular free Club EWI resource, The Independent Investor eBook.

From the very first pages, the charts and graphs will show you that the Fed’s QE programs are far less powerful than is commonly presumed.

All you need to read this important 118-page eBook online now is to create a free Club EWI profile. Here's what else you'll learn:

Why QE2 was a major tactical error
Why interest rates don't drive stock prices.
Why rising oil prices are not bearish for stocks.
Why earnings don't drive stock prices.
What inflation has to do with the prices of gold and silver
Why the problem with the Fed is its very existence.
Why central banks don't control the markets.
MUCH MORE

Keep reading this free report now -- all you need is a free Club EWI membership.

Can the Fed and Economists Forecast the Future? See This Startling Chart.

2011-06-27T15:24:00.000-07:00

Can the Fed and Economists Forecast the Future? See This Startling Chart.
Elliott Wave Financial Forecast Editors Kendall and Hochberg on economists, the Fed and forecasting
June 27, 2011

By Elliott Wave International

Business Talk Radio host Gabriel Wisdom recently spoke with Pete Kendall, Co-Editor of EWI's Elliott Wave Financial Forecast. Their discussion included a crucial but rarely asked question about economists and the Federal Reserve. Here's the relevant excerpt:

Gabriel Wisdom: "Ben Bernanke, the chairman of the Federal Reserve, says the economy is slowing but there's faster growth ahead. Is he wrong?"
Pete Kendall: "Economists are extrapolationists. They tend to look at what's happening in the economy and extrapolate that forward. So here we have a situation where not just Bernanke but economists in general are looking at... what they call the 'soft patch' and somehow contorting that into growth later in the year.

Pete's startling reply flatly contradicts conventional wisdom. Most people believe that the Fed really is able to anticipate the economic future. After all, they're the most "qualified." But what do the facts say?

Pete's Elliott Wave Financial Forecast Co-Editor Steve Hochberg recently included this eye-opening chart (from Societe Generale Equity Research) in his new subscriber-exclusive video, "Buy and Hold, or Sell and Fold: Where Are The Markets Headed in 2011?"

The red line in the chart is the S&P earnings, and the black line shows economists' forecasts relative to those earnings. Here's what James Montier, head of equity research for Societe Generale, said about it:

"The chart makes it transparently obvious that analysts lag reality. They only change their minds when there is irrefutable proof they were wrong, and then only change their minds very slowly." (emphasis added)

That comment is spot-on. In 2002-2003, as you can see, earnings turned up despite economists' forecasts for earning declines. It took them a while to "turn the ship around" and play catch-up with the trend.

Yet in 2007-2008, earnings turned down -- despite the forecast by economists for continued increases. The devastating truth is that earnings did more than fall in the first quarter of 2008: they had their first negative quarter in the history of the S&P. As Steve said in his subscriber video, "Economists were wrong to a record degree" -- and investors felt the pain.

So what's the point? Economists do extrapolate the trend. That approach works fine, until it doesn't -- and you're on the hook.

Elliott wave analysis never extrapolates trends -- it anticipates them. The Wave Principle recognizes that markets must rise and fall -- and that they unfold according to changes in investor psychology, in a way that is patterned and recognizable.

-----

Most people believe that the Fed really is able to anticipate the economic future. Now you know the facts. Uncover other important myths and misconceptions about the economy and the markets by reading Market Myths Exposed.

EWI's free Market Myths Exposed 33-page eBook takes the 10 most dangerous investment myths head on and exposes the truth about each in a way every investor can understand. Download your free copy now.

Learn to Spot High-Confidence Trading Opportunities

2011-06-24T10:37:00.000-07:00

Dear Trader,

What if you could look at a chart and see the potential trading opportunities?

Elliott Wave International (EWI), the world’s largest market forecasting firm, has just released a free eBook to teach you exactly that. How to Spot Trading Opportunities features 47 pages of easy-to-understand trading techniques that help you identify high-confidence trade setups. Senior EWI Analyst Jeffrey Kennedy will show you how some of the simplest rules and guidelines have some of the most powerful applications for trading.

Created from the $129 two-volume set of the same name, this valuable eBook is offered free until July 6.

Don’t miss out on this rare opportunity to learn how to find opportunities in the markets you follow.

Download How to Spot Trading Opportunities now.

Happy Trading!!

How to Set Protective Stops Using the Wave Principle

2011-06-20T22:08:00.000-07:00

How to Set Protective Stops Using the Wave Principle
The 3 simple rules of Elliott wave analysis can help traders manage risk, ride market trends and spot price reversals

June 20, 2011

By Elliott Wave International

The 3 simple rules of Elliott wave analysis can help traders manage risk, ride market trends and spot price reversals.

EWI's Chief Commodities Analyst Jeffrey Kennedy values the Wave Principle not only as an analytical tool, but also as a real-time trading tool. In this excerpt from Jeffrey's free Best of Trader's Classroom eBook, he shows you how the Wave Principle's built-in rules can help you set your protective stops when trading.

Over the years that I've worked with Elliott wave analysis, I've learned that you can glean much of the information you require as a trader - such as where to place protective or trailing stops - from the three cardinal rules of the Wave Principle:

1. Wave two can never retrace more than 100% of wave one.
2. Wave four may never end in the price territory of wave one.
3. Wave three may never be the shortest impulse wave of waves one, three and five.

Let's begin with rule No. 1: Wave two will never retrace more than 100% of wave one. In Figure 4-1, we have a five wave advance followed by a three-wave decline, which we will call waves (1) and (2). An important thing to remember about second waves is that they usually retrace more than half of wave one, most often making a .618 Fibonacci retracement of wave one. So in anticipation of a third-wave rally - which is where prices normally travel the farthest in the shortest amount of time - you should look to buy at or near the .618 retracement of wave one.

Where to place the stop: Once a long position is initiated, a protective stop can be placed one tick below the origin of wave (1). If wave two retraces more than 100% of wave one, the move can no longer be labeled wave two.

Now let's examine rule No. 2: Wave four will never end in the price territory of wave one. This rule is useful because it can help you set protective stops in anticipation of catching a fifth-wave move to new highs. The most common Fibonacci retracement for fourth waves is .382 retracement of wave three.

Where to place the stop: As shown in Figure 4-2, the protective stop should go one tick below the extreme of wave (1). Something is wrong with the wave count if what you have labeled as wave four heads into the price territory of wave one.

And, finally, rule No. 3: Wave three will never be the shortest impulse wave of waves one, three and five. Typically, wave three is the wave that travels the farthest in an impulse wave or five-wave move, but not always. In certain situations (such as within a Diagonal Triangle), wave one travels farther than wave three.

Where to place the stop: When this happens, you consider a short position with a protective stop one tick above the point where wave (5) becomes longer than wave (3) (see Figure 4-3).

Why? If you have labeled price action correctly, wave five will not surpass wave three in length; when wave three is already shorter than wave one, it cannot also be shorter than wave five. So if wave five does cover more distance in terms of price than wave three - thus breaking Elliott's third cardinal rule - then it's time to re-think your wave count.

The Best of Trader's Classroom presents the 14 most critical lessons that every trader should know. You can download the entire 45-page eBook with a free Club EWI Membership. Download the free Best of Trader's Classroom now.

Think Lower Trade Deficit is Bullish for the Stock Market?

2011-06-11T15:11:00.000-07:00

Think Lower Trade Deficit Is Bullish For the Stock Market? Now See This Chart
U.S. trade gap narrowed in April, and many will see that as a bullish sign
June 10, 2011

By Elliott Wave International

"The Dow rose nearly 1 percent Thursday... Investors were encouraged by a report that the United States trade deficit had narrowed, one positive point in a recent string of weak economic data." (June 9, 2011, Reuters)

Before you join the crowd in thinking that shrinking trade gap is bullish for stocks, read this excerpt from the 2011 edition of our popular free Club EWI resource, The Independent Investor eBook.

*****

Over the past 30 years, hundreds of articles -- you can find them on the web -- have featured comments from economists about the worrisome nature of the U.S. trade deficit. It seems to be a reasonable thing to worry about. But has it been correct to assume throughout this time that an expanding trade deficit impacts the economy negatively? Figure 8 answers this question in the negative.

In fact, had these economists reversed their statements and expressed relief whenever the trade deficit began to expand and concern whenever it began to shrink, they would have accurately negotiated the ups and downs of the stock market and the economy over the past 35 years. The relationship, if there is one, is precisely the opposite of the one they believe is there. Over the span of these data, there in fact has been a positive -- not negative -- correlation between the stock market and the trade deficit.

It is no good saying, “Well, it will bring on a problem eventually.” Anyone who can see the relationship shown in the data would be far more successful saying that once the trade deficit starts shrinking, it will bring on a problem. Whether or not you assume that these data indicate a causal relationship between economic health and the trade deficit, it is clear that the “reasonable” assumption upon which most economists have relied throughout this time is 100% wrong.

Around 1998, articles began quoting a minority of economists who -- probably after looking at a graph such as Figure 8 -- started arguing the opposite claim. Fitting all our examples so far, they were easily able to reverse the exogenous-cause argument and have it still sound sensible. It goes like this: In the past 30 years, when the U.S. economy has expanded, consumers have used their money and debt to purchase goods from overseas in greater quantity than foreigners were purchasing goods from U.S. producers. Prosperity brings more spending, and recession brings less. So a rising U.S. economy coincides with a rising trade deficit, and vice versa. Sounds reasonable!

But once again there is a subtle problem. If you examine the graph closely, you will see that peaks in the trade deficit preceded recessions in every case, sometimes by years, so one cannot blame recessions for a decline in the deficit. Something is still wrong with the conventional style of reasoning.

*****

Read the expanded, 2011 edition of our popular free Club EWI resource, The Independent Investor eBook. All you need is to create a free Club EWI profile. Here's what else you'll learn:

Why QE2 was a major tactical error
Why interest rates don't drive stock prices.
Why rising oil prices are not bearish for stocks.
Why earnings don't drive stock prices.
What inflation has to do with the prices of gold and silver
Why central banks don't control the markets.
Much more -- 51 pages in all

Keep reading the free Independent Investor eBook now -- all you need is a free Club EWI membership.

The Trend Is Your Friend: How Moving Averages Can Improve Your Market Analysis

2011-06-08T04:47:00.001-07:00

The Trend Is Your Friend: How Moving Averages Can Improve Your Market Analysis

June 06, 2011

By Elliott Wave International

Many traders and investors use technical indicators to support their analysis. One of the most popular and reliable also happens to be an indicator that has been around for years and years -- moving averages.

A moving average is simply the average value of data over a specific time period. Analysts use it to figure out whether the price of a stock or a commodity is trending up or down. It effectively "smooths out" the daily fluctuations to provide a more objective way to view a market.

Although simple to construct, moving averages are dynamic tools, because you can choose which data points and time periods to use to build them. For instance, you can choose to use the open, high, low, close or midpoint of a trading range and then study that moving average over a time period, from tick data to monthly price data or longer.

Moving Averages can help you identify the trend in a market, which is important since we all know that the trend is your friend. Yet certain moving averages can serve as support or resistance, and also alert you to trading opportunities.

This excerpt from EWI Senior Analyst Jeffrey Kennedy's free eBook, How You Can Find High-Probability Trading Opportunities Using Moving Averages, shows how a popular moving average setting identified trading opportunities in the stock of Johnson & Johnson.

Download the full 10-page eBook here.

A popular moving average setting that many people work with is the 13- and the 26-period moving averages in tandem. The figure below shows a crossover system, using a 13-week and a 26-week simple moving average of the close on a 2004 stock chart of Johnson & Johnson. Obviously, the number 26 is two times 13.

During this four-year period, the range in this stock was a little over $20.00, which is not much price appreciation. This dual moving average system worked well in a relatively bad market by identifying a number of buyside and sellside trading opportunities.

Learn to apply Moving Averages to your trading and investing by downloading Jeffrey Kennedy's free 10-page eBook. Here's what you'll learn:

How to apply the three most popular moving average techniques.
How to decide which moving average parameters are best for the markets and time frames you trade.
How to avoid several common but dangerous myths about moving averages.

Download How You Can Find High-Probability Trading Opportunities Using Moving Averages now.

What Does a Fractal Look Like?

2011-06-05T16:15:00.000-07:00

What Does a Fractal Look Like?
And What Does It Have to Do with the Stock Market?
May 26, 2011

By Elliott Wave International

If the word 'fractal' comes up at all in conversation, that conversation is probably being held in a mathematics department. However, anyone who is interested in the Wave Principle and how it applies to the stock market may have stumbled across the phrase "robust fractal."

If you want to know more about what it means in that context, here's an excerpt from Elliott Wave International's primer on fractals that explains the connection.

* * * * *

Excerpted from The Human Social Experience Forms a Fractal
by Robert R. Prechter

In the 1930s, Ralph Nelson Elliott discovered that aggregate stock market prices trend and reverse in recognizable patterns. In a series of books and articles published from 1938 to 1946, he described the stock market as a fractal. A fractal is an object that is similarly shaped at different scales.

Although Elliott came to his conclusions fifty years before the new science of fractals blossomed, he took a step that current observers of natural processes have yet to take. He explained not only that the progress of the market was fractal in nature but discovered and described the component patterns. The patterns that Elliott discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated and defined a number of patterns, or "waves," that recur in market price data. He named and illustrated the patterns.

He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns at the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle….

The Stock Market as a Robust Fractal

A classic example of a self-identical fractal is nested squares. One square is surrounded by eight squares of the same size, which forms a larger square, which is surrounded by eight squares of that larger size, and so on.

A classic example of an indefinite fractal is the line that delineates a seacoast. When viewed from space, a seacoast has a certain irregularity of contour. If we were to drop to ten miles above the earth, we would see only a portion of the seacoast, but the irregularity of contour of that portion would resemble that of the whole. From a hundred feet up in a balloon, the same thing would be true.

Scientists today recognize financial markets' price records as fractals, but they presume them to be of the indefinite variety. Elliott undertook a meticulous investigation of financial market behavior and found something different. He described the record of stock market prices as a specifically patterned fractal yet with variations in its quantitative expression.

I call this type of fractal, which has properties of both self-identical and indefinite fractals, a robust fractal. Robust fractals permeate life forms. Trees, for example, are branching robust fractals, as are animals, circulatory systems, bronchial systems and nervous systems. The stock market record belongs in the category of life forms since it is a product of human social interaction.

How Is the Stock Market Patterned?

Figure 1 shows Elliott's idea of how the stock market is patterned. If you study this depiction, you will see that each component, or "wave," within the overall structure subdivides in a specific way by one simple rule: If the wave is heading in the same direction as the wave of one larger degree, then it subdivides into five waves.

If the wave is heading in the opposite direction as the wave of one larger degree, then it subdivides into three waves (or a variation). These are called motive and corrective waves, respectively. Each of these waves adheres to specific traits and tendencies of construction, as described in Elliott Wave Principle (1978).

Waves subdivide this way down to the smallest observable scale, and the entire process continues to develop larger and larger waves as time progresses. Each wave's degree may be identified numerically by relative size on a sort of social Richter scale.

Want to Know More About Fractals and the Stock Market? Then read the whole special report, called "The Human Social Experience Forms a Fractal." It's free of charge, so long as you are a member of Club EWI, which gives you access to many free reports that explain Elliott wave analysis and the Wave Principle.

How to Put the Wave Principal to Work

2011-06-05T16:12:00.000-07:00

How to Put the Wave Principle to Work

In the video below, EWI Senior Commodity Analyst Jeffrey Kennedy walks you
through a basic checklist of how to put the Wave Principle to work. This clip
was taken from The Wave Principle Applied webinar, originally recorded for Futures
Junctures subscribers.

Get 45 pages of FREE practical lessons in Elliott Wave International's Best
of Trader's Classroom eBook

Would you like to learn more about trading with the Wave Principle? Get 45
pages of FREE practical lessons in Elliott Wave International's Best of Trader's
Classroom eBook .
Taken from Jeffrey Kennedy's renowned Trader's Classroom series, this
FREE 45-page collection offers 14 actionable lessons that will help you determine
entry points, stop levels and price targets for the markets you trade.
Download The Best of Trader's Classroom now

Stocks Rally On the News of Bin Laden's Death, You Say? It's Not That Simple

2011-05-20T12:05:00.000-07:00

Stocks Rally On the News of Bin Laden's Death, You Say? It's Not That Simple

Interest rates, oil prices, trade balances, corporate earnings and GDP: None of them seem to be important, or even relevant, to explaining stock price changes
May 3, 2011

By Elliott Wave International

On the morning of May 2, the financial headlines were abuzz with the news of Osama Bin Laden's death and its positive impact on the stock market:

"Stock Market Celebrates Killing of Bin Laden" (The Wall Street Journal)

But despite a positive open, stocks closed lower on May 2. Undoubtedly, in the days ahead we'll hear analysts explaining how Bin Laden's death is not that "bullish" of an event, after all.

On that same note, MarketWatch.com ran an interesting story on May 2 that quoted from a research paper which found "little evidence that non-economics events have a big effect on the stock market."

Here at EWI, we go one step further and say the following: Economic events have little impact on the stock market, too.

Don't believe us? Read this excerpt from a free Club EWI resource, the 50-page 2011 Independent Investor eBook, and judge for yourself.

The Independent Investor eBook, 2011 Edition
(Excerpt; full report here)

...Economists' Claim #5: “GDP drives stock prices.”

Suppose that you had perfect foreknowledge that over the next 3¾ years GDP would be positive every single quarter and that one of those quarters would surprise economists in being the strongest quarterly rise in a half-century span. Would you buy stocks?

If you had acted on such knowledge in March 1976, you would have owned stocks for four years in which the DJIA fell 22%. If at the end of Q1 1980 you figured out that the quarter would be negative and would be followed by yet another negative quarter, you would have sold out at the bottom.

Suppose you were to possess perfect knowledge that next quarter’s GDP will be the strongest rising quarter for a span of 15 years, guaranteed. Would you buy stocks?

Had you anticipated precisely this event for 4Q 1987, you would have owned stocks for the biggest stock market crash since 1929. GDP was positive every quarter for 20 straight quarters before the crash and for 10 quarters thereafter. But the market crashed anyway. Three years after the start of 4Q 1987, stock prices were still below their level of that time despite 30 uninterrupted quarters of rising GDP.

Figure 10 shows these two events.

It seems that there is something wrong with the idea that investors rationally value stocks according to growth or contraction in GDP. ...
Claim #6: “Wars are bullish/bearish for stock prices.” ... (continued)

Keep reading the 50-page Independent Investor eBook now, free -- all you need is a free Club EWI password.

EUR/USD: Falling on "Risk Aversion"? Let's Look at the Timeline First

2011-05-20T12:02:00.000-07:00

EUR/USD: Falling on "Risk Aversion"? Let's Look at the Timeline First

It's not the "bad news" from Europe that has been pushing the euro lower
May 19, 2011

By Elliott Wave International

From the May 4 top near $1.4950, the EUR/USD (the euro-dollar exchange rate and the most actively-traded forex pair) has fallen as low as $1.4050 on May 16.

In other words, the dollar has gained 9 full cents on the euro in less than two weeks. That's a huge move, and people want explanations. And what the media offers boils down to "risk aversion," in light of "the bad news from Greece." And that sounds good -- until you check the timeline.

The latest wave of trouble in Europe started on May 3, when Portugal asked for a bailout. If you think that event is what pushed forex traders towards "risk aversion" -- think again. The euro happily gained against the U.S. dollar the following day, May 4, pushing the exchange rate to that high near $1.50.

And if you think the trouble in Greece pushed the EUR/USD lower -- again, please reconsider. Greece made a splash in the news on May 9, when its credit rating was downgraded. But by then the EUR/USD had already fallen some 700 pips, to the mid $1.42 range.

So, as good and logical as all the mainstream stories sound about "risk aversion" and "bad news from Europe," the timing of events doesn't fit. What then gave the dollar the strength -- and at a time when almost everyone expected it to only fall further?

Believe it or not (and it's easy to believe it, because, as this example shows, there's no better explanation) the news doesn't set broad trends in forex. Collective emotions of forex traders do. In early May, the majority was betting against the dollar. When everyone places their bets and there is no new money left to push the price further, it has no choice but to reverse.

That's why it pays to be extra cautious in the financial markets when everyone takes the same side of a trade. True, markets can stay overbought or oversold for a while, but the reversal inevitably comes -- and the stronger the one-sided conviction, the bigger the reversal.

The advantage Elliott wave analysis gives you is this: Wave patterns in forex charts track the collective mindset of the market players. By anticipating the price points where the Elliott wave pattern should end, you get a pretty good idea of where the trend should stop and reverse.
See for yourself how it works -- FREE -- during EWI's Forex FreeWeek now through May 26. Learn more >>

Don’t Miss Forex FreeWeek!
Now through Thursday, May 26 you'll have full and free access to our Intraday Currency Specialty Service. Dig deeper into the forex action with 24-hour-a-day forecasts, charts and analysis for dollar, euro, yen and more.
All you need to access FreeWeek is a FREE Club EWI profile. Set yours up today and don’t miss a moment of FreeWeek. Learn more>>

5 Ways the Wave Principle Can Improve Your Trading

2011-05-13T18:38:00.000-07:00

5 Ways the Wave Principle Can Improve Your Trading

May 12, 2011

By Elliott Wave International

Jeffrey Kennedy brings more than 15 years of experience to his position as Elliott Wave International’s Senior Analyst and trading instructor. He knows firsthand how hard it can be to get simple explanations of a trading method that works -- so he shares his knowledge with his subscribers each month in the Trader's Classroom lessons.

Here's an excerpt from The Best of Trader's Classroom, a free 45-page eBook that gives you the 14 most critical lessons every trader should know. Download the full eBook free here.

Every trader, every analyst and every technician has favorite techniques to use when trading. But where traditional technical studies fall short, the Wave Principle kicks in to show high-probability price targets. Just as important, it can distinguish high-probability trade setups from the ones that traders should ignore.

Where Technical Studies Fall Short
There are three categories of technical studies: trend-following indicators, oscillators and sentiment indicators. Trend-following indicators include moving averages, Moving Average Convergence-Divergence (MACD) and Directional Movement Index (ADX). A few of the more popular oscillators many traders use today are Stochastics, Rate-of-Change and the Commodity Channel Index (CCI). Sentiment indicators include Put-Call ratios and Commitment of Traders report data.

Technical studies like these do a good job of illuminating the way for traders, yet they each fall short for one major reason: they limit the scope of a trader's understanding of current price action and how it relates to the overall picture of a market. For example, let's say the MACD reading in XYZ stock is positive, indicating the trend is up. That's useful information, but wouldn't it be more useful if it could also help to answer these questions: Is this a new trend or an old trend? If the trend is up, how far will it go? Most technical studies simply don't reveal pertinent information such as the maturity of a trend and a definable price target -- but the Wave Principle does.

How Does the Wave Principle Improve Trading?
Here are five ways the Wave Principle improves trading:

1. Identifies Trend
The Wave Principle identifies the direction of the dominant trend. A five-wave advance identifies the overall trend as up. Conversely, a five-wave decline determines that the larger trend is down. Why is this information important? Because it is easier to trade in the direction of the dominant trend, since it is the path of least resistance and undoubtedly explains the saying, "the trend is your friend."

2. Identifies Countertrend
The Wave Principle also identifies countertrend moves. The three-wave pattern is a corrective response to the preceding impulse wave. Knowing that a recent move in price is merely a correction within a larger trending market is especially important for traders because corrections are opportunities for traders to position themselves in the direction of the larger trend of a market.

3. Determines Maturity of a Trend
As Elliott observed, wave patterns form larger and smaller versions of themselves. This repetition in form means that price activity is fractal, as illustrated in Figure 2-1. Wave (1) subdivides into five small waves, yet is part of a larger five-wave pattern. How is this information useful? It helps traders recognize the maturity of a trend. If prices are advancing in wave 5 of a five-wave advance for example, and wave 5 has already completed three or four smaller waves, a trader knows this is not the time to add long positions. Instead, it may be time to take profits or at least to raise protective stops.

4. Provides Price Targets
What traditional technical studies simply don't offer -- high-probability price targets -- the Wave Principle again provides. When R.N. Elliott wrote about the Wave Principle in Nature's Law, he stated that the Fibonacci sequence was the mathematical basis for the Wave Principle.

Elliott waves, both impulsive and corrective, adhere to specific Fibonacci proportions, as illustrated in Figure 2-2. For example, common objectives for wave 3 are 1.618 and 2.618 multiples of wave 1. In corrections, wave 2 typically ends near the .618 retracement of wave 1, and wave 4 often tests the .382 retracement of wave 3. These high-probability price targets allow traders to set profit-taking objectives or identify regions where the next turn in prices will occur.

5. Provides Specific Points of Ruin
At what point does a trade fail? Many traders use money management rules to determine the answer to this question, because technical studies simply don't offer one. Yet the Wave Principle does -- in the form of Elliott wave rules.

Rule 1: Wave 2 can never retrace more than 100% of wave 1.
Rule 2: Wave 4 may never end in the price territory of wave 1.
Rule 3: Out of the three impulse waves -- 1, 3 and 5 -- wave 3 can never be the shortest.

A violation of one or more of these rules implies that the operative wave count is incorrect. How can traders use this information? If a technical study warns of an upturn in prices, and the wave pattern is a second wave pullback, the trader knows specifically at what point the trade will fail -- a move beyond the origin of wave 1. That kind of guidance is difficult to come by without a framework like the Wave Principle.

Technical studies can pick out many trading opportunities, but the Wave Principle helps traders discern which ones have the highest probability of being successful. This is because the Wave Principle is the framework that provides history, current information and a peek at the future. When traders place their technical studies within this strong framework, they have a better basis for understanding current price action.

Don't miss the rest of the 14 most critical lessons that every trader should know. Download the free 45-page eBook The Best of Trader's Classroom.

How To Use Fibonacci Ratios in the Real World

2011-04-28T04:41:00.000-07:00

How To Use Fibonacci Ratios in the Real World
A free Club EWI report teaches the basics of Fibonacci analysis of commodities and other markets
April 27, 2011

By Elliott Wave International

What tools help you with the difficult task of identifying the market trend, riding it, and getting out before it reverses?

Consider Fibonacci ratios: Mathematical proportions by which moves on a market chart relate to each other. Fibonacci mathematics is an integral part of Elliott wave analysis; Frost & Prechter's classic "Elliott Wave Principle -- Key to Market Behavior" has an entire chapter on it.

And here's an excerpt from a free Club EWI report on the subject. Enjoy -- and for details on how to read the entire report free, look below.

How To Apply Fibonacci Math to Real-World Trading
(excerpt; full copy here)
By Jeffrey Kennedy
EWI Senior Tutorial Instructor
EWI Senior Commodity Analyst

It’s hard to imagine a wrong way to apply Fibonacci ratios or multiples to financial markets, and new ways are being tested every day. Let’s look at just some of the ways that I apply Fibonacci math in my own analysis. ...

Elliotticians often calculate Fibonacci extensions to project the length of Elliott waves. For example, third waves are most commonly a 1.618 Fibonacci multiple of wave one, and waves C and A of corrective wave patterns often reach equality (Figures 7-3 and 7-4).

One approach I like and have used for a number of years is a “reverse Fibonacci” application... (Continue reading this free report now with a free Club EWI password.)

Happy Trading!!

Understanding the Fed

2011-04-21T18:52:00.002-07:00

Understanding the Fed
EWI's free eBook explains the common and misleading myths about the U.S. Federal Reserve Bank
April 20, 2011

By Elliott Wave International

What exactly is the function of the Fed? If it's to help the U.S. economy grow steadily, then how come in 2007-2009 we had the biggest stock market crash in decades followed by "the Great Recession" and a worldwide financial crisis?

For answers, let's turn to someone who has spent a considerable amount of time studying the Fed and its functions: EWI's president Robert Prechter.

This is an excerpt from a free Club EWI eBook, "Understanding the Fed." Enjoy -- and for details on how to read this important 32-page eBook in full, free, look below.

The Fed’s Presumed Inflation Since 2008 Is Mostly a Mirage
Excerpted from Prechter's December 2009 Elliott Wave Theorist

... We all know that the Fed created $1.4 trillion new dollars in 2008. It has told the world that it will inflate to save the monetary system. So that is the news that most people hear.

But the Fed’s dramatic money creation in 2008 only seems to force inflation because people focus on only one side of the Fed’s action. Even though the Fed created a lot of new money, it did not affect the total amount of money-plus-credit one bit... When the Fed buys a Treasury bond, net inflation occurs, because it simply monetizes the government’s brand-new IOU. But in 2008, in order for the Fed to add $1.4 trillion new dollars to the monetary system, it removed exactly the same value of IOU-dollars from the market. It has since retired some of this money, leaving a net of about $1.3 trillion.

So investors, who previously held $1.3t. worth of IOUs for dollars, now hold $1.3t. worth of dollars. They are no longer debt investors but money holders. The net change in the money-plus-credit supply is zero. The Fed simply retired (temporarily, it hopes) a certain amount of debt and replaced it with money.

Evidence for this case is in Figure 4. Even though the Fed has swapped over a trillion dollars of new money for old debt, the banks aren’t lending it. The money multiplier is back in negative territory, which means that there is more debt being retired than there is new money being created. In other words, deflation is winning.

The bottom line is that the Fed hasn’t created much inflation over the past two years. The only reason that markets have been rallying recently is that the Elliott wave form required a rally. In other words, in March 2009 pessimism had reached a Primary-degree extreme, and it was time for a Primary-degree respite. The change in attitude from that time forward has, for a time, allowed credit to expand again.

But the Fed and the government didn’t force the change. They merely accommodated it, as they always have. They offered unlimited credit through the first quarter of 2009, and no one wanted it. In March, the social mood changed enough so that some people once again became willing to take these lenders up on their offer.

When credit collapses again during the wave 3 downtrend, we at Elliott Wave International will no longer have to keep “making the case” that the Fed is impotent. It will be clear once again, just as it was in 2008. (...continued)

Read the rest of this important 32-page eBook online now, free! All you need is to create a free Club EWI profile. Here's what it covers: Chapter 1: Money, Credit and the Federal Reserve Banking System
Chapter 2: What Makes Deflation Likely Today?
Chapter 3: Can the Fed Stop Deflation?
Chapter 4: Jaguar Inflation
Chapter 5: Can’t Buy Enough...of That Junky Stuff, or, Why the Fed Will Not Stop Deflation
Chapter 6: The Fed’s “Uncle” Point Is In View
Chapter 7: Government Thrashing
Chapter 8: The Coming Deflationary Pressure on the Government
Keep reading this free report now.

Does Deflation Remain a Threat?

2011-04-21T18:51:00.000-07:00

Does Deflation Remain a Threat?
A 90-Page "Deflation Survival Guide" Gives the Answer
April 19, 2011

By Elliott Wave International

"Every excess causes a defect; every defect an excess. Every sweet hath its sour...The waves of the sea do not more speedily seek a level from their loftiest tossing, than the varieties of condition tend to equalize themselves."

This quote comes from Ralph Waldo Emerson's essay, "Compensation." He opens the essay with a poem which includes these two lines:

"Mountain tall and ocean deep
Trembling balance duly keep."

Do Emerson's prose and poetry actually speak to the subject of deflation? Indeed they do.

Recent decades have seen the biggest credit inflation the world has ever known. So the question is: What will "duly keep" the "balance" of so great an "excess"? Well, a deflation of the same scale.

And the depth of deflation will be in proportion to the height of the credit build-up.
How high was the mountain of debt/credit? In 2008, it reached its zenith at $65 trillion. This chart from the January 2011 Elliott Wave Theorist shows what has happened since:

In that same issue of the Theorist, EWI's Robert Prechter observes: "This decline in overall money and credit is the first on an annual basis since 1929-1933. It is a big deal."

And the $65 trillion is a conservative number. Prechter also states:

"It does not count derivatives, which are IOU-ifs representing an estimated risk of indebtedness of $600t., or the unfunded liabilities of the federal government, which by some estimates amount to $300t."

Does history shed light on vast excesses in debt/credit and deflation? Read the excerpt below from Conquer the Crash (2nd ed.), pp. 88-90:

"Deflation requires a precondition: a major societal buildup in the extension of credit (and its flip side, the assumption of debt)... Elliott wave expert Hamilton Bolton... summarized his observations this way:
'In reading a history of major depressions in the U.S. from 1830 on, I was impressed with the following:
(a) All were set off by a deflation of excess credit. This was the one factor in common.
(b) Sometimes the excess-of-credit situation seemed to last years before the bubble broke.
(c) Some outside event, such as a major failure, brought the thing to a head, but the signs were visible many months, and in some cases years, in advance.
(d) None was ever quite like the last, so that the public was always fooled thereby.
(e) Some panics occurred under great government surpluses of revenue (1837, for instance) and some under great government deficits.
(f) Credit is credit, whether non-self-liquidating or self-liquidating.
(g) Deflation of non-self-liquidating credit usually produces the greater slumps.'"

Note that we have had more than "a major societal buildup in the extension of credit." The chart above also shows that "a deflation of excess credit" has been underway since 2008. As Hamilton Bolton said, this is the one factor all major depressions have in common.

To help plan and prepare for your financial future, we suggest that you take a FREE look at our deflation survival guide titled, "The Guide to Understanding Deflation." It's an eBook of Robert Prechter's most important recent warnings and teachings about deflation, and it's free.

To start your free read, simply sign-up to become a Club EWI member (membership is also free). Becoming a member only takes moments after you click here.

Learn How to Use Bar Patterns to Spot Trade Setups

2011-04-14T15:43:00.002-07:00

Learn How to Use Bar Patterns to Spot Trade Setups
Bar chart patterns often introduces sizable moves in price
April 14, 2011

By Elliott Wave International

To many novice investors, chart patterns might as well be tea leaves. Can they really tell you anything reliable? And even if they can, how in the world do you know what to look for?

Experienced traders know that the answer to the first question is a resounding "yes." As for the second one, we at EWI are all about recognizing chart patterns. To help you get started on this path, we've put together a free Club EWI resource called How to Use Bar Patterns to Spot Trade Setups.

It's a collection of lessons in trading and pattern recognition by one of EWI's top trading seminar instructors, Jeffrey Kennedy (who is also the firm's senior commodities analyst).

Enjoy this quick excerpt -- and for details on how to read this report in full, free, look below.

Chapter 1: How To Use Bar Patterns To Spot Trade Setups
Double Inside Bars

While many of my co-workers jog, bicycle or play in bands for a hobby, I amuse myself by looking through old price charts of stocks and commodities. Let’s look at a bar pattern that I call a “double inside day.”

Many of you who subscribe to my Daily Futures Junctures have seen me mention this bar pattern. I think everyone should be familiar with it. Why? Because it often introduces sizable moves in price -- always a good reason for a trader to pay attention.

So let’s begin with a basic definition: A double inside day, or bar, occurs when two inside bars appear in a row. An inside bar is simply a price bar with a high below the previous high and a low above the previous low.

Notice that the range of price bar number two encompasses price bar number one, and price bar number three encompasses price bar number two.

Figures 11-2 (Wheat) shows an example of double inside days and the price moves that followed. (Continued.)

Read the rest of this 15-page report online now, free! All you need is to create a free Club EWI profile. Here's what else you'll learn:

How To Use Bar Patterns To Spot Trade Setups
How To Make Bar Patterns Work For You
How To Use An Outside-Inside Reversal to Spot Trade Setups

Keep reading this free report now -- all you need to do is create a free Club EWI profile.

Inflation

2011-04-06T08:48:00.000-07:00

Michael Pento of Euro-Pacific Capital has a few thoughts about the Fed's view on inflation that I thought was interesting…

For years the Federal Reserve has told us that in order to detect inflation in the economy it is important to separate “signal from noise” by focusing on “core” inflation statistics, which exclude changes in food and energy prices. Because food and energy figure so prominently into consumer spending, this maneuver is not without controversy. But the Fed counters the criticism by pointing to the apparent volatility of the broader “headline” inflation figure, which includes food and energy. The Fed tells us that the danger lies in making a monetary policy mistake based on unreliable statistics. Being more stable (they tell us), the core is their preferred guide. Sounds reasonable…but it isn’t.

If it were truly just a question of volatility the Fed may have a point. But for headline inflation to be considered truly volatile, it must be evenly volatile both above and below the core rate of inflation over time. If such were the case, throwing out the high and the low could be a good idea. However, we have found that for more than a decade headline inflation has been consistently higher than core inflation. Once you understand this, it becomes much more plausible to argue that the Fed excludes food and energy not because those prices are volatile, but because they are high.

If you talk about the grand sweep of Fed policy, it’s fairly easy to fix the onset of our current monetary period with the onset of the dot.com recession of 2000. To prevent the economy from going further into recession at that time, the Fed began cutting interest rates farther and faster than at any other time in our history. During the ensuing 11 years, interest rates have been held consistently below the rate of inflation. Even when the economy was seemingly robust in the mid years of the last decade, monetary policy was widely considered accommodative.

Over that time annual headline Consumer Price Index (CPI) data has been higher than the Core CPI 9 out of 11 years, or 81% of the time. Looking at the data another way, over that time frame, the U.S. dollar has lost 20% of its purchasing power if depreciated year by year using core inflation, and 24% if depreciated annually with headline inflation. The same pattern held during the inflationary period between 1977 thru 1980, when the Fed’s massive money printing sent the headline inflation rate well above the core reading. The empirical evidence is abundantly clear. When the Fed is debasing the dollar, headline inflation rises faster than core. The reason for this is clear. Food and energy prices are closely exposed to commodity prices which have a strong negative correlation to the falling dollar that is created by expansionary policies.

Data we have seen thus far in 2011 underscores the need to focus on headline inflation and to avoid the trap of relying on the relatively benign core. The difference between the core rate and headline rate of inflation was .6 percent in January and a full percentage point in February. If annualized those relatively small monthly disparities will become enormous.

It is shocking how few Americans, even those with economic degrees and press credentials, fully appreciate the Fed’s vested interest in reporting low inflation. With benign data in hand, Fed policy makers are given a free hand in adopting stimulative policies. Central bankers who shower liquidity on the economy earn the gratitude of their peers and the thanks of their political patrons. But once a central bank goes down the expansionary path to fight recession it is much easier to keep pumping money than to reverse course when inflation starts to bite into purchasing power.

The sad truth is that the Fed’s record low interest rates are once again causing food and energy prices to rise much faster than core items. Bernanke is focusing on the core just as we need him to focus on the headline. It’s time for the Fed to stop hiding behind flimsy statistical juggling and to start protecting the value of our dollar, which unfortunately is in free fall no matter what statistics one chooses to use.

Happy Trading!!

Everything You Ever Wanted to Know About the Elliott Wave Principle

2011-04-02T13:47:00.000-07:00

Everything You Ever Wanted to Know About the Elliott Wave Principle, Free
Club EWI's free introductory tutorial on the Wave Principle is the key to unlocking the mystery of market behavior
March 31, 2011

By Elliott Wave International

Okay. There can be only two reasons why you are reading this article right now:

You thought "Elliott wave" was a surfing term for a wicked breaker, dude.

-- OR --

You're tired of fundamental analysis of financial markets leaving you behind the trend-moving curve, AND you're ready for an alternative.

If you answered the second choice, then you're in the right place. Fact is, you can probably count on all hands -- of a millipede -- the number of times the mainstream financial media has provided conflicting reports on how a certain news event "moves" a particular market. Case in point, the recent headlines below on the Dow Jones Industrial Average:

March 31 at 8:44 AM: "US Stocks Edge Lower After Jobless Claims Data" (International Business Times)
March 31 at 9:53 AM: "US Stocks Slightly Higher After Jobless Claims Data" (Wall Street Journal)

The Elliott Wave Principle resets the stage from an entirely different starting point. Wave analysis asserts that while certain news events can have a temporary, near-term effect on market prices, the larger trend is governed by one consistent force: social mood, or collective investor psychology.

This source of markets' trending power unfolds in calculable wave patterns visible on a market's price chart. Elliotticians know of 13 such patterns, each of which adheres to specific rules and guidelines. Ultimately, if you can identify one of these patterns, you can project what direction the pattern will move prices AND how far into that direction prices may go.

The best part is, Club EWI has recently re-released our most comprehensive Wave Principle tutorial ever, at no monetary cost. This 10-lesson course leaves no stone unturned and no question unanswered about the basic recognition of all Elliott patterns and their practical application in real-world markets.

In the end, the difference comes down to this simple reality: Before taking the Wave Principle tutorial, the price chart of a major financial market looked like this:

After taking the tutorial, that same chart comes into breathtaking being as the clearly labeled blue print to opportunity we see below:

Join the rapidly expanding Club EWI community today and get the complete, free Wave Principle Tutorial.

Still Enough Time to "Conquer the Crash?"

2011-03-28T18:08:00.000-07:00

Still Enough Time to "Conquer the Crash?"
Why a New York Times Bestseller Remains Relevant Now
March 28, 2011

By Elliott Wave International

"If you were fortunate enough to have read the first edition of Robert Prechter's Conquer the Crash, your money was safe and sound as stocks, real estate, commodities and many bonds plummeted."
Conquer the Crash, 2nd edition, (quote from inside book sleeve)

The New York Times bestseller Conquer the Crash published in 2002: As the quote above suggests, Bob Prechter advised readers to avoid risky assets and embrace cash and cash equivalents.

But did the 2007-2009 declines represent all of the bear market? And is the "Great Recession" over?

Many financial commentators believe the answer to both questions is "yes." The latest Elliott Wave Theorist reports on attitudes toward the rally of the past two years:

"...sentiment measures today do not indicate caution, skepticism and disbelief but rather multi-year extremes in optimism among five sets of market players: individual investors, futures traders, options traders, newsletter advisors and mutual fund managers."

Regarding the economic outlook, the March Elliott Wave Financial Forecast notes a recent business story headline which reads, "Good Times Ahead." The story quotes a top banker saying, "Businesses have plenty of capital and are starting to expand again."

The same issue of the Financial Forecast also reminded subscribers that the fear of inflation remains widespread:

"When Fed Chairman Ben Bernanke touched on the 'politically volatile subject of inflation' in [recent] Congressional testimony, the blogosphere erupted with proclamations about runaway prices across the board. Here's one sample, 'There can be only one possible result. Inflation of everything we use is going to explode.'"

Yet Robert Prechter has another perspective on market optimism, a business climate "turnaround," and notions of runaway inflation. That is why he updated the second edition of Conquer the Crash to include 188 new pages.

These new pages include "updated lists of banks, insurers and Treasury-only money market funds in the U.S., top-rated for safety."

More than ever, Prechter emphasizes safety. In a word, it's the key to conquering a severe market downturn. Follow the advice about safety in CTC, 2nd edition, and you'll be better prepared for a deflationary depression.

Elliott Wave International has put together a FREE, 8-lesson report based on Conquer the Crash, 2nd edition. This free, 42-page report can help you prepare for the future -- financially and economically! Why not read "8-Lesson: Conquer the Crash Collection"? It's FREE!
Become a member of Club EWI (membership is also free), and you'll have immediate access to "8 Lesson: Conquer the Crash Collection." Just follow this link and you're on your way to financial peace of mind.

Quantitative Easing: Why It Has NOT Brought Back Inflation

2011-03-27T14:34:00.000-07:00

Quantitative Easing: Why It Has NOT Brought Back Inflation
EWI's new groundbreaking FREE eBook teaches you how to think and invest independently
March 25, 2011

By Elliott Wave International

Below is an excerpt from the newest free Club EWI investor education resource, The Independent Investor eBook 2011. Inside are some of the most eye-opening research findings by EWI's president Robert Prechter, as published in the recent issues of his monthly Elliott Wave Theorist.

Enjoy this short excerpt -- and for details on how to read this eBook in full, free, look below.

Club EWI's Free Independent Investor eBook 2011 (excerpt)
Chapter 1: Quantitative Easing Has Not Brought Back the Old Inflationary Trend
(From Prechter's January 2011 Elliott Wave Theorist)

While long terms rates are rising, Treasury bill rates are stuck near zero. How is it possible?

... During hyperinflation, rates typically rise to double digits per month. Inflationists find it difficult to reconcile the Fed’s massive balance sheet growth over three years beginning in August 2008 with short term rates at zero and long term rates only in the 2-5% range.

Deflationists (all ten of us) understand why investors are willing to hold government paper at such low returns: The total supply of debt is contracting. Most bonds won’t survive. The federal government’s bonds will survive the longest.

Figure 10 shows that the total supply of “money” plus debt (all of which is in fact debt) peaked in 2008. This decline in overall money and credit is the first on an annual basis since 1929-1933. It is a big deal.

... This graph explains why gold in 2010 was so much lonelier in making an all-time high than stocks, commodities and real estate were in 2006, when everything was making an all-time high simultaneously: The total money + credit supply is down and cannot support new highs in all markets at once.

The Fed’s QE programs are failing to re-ignite inflation. By mid-2011, the Fed will have monetized just over $2 trillion worth of debt since 2008 to bring the value of its total assets to about $3t. This does represent a huge amount of fiat money. But the overall debt load is $65 trillion. Thus, the Fed will have monetized only 5% of the total, meaning that 95% of the outstanding debt is still suffocating the economy like a giant pool of sludge. …The Fed’s degree of monetization in light of these debts is very small.

For more of Robert Prechter’s insights on the markets, including why QE2 was a major tactical error, why rising oil prices are not bearish for stock, and why earnings don’t drive stock prices, read the rest of this FREE 51-page Independent Investor eBook. Download your free eBook NOW.

EWI's FreeWeek of Commodity Forecast

2011-03-17T22:24:00.000-07:00

Elliott Wave International has just announced the beginning of their popular commodity FreeWeek event, where non-subscribers can test-drive some of EWI's most popular premium services.

Now through noon Wednesday, March 23 (Eastern Time), you'll get access to all of EWI's hottest daily, weekly and monthly opportunities in softs, meats and ags, plus all the charts, world-class analysis, video forecasts along with practical real-world trader lessons, tips, tricks and more!

As many of the commodity markets are reaching new highs, the timing of this FreeWeek couldn’t be better. See the opportunities that are unfolding in commodities through the eyes of an EWI subscriber before this rare event expires.

Learn more and get instant access to EWI's FreeWeek of commodity forecasts and trading education now -- before the opportunity ends for good.

FreeWeek is one of EWI's most popular programs, and it's perfect for traders and investors who are curious about EWI's subscription services. Please don't hesitate to tell your friends about the exciting opportunity FreeWeek provides.

Big Advantage of Trading with the Wave Principle

2011-03-07T11:31:00.000-07:00

Big Advantages of Trading with the Wave Principle
Plus: Discover Where to Place "Protective Stops"
March 7, 2011

By Elliott Wave International

What advantages does the Wave Principle offer to traders?

Here's one of the big advantages of using the Wave Principle when trading: you can increase your understanding of how current price action relates to the market's larger trend.

Other tools fall short in this regard. Several trend-following indicators such as oscillators and sentiment measures have their strong points, yet they generally fail to reveal the maturity of a trend. Moreover, these technical approaches to trading are not as useful in establishing price targets as the Wave Principle.

Here's another big advantage of using the Wave Principle in your trading, which comes directly from the free eBook "How the Wave Principle Can Improve Your Trading" -

"Technical studies can pick out many trading opportunities, but the Wave Principle helps traders discern which ones have the highest probability of being successful."

Indeed, this valuable free eBook shows you how to identify and exploit the market's price pattern, as shown in the Elliott wave structure below:

The Wave Principle also helps you to identify price levels where you may want to place protective stops.

"...although the Wave Principle is highly regarded as an analytical tool, many traders abandon it when they trade in real-time -- mainly because they don't think it provides the defined rules and guidelines of a typical trading system.
But not so fast -- although the Wave Principle isn't a trading "system," its built-in rules do show you where to place protective stops in real-time trading."
"How the Wave Principle Can Improve Your Trading"

Before you attempt to identify price levels for protective or trailing stops, you should first become familiar with these three rules of the Wave Principle:

Wave 2 can never retrace more than 100 percent of wave 1
Wave 4 may never end in the price territory of wave 1
Wave 3 may never be the shortest impulse wave of waves 1, 3, and 5

The details and specific instructions for placing protective and trailing stops are in the BONUS section of the free eBook, "How the Wave Principle Can Improve Your Trading."

Here's what you'll learn:

How the Wave Principle provides you with price targets
How it gives you specific "points of ruin": At what point does a trade fail?
What specific trading opportunities the Wave Principle offers you
How to use the Wave Principle to set protective stops

Keep reading this free lesson now.

February's NFP

2011-03-07T06:12:00.000-07:00

Here are a few comments from analysis David Rosenberg. Take this into consideration when March numbers are released.

"Here is what I think is important: because of the winter storms, we really have to average out the past two months. So the January-February average for payrolls is +128k. Allowing for a similar reading in March that we received in February would generate an average increase for the first quarter of around 150k. That is little changed from what employment gains averaged on a monthly basis in the fourth quarter.

So while we are seeing positive job growth, it is not accelerating even though we are coming off the most intense impact of the fiscal and monetary easing that was unveiled late last year. In other words, we are disappointed with what is still a lackluster trend in net job creation, particularly in view of the peak stimulus we are currently experiencing.

What if Q1 is the peak for job growth? If you remember, we ended up with sub-3% GDP growth in the fourth quarter, which is about half of what we should be seeing at this stage of the cycle. And if we are generating jobs at a similar rate in the current quarter, barring a re-acceleration in productivity, growth again will be below 3% at a time when the consensus is closer to 3.5%. But more to the point — what if this represents the peak for the year? Because if there is one thing we do know, it is that this quarter contains all the incremental policy easing impact on the macro data.

What was particularly discouraging was the fact that both the wage number and the workweek were flat. Nominal wages, in fact, have been stagnant in three of the past four months. Weekly average earnings have also been flat or negative in three of the past four months. How on earth can these statistics possibly be viewed as bullish for the economy? The year-over-year-trend in average weekly earnings in the past three months has softened from 2.6% to 2.5% to 2.3% today. At the same time, it is probably reasonable to assume that surging food and fuel costs will bring headline inflation to, and possibly through, 3% in coming months. In other words, the growing risk of falling personal income in real terms, even with the positive growth in payrolls, is a glaring yellow light as far as the consumer spending outlook is concerned.

… Yes, the unemployment rate dipped again to a 22-month low of 8.9% from 9.0% in January and the nearby high of 9.8% in November. This reflected a 250k rise in Household employment — the third increase in a row — and a flat participation rate. A couple of behind-the-scene facts: from October to February, an epic 700k people have left the work force. If you actually adjust for the fact that the labour force participation rate has plunged this cycle to a 27-year low the unemployment rate would be sitting at 12% today. Moreover the employment-to-population ratio — the so-called “employment rate” — stagnated in February at 58.4% and is actually lower now than it was last fall when “double dip” was the flavour du jour.

All that matters in these employment reports is what the jobs environment means for income, because workers generally spend in the real economy. With credit harder to come by, and with fiscal policy soon to become more focused on austerity, it is the income that the labour delivers that will prove to be the critical determinant of the economic outlook. So while the “spin” may be over near-200k headline payroll gains, another dip in the headline unemployment rate, the organic income backdrop can really only be described as tentative, at best, especially in real terms as gasoline prices make their way to $4 a gallon by the time Memorial Day rolls around."

Happy Trading!!

Breaking News Bulletin: News Is NOT the Main Driver of Stock Market Trends

2011-03-03T10:15:00.000-07:00

Below is an excellent article from my friends at Elliott Wave International. Although it specifically speaks to the stock market we can draw consistencies with the other markets. And what about global macro views, Elliott wave and Gann forecasting? News is the fuel but technicals are the rudder providing direction. Enjoy!!

Breaking News Bulletin: News Is NOT the Main Driver of Stock Market Trends
A FREE myth-busting report from Club EWI reveals the real force behind long-term trend in financial markets
March 2, 2011

By Elliott Wave International

Breaking News Bulletin: News Is NOT the Main Driver of Stock Market Trends
A FREE myth-busting report from Club EWI reveals the real force behind long-term trend in financial markets

Conventional economic wisdom is founded on one core concept: namely, that events that exist outside the market (part of "market fundamentals") trigger trend changes in the financial markets.

Because of this belief, you have the mainstream experts of finance watching everything from weather patterns to crop conditions, political exploits to the subtlest changes in punctuation in the Fed's minutes -- all in the hopes of anticipating the next big move in commodities, stocks, gold, the dollar, etc. In a nutshell, "positive" news and events cause a rise in prices, while "negative" news pushes prices down.

In reality, however, things are not as clear-cut. Markets regularly "ignore" the news, shrug it off -- and move in the opposite direction of their "fundamental" cues. OR, worse waver in two different directions after the same event.

Take, for instance, the recent slew of news items following Federal Reserve chairman Ben Bernanke's March 1 testimony before the Senate Banking Committee:

"US Stocks Advance Ahead of Bernanke's Testimony" (International Business Times)
VERSUS -- "US Stocks Turn Lower As Bernanke Testifies To Congress" (NASDAQ)
VERSUS -- "US Stocks Rise With Bernanke In Focus" (MarketWatch)
VERSUS -- "Stocks Decline As Bernanke Comments Fall Flat." (Wall Street Journal)

What often ends up happening is this: Because the original event fails to predict the movement in stocks, commentators then sift through the day's news feed in search of a different "trigger" -- one that fits price action AFTER the fact.

The fallacy of a news-driven market is the first misconception exposed in Elliott Wave International's Club EWI free resource "The Independent Investor" eBook. Here's a short preview of this eye-opening report.

Chapter 1 opens with the question "What Really Moves the Market?" You then get the answer via riveting excerpts and charts from EWI president Bob Prechter's monthly Elliott Wave Theorist publications, such as this one below:

"Suppose the devil were to offer you historic news days in advance. He doesn't even ask you for your soul in exchange. He explains, 'What's more, you can hold a position for as little as a single trading day after the event or as long as you like.' It sounds foolproof, so you accept. His first offer: 'The President will be assassinated tomorrow.' You can't believe it. You and only you know what's going to happen. The devil transports you back to November 22, 1963. You short the market. Do you make money?

The first arrow in Figure 6 shows the timing of the assassination. The market initially fell, but by the close of the next trading day, it was above where it was at the moment of the event. You can't cover your short sales until the following day's opening because the devil said you could hold as briefly as one trading day after the event, but no less. You lose money."

Independent Investor eBook further exposes 10 other commonly held economic beliefs for what they truly are: Wall Street myths disguised as reality. Here's what else you'll learn:

The Problem With “Efficient Market Hypothesis”
How To Invest During a Long-Term Bear Market
What’s The Best Investment During Recessions: Gold, Stocks or T-Notes?
Why "Buy and Hold" Doesn’t Work Now
How To Be One of the Few the Government Hasn’t Fooled
How Gold, Silver and T-Bonds Will Behave in a Bear Market
MUCH MORE

Keep reading this 118-page Independent Investor eBook now, free -- all you need is a free Club EWI profile.

This article was syndicated by Elliott Wave International and was originally published under the headline Breaking News Bulletin: News Is NOT the Main Driver of Stock Market Trends. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

EURUSD Attacks Key Confluence Zone

2011-03-02T05:12:00.001-07:00

The EUR/USD is mounting another assault on the critical Fibonacci confluence zone of 1.3860 -1.4000 on the daily. A break above this level could signal a move to the 1.4276 level. The 1.4276 level represents the convergence of a significant confluence zone on both the monthly and weekly as well as the upper limits of a bearish channel on the monthly.

A Book Review: Fibonacci Analysis

2011-02-28T11:54:00.000-07:00

A book recommendation from Forex Journey -

If you have experience trading Fibonacci levels might I suggest a good read in Fibonacci Analysis by Constance Brown. This is not a beginners book, however, if you have been exposed to the basics of Fibonacci numbers, ratios and confluence and want to take it to the next level then this book might be for you.

Ms. Brown's passion on the subject is obvious. She takes you through her approach in a building block fashion that leaves you knowing that your learning curve is just beginning. Connie also introduces the reader to some basic Gann principals and hints at how these analysis work in concert.

If you are a passionate Fibonacci trader and want to enhance your knowledge on trading using Fib levels then I highly suggest adding this to your collection.

Amerikan Intervention

2011-02-25T05:59:00.002-07:00

Here's a blog post from Larry Levin on why oil pulled back over 8% yesterday. I thought you would enjoy this...

Oil was once again in the news today, but this time not for another price spike.

Yesterday I wrote, “While speaking at a Bloomberg breakfast in Washington Wednesday, Tax-Cheatin-Timmy of the Treasury admitted to central banking manipulation when he said, ‘The economy is in a much stronger position to handle’ higher oil prices. ‘Central banks have a lot of experience in managing these things.’ If anyone outside the Federal Reserve would have deep knowledge of how the ANTI-free market central banksters operate, it would be the head of the US Treasury. Moreover, Benron Bernanke has already admitted numerous times that his QE policy was designed to manipulate the stock market higher. Add oil to the list now, and soon the destruction of the gold and silver markets.”

From its high today, oil plummeted 8%. Tax-Cheatin-Timmy wasn’t bluffing, but I didn’t think he was anyway.

What got the oil market falling today was a rumor that the Libyan dictator Gaddafi had been shot and killed. With this news the initial reaction of the market was, “Great, now that that’s over relative calm will put Libyan oil back on the market.” My initial reaction was, “Wow, the central bankers just murdered Gaddafi.” It wouldn’t really be the first time that the global banking cartel put a hit on someone that interfered with its interventionist plans – would it?

The real news of what was slamming the oil market come out later: margins. The ICE exchange increased margins for both WTI and Brent crude oil contracts, while the NYMEX (now owned by the CME) increased the overnight margins for its WTI crude oil contract. Overnight margins were increased for speculators and hedgers alike.

With this news the reaction of the market was, “Damn it! I can’t afford to carry all of these long positions and this announcement will keep a lot of new traders from getting long and helping my current positions. SELL!” My reaction was, “Oh, so that’s how Tax-Cheatin-Timmy and Benron Bernanke manipulated the market – with a phone call. With one call from the Chairman of Intervention, the head of the CFTC was given his marching orders to bring oil down who in turn called the exchanges.”

Why didn’t EZ-Al Greenspin do the same with Nasdaq margins in 1999 and 2000? Oh yeah, because that would have brought sanity to the EQUITY bubble and we can’t have that. What was I thinking? My bad.

Trade well and follow the trend, not the so-called “experts.”

Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.

larrylevin@tradingadvantage.com
Trading Advantage
(888) 755-3846__

When You Feel the Elliott Waves, Your Eyes Become Wide Open

2011-02-24T16:02:00.001-07:00

When You FEEL the Elliott Waves, Your Eyes Become Wide Open
How the waves of social mood led to an investment method worth looking into
February 24, 2011

By Elliott Wave International

Have you ever been at the ocean body surfing, just waiting for that perfect wave? When you begin to truly feel it, your adrenaline starts pumping.

I came to work for Elliott Wave International in the late 1980s -- before the Internet, before ETFs, before smartphones. Part of my job was to review the many publications that came to our offices, in search of articles that spoke to the "mood" of the markets.

It was a task that constantly searched for an answer to the question, Is there a large cluster of articles in print right now to indicate that people are extremely "bullish" or "bearish"? At that time my searches related mostly to the commodities markets, but I also kept close tabs on stock market news.

At first it was tedious. When I found groups of articles that reflected a certain mood, I would clip and save them to a file for our analysts to review. Yet after several months, I actually began to develop a feel for the mood patterns in the articles. I started to use this to see if I could anticipate where the price trend would go over the next several days or weeks.

The idea was simple: When the mood in the news articles got extremely bullish – and our Elliott wave counts suggested that a rally was completed -- it would often represent a downside opportunity; when that mood became deeply gloomy, it was usually time to get bullish.

I was amazed -- my adrenaline was pumping. I actually started to get a feel for the waves -- a feeling for the direction of the market! I was hooked, so I took it to the next level.

I had read Prechter and Frost’s Elliott Wave Principle – Key to Market Behavior before I interviewed for my position. It was interesting, but it didn’t really speak to me. But after I had personally experienced and understood what it means to feel the mood of the markets, I read it again. The second time took on a whole new meaning.

If you read Elliott Wave Principle a long time ago, or wish to read it for the first time, Elliott Wave International has just released an online edition of this investment classic, free to members of Elliott Wave International’s Club EWI. Membership is free. This is your chance to learn how the waves of social mood can change the way you invest forever.

Follow this link to become a member, and to receive FREE online access to Elliott Wave Principle, and the many other free investment and trading reports available to Club EWI members.

Elliott Wave Principal

2011-02-15T19:28:00.003-07:00

Every successful trader or investor has a method that they rely on to make investment decisions. Without a method, investors must rely on the advice of others or their own emotions to make these decisions.

Elliott Wave analysis provides an objective method to forecast the direction of the markets. This theory was first brought to the public’s attention in 1978, in Frost and Prechter’s text Elliott Wave Principle. This classic book continues to sell thousands of copies each year. If you are at all familiar with technical analysis, you have probably heard about this method and read analysis based on the theory. It is used by successful investors and traders across the globe.

Now you can learn how to apply Elliott Wave analysis to the markets you follow FREE. For the first time ever, Robert Prechter has released an online edition that gives you instant access to the full 248-page book.

Until now this online edition was only available as an added benefit to subscribers of Elliott Wave International.

Elliott Wave Principle will teach you the 13 waves that can occur in the charts of the financial markets, the basics of counting waves, and the simple rules and guidelines that will help you to apply Elliott Wave for yourself. In addition to the theory, you will also learn the mathematical background, including Fibonacci analysis, and you’ll see examples of Elliott applied in indexes, stocks, and commodities.

As Prechter and Frost state in the Author’s Note:

“We trust our readers will be encouraged to do their own research by keeping a chart of hourly fluctuations of the Dow until they can say with enthusiasm, ‘I see it!’ Once you grasp the Wave Principle, you will have at your command a new and fascinating approach to market analysis.”

If you are looking for an objective, time-tested approach to trading the markets, try learning the method that successful investors have used for decades!

Access your online edition of Elliott Wave Principle - Key to Market Behavior, now. It's FREE.

Happy Trading and keep following the trend!!

Debate: Deadbeat Homeowner vs. The Banker

2011-02-09T09:58:00.018-07:00

Analysis of Interest

2011-02-08T07:04:00.003-07:00

from analyst David Rosenberg of Gluskin Sheff...

So Ben Bernanke focuses on equity valuations and yet there is a wide array of other “asset classes” that have been affected by the Fed’s massive liquidity infusion. Just as equity wealth has an indirect impact on spending, higher commodity prices squeeze margins for many producers and pinch real purchasing power for those households who are not owners of equity but have to fill their kids’ tummies nonetheless and find a way to get to work if they live more than a mile away. Looking at what food and energy has done since August; it would seem a little circumspect to be fingering Asian demand as the primary reason for the latest leg in the explosive commodity price rally.

Here we are, with 91% of all equity holdings in the United States held by the top 20% income group in the country. The top 1% own 38% of all the equity valuation. The lower 80% of the income strata own the asset class that the Fed wants so desperately to reflate (and with unmitigated success to be sure!). That same 80% are now being crushed by the indirect impacts of monetary policy — the ones that Bernanke dismisses — and are also ones that are seeing their cash flow drained by the surging gas and grocery bill. Geez — real wages deflated 0.5% in November, by 0.1% in December, and by what looks like at least 0.3% in January. The last time real work-based income fell three months in a row was when the economy was plumbing the recession’s depths from April to June of 2009.

Then again, who cares? No hedge fund investor does that is for sure (we don’t intend to be mean — that comment only covers the hours that the market is open). As long as Bernanke is juicing it up for the equity investor, and Uncle Sam is looking after the poor sucker with 99 weeks of unemployment insurance, 43 million food stamp recipients, and a nice dip into the Social Security Fund to finance a payroll tax cut, then all must be good and we must therefore have a sustainable recovery on our hands.

As we have said time and again, there will be a reward for being patient. After all, this equity rally has already achieved in 20 months what it took 60 months to accomplish from 2002 to 2007. In other words, double from the lows.

Friends — there is going to be day of reckoning. Trying to time it is futile. Just know it is coming and sooner than many think. Stop watching the talking heads on bubblevision and start boning up on the history of how post-bubble credit collapses end up playing out, especially once the government runs out of gas. Please don’t be tempted into the same mistake you may have made in 2007 and 2008 by jumping in to the riskiest parts of the markets at this juncture. In our view, it is currently appropriate to be focused on long-short strategies where an investor can manage or hedge out market risk and at the same time generate significant risk-adjusted returns. We understand what the market did from the 2009 lows, but we also know what they did from the 2000 highs. And the 2007 highs. Don’t be burnt thrice.

Happy Trading and keep following the trend!!

On the Docket: The Case Against Diversification

2011-02-07T16:31:00.001-07:00

On the Docket: The Case Against Diversification
Just because investment banks and stock brokerages say you should diversify doesn't make it true
February 7, 2011

By Elliott Wave International

Talk with an investment advisor, and what's the first piece of advice you will hear? Diversify your portfolio. The case for diversification is repeated so often that it's come to be thought of as an indisputable rule. Hardly anyone makes the case against diversifying your portfolio. But because we believe that too much liquidity has made all markets act similar to one another, we make that case. Heresy? Not at all. Just because investment banks and stock brokerages say you should diversify doesn't make it true. After all, their analysts nearly always say that the markets look bullish and that people should buy more now. For a breath of fresh air on this subject, read what Bob Prechter thinks about diversification.

* * * * *

Excerpt taken from Prechter's Perspective, originally published 2002, re-published 2004

Question: In recent years, mainstream experts have made the ideas of “buy and hold” and diversification almost synonymous with investing. What about diversification? Now it is nearly universally held that risk is reduced through acquisition of a broad-based portfolio of any imaginable investment category. Where do you stand on this idea?

Bob Prechter: Diversification for its own sake means you don’t know what you’re doing. If that is true, you might as well hold Treasury bills or a savings account. My opinion on this question is black and white, because the whole purpose of being a market speculator is to identify trends and make money with them. The proper approach is to take everything you can out of anticipated trends, using indicators that help you do that. Those times you make a mistake will be made up many times over by the successful investments you make. Some people say that is the purpose of diversification, that the winners will overcome the losers. But that stance requires the opinion that most investment vehicles ultimately go up from any entry point. That is not true, and is an opinion typically held late in a period when it has been true. So ironically, poor timing is often the thing that kills people who claim to ignore timing.

Sometimes the correct approach will lead to a diversified portfolio. There are times I have been long U.S. stocks, short bonds, short the Nikkei, and long something else. Other times, I’ve kept a very concentrated market position. My advice from mid-1984 to October 2, 1987, for instance, was to remain 100% invested in the U.S. stock market. During the bull market, I raised the stop-loss at each point along the wave structure where I could identify definite points of support. If I was wrong, investors would have been out of their positions. The potential was five times greater on the upside than the risk was on the downside, and five times greater in the stock market than any other area. Twice recently, in 1993 and 1995, I have had big positions in precious metals mining stocks when they appeared to me to be the only game in town. In 1993, it worked great, and they gained 100% in ten months. Diversification would have eliminated the profit. And every so often, an across-the-board deflation smashes all investments at once, and the person who has all his eggs in one basket, in this case cash, stays whole while everyone else gets killed.

* * * * *

Excerpt from The Elliott Wave Theorist, April 29, 1994

It is repeated daily that “global diversification” is self evidently an intelligent approach to investing. In brief, goes the line, an investor should not restrict himself to domestic stocks and bonds but also buy stocks and bonds of as many other countries as possible to “spread the risk” and ensure safety. Diversification is a tactic always touted at the end of global bull markets. Without years of a bull market to provide psychological comfort, this apparently self evident truth would not even be considered. No one was making this case at the 1974 low. During the craze for collectible coins, were you helped in owning rare coins of England, Spain, Japan and Malaysia? Or were you that much more hopelessly stuck when the bear market hit?

The Elliott Wave Theorist's position has been that successful investing requires one thing: anticipating successful investments, which requires that one must have a method of choosing them. Sometimes that means holding many investments, sometimes few. Recommending diversification so that novices can reduce risk is like recommending that novice skydivers strap a pillow to their backsides to “reduce risk.” Wouldn’t it be more helpful to advise them to avoid skydiving until they have learned all about it? Novices should not be investing; they should be saving, which means acting to protect their principal, not to generate a return when they don’t know how.

For the knowledgeable investor, diversification for its own sake merely reduces profits. Therefore, anyone championing investment diversification for the sake of safety and no other reason has no method for choosing investments, no method of forming a market opinion, and should not be in the money management business. Ironically yet necessarily given today’s conviction about diversification, the deflationary trend that will soon become monolithic will devastate nearly all financial assets except cash. If you want to diversify, buy some 6-month Treasury bills along with your 3-month ones.

Want More Reasons Why Diversification Should be Diverted from your Portfolio? Get our FREE report that explains the holes in the diversification argument. All you have to do is sign up as one of our Club EWI members. It's free, and it will give you access to more than this diversification report. Follow this link to instantly download this special free report, Death to Diversification – What it Means for Your Investment Strategy.

Good Article - QE2 and Inflation

2011-02-03T11:03:00.003-07:00

Here's a blog article that was sent to me that covered what's happening in the markets today and the the potential for inflation form the Feds actions.

The headlines are screaming at the top of every financial media outlet tonight: The Dow Closes Above 12,000 For the First Time in Two Years!

What's going on here? Is the recovery well and truly underway? And, if it is, why is the Fed dropping hints again that "QE3 may get discussed" at future Fed meetings, as Kansas City Fed President Thomas Hoenig said on Feb 1st?

The full article can be found here at:

http://www.chrismartenson.com/blog/how-long-can-party-in-stocks-last/52040

Happy Trading and Follow the Trend!!

Trendlines: How a Straight Line on a Chart Helps You Identify the Trend

2011-02-01T10:14:00.000-07:00

Trendlines: How a Straight Line on a Chart Helps You Identify the Trend
A free 14-page Club EWI report shows you 5 ways trendlines can improve your trading decisions
January 31, 2011

By Elliott Wave International

Technical analysis of financial markets does not have to be complicated. Here are EWI, our main focus is on Elliott wave patterns in market charts, but we also employ other tools -- like trendlines.

A trendline is a line on a chart that connects two points. Simple? Yes. Effective? You be the judge -- once you read the free 14-page Club EWI report by EWI's Chief Commodity Analyst and Senior Tutorial Instructor Jeffrey Kennedy.

Enjoy this free excerpt -- and for details on how to read this report in full, free, look below.

Trading the Line -- 5 Ways You Can Use Trendlines to Improve Your Trading Decisions
(Free Club EWI report, excerpt)
Chapter 1
Defining Trendlines
Before I define a trendline, we need to identify what a line is. A line simply connects two points, a first point and a second point. Within the scope of technical analysis, these points are typically price highs or price lows. The significance of the trendline is directionally proportional to the importance of point one and point two. Keep that in mind when drawing trendlines.
A trendline represents the psychology of the market, specifically, the psychology between the bulls and the bears. If the trendline slopes upward, the bulls are in control. If the trendline slopes downward, the bears are in control. Moreover, the actual angle or slope of a trendline can determine whether or not the market is extremely optimistic, as it was in the upwards sloping line in Figure 1-1 or extremely pessimistic, as it was in the downwards sloping line in the same figure.
You can draw them horizontally, which identifies resistance and support. Or, you can draw them vertically, which identifies moments in time. You primarily apply vertical trendlines if you’re doing a cycle analysis.
Chapter 2
Drawing Trendlines
In this section, I’ll show you how I draw trendlines. I’ll start with the most common, simple way to draw them...

For more free trading lessons on trendlines, download Jeffrey Kennedy's free 14-page eBook, Trading the Line – 5 Ways You Can Use Trendlines to Improve Your Trading Decisions. It explains the power of simple trendlines, how to draw them, and how to determine when the trend has actually changed. Download your free eBook.

Will Mideast Riots Impact Global Macro Views?

2011-01-31T08:44:00.003-07:00

Team -

Worried about how the riots in the middle east are going to impact int the global macro view of the markets? Marshall Auerback discusses this events and more on BNN here at http://watch.bnn.ca/#clip409237

Enjoy!!

Bank Bailouts Explained

2011-01-28T14:43:00.004-07:00

What Most People Don't Realize About The Fed's Superpowers

2011-01-27T16:51:00.001-07:00

What Most People Don't Realize About The Fed's Superpowers
Bob Prechter's Conquer The Crash reveals whether the Fed really can rescue the US economy
January 27, 2011

By Elliott Wave International

Since its creation in 1913, the primary intended role of the U.S. Federal Reserve Bank has been that of protector. In theory, the central bank was bestowed with the power to shape monetary policy in a way that would keep both booms and busts in check. The two main tools at its disposal -- interest rates and money creation -- would provide a "ceiling of normalcy" above expansions AND a "net of safety" below contractions.

To this day, the financial mainstream holds great faith in the Fed's ability to fulfill its save-the-day duties -- as these recent news items make plain:

"Why Raising Fed Funds Rate Is Positive For Equities." (Seeking Alpha)
"Fed's Moves Lift All Asset Classes." (Associated Press)
"US Stocks Erasing Losses: The aggressive moves of the Fed have been an important driver for the stabilization of stock prices." (Bloomberg)

But of all the variables the Fed creators took into account, there's one glaring factor they neglected to consider: Namely, it cannot force consumers to spend, creditors to lend, or businesses to borrow. The events of 2007-2009 "credit crunch" and the subsequent "Great Recession" made that obvious. Remember how the government was upset at banks for sitting on the bailout funds instead of lending them out to consumers? And consumers weren't exactly lining up on the street to get a loan, either.

The Fed's inability to change social mood is the central theme in Chapter 13 of EWI President Bob Prechter's NY Times business bestseller book Conquer the Crash. There, Bob describes the Fed's strategy of lowering the federal funds rate to stimulate spending to be as effective as "pushing on a string." Writes Bob:

"The primary basis for today's belief in perpetual prosperity and inflation with an occasional recession is what I call the 'Potent Directors Fallacy.' It is nearly impossible to find a treatise on macroeconomics today that does not assert or assume that the Federal Reserve Board has learned to control both our money and our economy. Many believe that it also possesses the immense power to manipulate the stock market. The very idea that it can do these things is false."

And so begins one of the most groundbreaking studies into the very real INABILITY of the Fed to fell the great bears of economic declines, or to feed the great bulls of economic vigor.

The best part is, you can read Chapter 13 of Conquer the Crash in its entirety FREE via a Club EWI resource "You Can Survive And Prosper In A Deflationary Depression." The free report also includes SEVEN other chapters of Conquer the Crash that shed equal light on some of the most misleading notions of mainstream economic wisdom.

Don't stay in the dark. Read all 8 chapters today by joining the rapidly expanding free Club EWI community today. Here's what you'll learn:

Chapter 10: Money, Credit and the Federal Reserve Banking System
Chapter 13: Can the Fed Stop Deflation?
Chapter 23: What To Do With Your Pension Plan
Chapter 28: How to Identify a Safe Haven
Chapter 29: Calling in Loans and Paying off Debt
Chapter 30: What You Should Do If You Run a Business
Chapter 32: Should You Rely on Government to Protect You?
Chapter 33: A Short List of Imperative "Do's" and Crucial "Don'ts"

Keep reading this free report now -- all you need to do is create a free Club EWI profile.

Basic Wave Patterns: How a Zig Zag Differs from a Flat

2011-01-21T15:05:00.001-07:00

Team -

Another great article form my friends at EWI!

Enjoy!!

Basic Wave Patterns: How a Zigzag Differs from a Flat

January 21, 2011

By Elliott Wave International

The big picture for Elliott wave analysis is five-wave patterns followed by three-wave patterns. Let's look at the three-wave corrections more closely to get a bead on how they differ from one another. This excerpt from EWI's Basic Tutorial describes in detail what you need to know about so-called zigzag and flat corrections to be able to recognize them on a price chart.

* * * * *

Excerpted from Lesson 3 of EWI's Basic Tutorial

A single zigzag in a bull market is a simple three-wave declining pattern labeled A-B-C. The subwave sequence is 5-3-5, and the top of wave B is noticeably lower than the start of wave A, as illustrated in Figures 1-22 and 1-23.

Figure 1-22 and Figure 1-23

In a bear market, a zigzag correction takes place in the opposite direction, as shown in Figures 1-24 and 1-25. For this reason, a zigzag in a bear market is often referred to as an inverted zigzag.

Figure 1-24 and Figure 1-25

Occasionally zigzags will occur twice, or at most, three times in succession, particularly when the first zigzag falls short of a normal target. In these cases, each zigzag is separated by an intervening "three," producing what is called a double zigzag (see Figure 1-26) or triple zigzag. These formations are analogous to the extension of an impulse wave but are less common.

Figure 1-26

The correction in the Standard and Poor's 500 stock index from January 1977 to March 1978 (see Figure 1-27) can be labeled as a double zigzag.…Within impulses, second waves frequently sport zigzags, while fourth waves rarely do.

Figure 1-27

* * * * *

Excerpted from Lesson 4 of EWI's Basic Tutorial

A flat correction differs from a zigzag in that the subwave sequence is 3-3-5, as shown in Figures 1-29 and 1-30. Since the first actionary wave, wave A, lacks sufficient downward force to unfold into a full five waves as it does in a zigzag, the B wave reaction, not surprisingly, seems to inherit this lack of countertrend pressure and terminates near the start of wave A. Wave C, in turn, generally terminates just slightly beyond the end of wave A rather than significantly beyond as in zigzags.

Figure 1-29 and Figure 1-30

In a bear market, the pattern is the same but inverted, as shown in Figures 1-31 and 1-32.

Figure 1-31 and Figure 1-32

Flat corrections usually retrace less of preceding impulse waves than do zigzags. They participate in periods involving a strong larger trend and thus virtually always precede or follow extensions. The more powerful the underlying trend, the briefer the flat tends to be. Within impulses, fourth waves frequently sport flats, while second waves do so less commonly.

What might be called "double flats" do occur. However, Elliott categorized such formations as "double threes," a term we discuss in Lesson 9.

The word "flat" is used as a catchall name for any A-B-C correction that subdivides into a 3-3-5. In Elliott literature, however, three types of 3-3-5 corrections have been identified by differences in their overall shape. In a regular flat correction, wave B terminates about at the level of the beginning of wave A, and wave C terminates a slight bit past the end of wave A, as we have shown in Figures 1-29 through 1-32. Far more common, however, is the variety called an expanded flat, which contains a price extreme beyond that of the preceding impulse wave. Elliott called this variation an "irregular" flat, although the word is inappropriate as they are actually far more common than "regular" flats.

Ready to learn more about how to use the Wave Principle? EWI's Basic Tutorial is written to give you all that you need to know to get started on your own wave analysis. To get access to this useful Basic Tutorial, sign up to become a Club EWI member here.

Here's what you'll learn:

What the basic Elliott wave progression looks like
Difference between impulsive and corrective waves
How to estimate the length of waves
How Fibonacci numbers fit into wave analysis
Practical application tips for the method
More

Keep reading this free tutorial today.

How a Simple Line Can Improve Your Trading Success

2011-01-19T16:46:00.000-07:00

How a Simple Line Can Improve Your Trading Success
Elliott Wave International's Jeffrey Kennedy explains many ways to use this basic tool
January 19, 2011

By Elliott Wave International

The following trading lesson has been adapted from Jeffrey Kennedy's eBook, Trading the Line – 5 Ways You Can Use Trendlines to Improve Your Trading Decisions. Now through February 7, you can download the 14-page eBook free. Learn more here.

"How to draw a trendline" is one of the first things people learn when they study technical analysis. Typically, they quickly move on to more advanced topics and too often discard this simplest of all technical tools.

Yet you’d be amazed at the value a simple line can offer when you analyze a market. As Jeffrey Kennedy, Elliott Wave International’s Chief Commodity Analyst, puts it:

“A trendline represents the psychology of the market, specifically, the psychology between the bulls and the bears. If the trendline slopes upward, the bulls are in control. If the trendline slopes downward, the bears are in control. Moreover, the actual angle or slope of a trendline can determine whether or not the market is extremely optimistic or extremely pessimistic.”

In other words, a trendline can help you identify the market's trend. Consider this example in the price chart of Google.

That one trendline -- drawn between the lows in 2004 and the lows in 2005 -- provided support for a number of retracements over the next two years.

That’s pretty basic. But there are many more ways to draw trendlines. When a market is in a correction, you can draw a trendline and then draw a parallel line: in turn, these two parallel lines can create a channel that often "contains" the corrective price action. When price breaks out of this channel, there’s a good chance the correction is over and the main trend has resumed. Here’s an example in a chart of Soybeans. Notice how the upper trendline provided support for the subsequent move.

Understanding the Federal Reserve Bank

2011-01-14T09:12:00.001-07:00

Understanding the Federal Reserve Bank
To understand what's a greater threat to the U.S. economy -- inflation or deflation -- it helps to understand what role the U.S. Federal Reserve plays
January 13, 2011

By Elliott Wave International

Despite so much focus on the policies of the Fed, its operations remain somewhat of a mystery to most investors -- in no smaller measure, due to their complexity.
So, we put together a free resource for our Club EWI members: a 35-page report that explains the Fed, its goals and, very importantly, its limitations in layman's terms.

Enjoy this excerpt -- and for details on how to read the 35-page free report in full now, look below.

Jaguar Inflation
Excerpted from Robert Prechter's February 2004 Elliott Wave Theorist
I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let’s try one.
It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To everyone’s delight, it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy. Sales again slow, so it lowers the price to $900 each. People return to the stores to buy two or three, or half a dozen. Why not? Look how cheap they are! Buyers give Jaguars to their kids and park an extra one on the lawn. Finally, the country is awash in Jaguars. Alas, sales slow again, and the government panics. It must move more Jaguars, or, according to its theory -- ironically now made fact -- the economy will recede. People are working three days a week just to pay their taxes so the government can keep producing more Jaguars. If Jaguars stop moving, the economy will stop. So the government begins giving Jaguars away. A few more cars move out of the showrooms, but then it ends. Nobody wants any more Jaguars. They don’t care if they’re free. They can’t find a use for them. Production of Jaguars ceases. It takes years to work through the overhanging supply of Jaguars. Tax collections collapse, the factories close, and unemployment soars. The economy is wrecked. People can’t afford to buy gasoline, so many of the Jaguars rust away to worthlessness. The number of Jaguars -- at best -- returns to the level it was before the program began.
The same thing can happen with credit.
It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing credit and providing it to as many people as possible. To facilitate that goal, it begins operating credit-production plants all over the country, called Federal Reserve Banks. To everyone’s delight, these banks offer the credit for sale at below market rates. People flock to the banks and buy. Later, sales slow down, so the banks cut the price again. More people rush in and buy. Sales again slow, so they lower the price to one percent. People return to the banks to buy even more credit. Why not? Look how cheap it is! Borrowers use credit to buy houses, boats and an extra Jaguar to park out on the lawn. Finally, the country is awash in credit. Alas, sales slow again, and the banks panic. They must move more credit, or, according to its theory -- ironically now made fact -- the economy will recede. People are working three days a week just to pay the interest on their debt to the banks so the banks can keep offering more credit. If credit stops moving, the economy will stop. So the banks begin giving credit away, at zero percent interest. A few more loans move through the tellers’ windows, but then it ends. Nobody wants any more credit. They don’t care if it’s free. They can’t find a use for it. Production of credit ceases. It takes years to work through the overhanging supply of credit. Interest payments collapse, banks close, and unemployment soars. The economy is wrecked. People can’t afford to pay interest on their debts, so many bonds deteriorate to worthlessness. The value of credit -- at best -- returns to the level it was before the program began.
See how it works?
Is the analogy perfect? No. The idea of pushing credit on people is far more dangerous than the idea of pushing Jaguars on them. ... I hate to challenge mainstream 20th century macroeconomic theory, but the idea that a growing economy needs easy credit is a false theory. Credit should be supplied by the free market, in which case it will almost always be offered intelligently, primarily to producers, not consumers. Would lower levels of credit availability mean that fewer people would own a house or a car? Quite the opposite. Only the timeline would be different. Initially it would take a few years longer for the same number of people to own houses and cars -- actually own them, not rent them from banks. Because banks would not be appropriating so much of everyone’s labor and wealth, the economy would grow much faster. Eventually, the extent of home and car ownership -- actual ownership -- would eclipse that in an easy-credit society. Moreover, people would keep their homes and cars because banks would not be foreclosing on them. As a bonus, there would be no devastating across-the-board collapse of the banking system, which, as history has repeatedly demonstrated, is inevitable under a central bank’s fiat-credit monopoly.
Jaguars, anyone?

Read the rest of this eye-opening report online now, free! All you need is a free Club EWI password. Other chapters in this free report include:

Money, Credit and the Federal Reserve Banking System
What Makes Deflation Likely Today?
Can’t Buy Enough...of That Junky Stuff, or, Why the Fed Will Not Stop Deflation
The Fed’s “Uncle” Pint Is In View
The Coming Deflationary Pressure on the Government
More

Keep reading this free report now -- all you need is a free Club EWI password.

The Bears Talk China's Manipulated Currency

2011-01-07T15:56:00.002-07:00

Interesting lesson on China's manipulated currency!

Empires on the Edge of Chaos

2011-01-04T16:51:00.002-07:00

Below is a link to a video clip featuring Niall Ferguson. In the video he discusses “Empires on the Edge of Chaos,” referring to the course of action the "we," the USA has taken. Be warned, the video is quite lengthy. I skipped to section 6 “Interest Payments as a Share of US Revenue.”

http://fora.tv/2010/07/28/Niall_Ferguson_Empires_on_the_Edge_of_Chaos#fullprogram

I think you will find this clip very, very interesting!

Happy Trading!!

Is Your Bank on the "100 Safest" List? Maybe You Should Find Out

2011-01-04T16:45:00.000-07:00

Is Your Bank on the "100 Safest" List? Maybe You Should Find Out
Close to Collapse: Bailed-Out Banks Facing Bankruptcy
January 4, 2011

By Elliott Wave International

We want to trust in the financial stability of our bank. After all, most of us have money in these institutions.

In spite of our wishful thinking, the tide of bank failures has not stopped. And these failures are occurring well after the heart of the financial crisis -- and even after some of these banks received bailouts.

"Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing.
The total, based on an analysis of third-quarter financial results by The Wall Street Journal, is up from 86 in the second quarter, reflecting eroding capital levels, a pileup of bad loans and warnings from regulators.
The 98 banks in shaky condition got more than $4.2 billion in infusions from the Treasury Department under the Troubled Asset Relief Program."
Wall Street Journal (12/26)

Seven of the 98 small banks mentioned have already failed.

In the U.S. so far this year, 157 banks have failed -- that's the highest number since 1992.

More failures are likely because many banks are burdened by questionable "assets" and bad real estate loans.

"...your money is only as safe as the bank's loans. In boom times, banks become imprudent and lend to almost anyone. In busts, they can't get much of that money back due to widespread defaults.
If the bank's portfolio collapses in value, say, like those of the Savings & Loan institutions in the U.S. in the late 1980s and early 1990s, the bank is broke, and its depositors' savings are gone."
Conquer the Crash, 2nd edition, pp. 175-176

Yes, the Federal Deposit Insurance Corporation (FDIC) insures depositors, but the question is: Does the FDIC have the wherewithal to "make whole" all depositors if scores of banks go under at the same time? Here at Elliott Wave International, we do not recommend that you count on the FDIC. Here's why:

"...did you know that most of the FDIC's money comes from other banks? This funding scheme makes prudent banks pay to save the imprudent ones, imparting weak banks' frailty to the strong ones.
When the FDIC rescues weak banks by charging healthier ones high 'premiums,' overall bank deposits are depleted, causing the net loan-to-deposit ratio to rise.
The result, in turn, means that in times of bank stress, it will take a progressively smaller percentage of depositors to cause unmanageable bank runs."
Conquer the Crash, 2nd edition, p. 177

Are some banks safer than others? We think so.

"Hope is not a strategy." If you plan to have money on deposit at a bank, we suggest reading our FREE report, "Discover the Top 100 Safest U.S. Banks." This 10-page bank safety report is available to you after you become a Club EWI member.

Inside the revealing free report, you'll discover:

The 100 Safest U.S. Banks (2 for each state)
Where your money goes after you make a deposit
How your fractional-reserve bank works
What risks you might be taking by relying on the FDIC's guarantee

Please protect your money. Download the free 10-page "Safe Banks" report now.
Learn more about the "Safe Banks" report, and download it for free here.

Prechter on CNBC - "Not a bear among them"

2011-01-04T16:43:00.002-07:00

December 30, 2010

Prechter on CNBC - "Not
a bear among them"

Robert Prechter of Elliott Wave International and Don Luskin of Trend Macro
share their opposing market views with CNBC host Larry Kudlow. (Note:
Prechter's interview starts about four minutes into the interview).

Get
Up to Speed on Robert Prechter's Latest Perspective — Download this
Special FREE Report Now.

Keep Ahead of the Herd in 2011

2010-12-31T07:51:00.001-07:00

Keep Ahead of the Herd in 2011
Learn to Survive and Thrive with Knowledge of Socionomics and the Elliott Wave Principle
December 31, 2010

By Elliott Wave International

Have you ever noticed that much of the time, the forecasts for what’s going to happen next are quite often just more of what happened last? There’s no real insight, just “expect more of the same.”

That’s not how we view the world here at Elliott Wave International, where instead we study patterns of positive and negative mood to predict changes in the stock market, current events and other trends.

Pop culture trends are more than just "interesting" -- analysis of social mood trends is part and parcel of Elliott Wave International's technical approach, helping us anticipate changes that most people never see coming.

Prechter's groundbreaking paper, "Pop Culture and the Stock Market," first published in 1985, lays out the foundation for his contrarian analysis:

1) Popular art, fashion and mores are a reflection of the dominant public mood.

2) Because the stock market changes direction in step with these expressions of mood, it is probably another coincident register of the dominant public mood and changes in it
.
3) Because a substantial change in mood in a positive or negative direction foreshadows the character of what are generally considered to be historically important events, mood changes must be considered as possibly, if not probably, being the basic cause of ensuing events.

Both a study of the stock market and a study of trends in popular attitudes support the conclusion that the movement of aggregate stock prices is a direct recording of mood and mood change within the investment community, and by extension, within the society at large.
It is clear that extremes in popular cultural trends coincide with extremes in stock prices, since they peak and trough coincidentally in their reflection of the popular mood.
The stock market is the best place to study mood change because it is the only field of mass behavior where specific, detailed, and voluminous numerical data exists. It was only with such data that R.N. Elliott was able to discover the Wave Principle, which reveals that mass mood changes are natural, rhythmic and precise.
The stock market is literally a drawing of how the scales of mass mood are tipping. A decline indicates an increasing 'negative' mood on balance, and an advance indicates an increasing 'positive' mood on balance.

The positive and negative events and trends of any given year paint a picture of society's mood as a whole. Haven’t we seen enough conventional forecasting fail miserably (remember the 2007-2009 debacle?) to consider an alternative method?

This new year, resolve to look at the world in a different light, and learn to anticipate changes that will keep you ahead of the herd with an understanding of socionomics and the Elliott Wave Principle.

As we enter 2011, we are happy to offer Prechter's "Popular Culture and the Stock Market" essay for FREE with your Club EWI sign-up. There is no obligation.

When you join Club EWI to access the "Pop Culture" essay, you can also access dozens of other free resources to help you understand how the Elliott Wave Principle and socionomic insight can help your investment strategies.

What Really Moves the Markets

2010-12-29T13:39:00.000-07:00

What Really Moves the Markets: News? The Fed? The Real Answers Will Surprise You
Elliott Wave International's free 118-page Independent Investor eBook explains why financial markets are NOT a matter of action and reaction
December 29, 2010

By Elliott Wave International

"There is no group more subjective than conventional analysts, who look at the same 'fundamental' news event a war, interest rates, P/E ratio, GDP, economic policy, the Fed’s monetary policy, you name it and come up with countless opposing conclusions. They generally don’t even bother to study the data." -- EWI president Robert Prechter, March 2004 Elliott Wave Theorist.

If you watch financial news, you probably share Bob Prechter's sentiment. How many times have you seen analysts attribute an S&P 500 rally to "good news from China," for example -- only to focus on a different, supposedly bearish, news story later the same day if the rally fizzles out?

You need objective tools to make objective forecasts. So, we put together a unique resource for you: a free 118-page Independent Investor eBook, where you see dozens of examples and charts that show what really creates market trends.

Here's a quick excerpt. For details on how to read the entire Independent Investor eBook online now, free, look below.

Independent Investor eBook
Chapter 1: What Really Moves the Markets? (excerpt)

Action and Reaction

In the world of physics, action is followed by reaction. Most financial analysts, economists, historians, sociologists and futurists believe that society works the same way. They typically say, “Because so-and-so has happened, such-and-such will follow.” ... But is it true?

Suppose you knew for certain that inflation would triple the money supply over the next 20 years. What would you predict for the price of gold?

Most analysts and investors are certain that inflation makes gold go up in price. They view financial pricing as simple action and reaction, as in physics. They reason that a rising money supply reduces the value of each purchasing unit, so the price of gold, which is an alternative to money, will reflect that change, increment for increment.

Figure 4 shows a time when the money supply tripled yet gold lost over half its value. In other words, gold not only failed to reflect the amount of inflation that occurred but also failed even to go in the same direction. It failed the prediction from physics by a whopping factor of six, thereby unequivocally invalidating it.

Investors who feared inflation in January 1980 were right, yet they lost dollar value for two decades...Gold’s bear market produced more than a 90% loss in terms of gold’s average purchasing power of goods, services, homes and corporate shares despite persistent inflation!

How is such an outcome possible? Easy: Financial markets are not a matter of action and reaction. The physics model of financial markets is wrong. ...

Cause and Effect

Suppose the devil were to offer you historic news a day in advance. ... His first offer: “The president will be assassinated tomorrow.” You can’t believe it. You and only you know it’s going to happen. The devil transports you back to November 22, 1963. You short the market. Do you make money? ...

[...continued in the free 118-page Independent Investor eBook]

Read the rest of the eye-opening report online now, free! All you need is a free Club EWI profile. Here's what else you'll learn:

The Problem With “Efficient Market Hypothesis”
How To Invest During a Long-Term Bear Market
What’s The Best Investment During Recessions: Gold, Stocks or T-Notes?
Why "Buy and Hold" Doesn’t Work Now
How To Be One of the Few the Government Hasn’t Fooled
How Gold, Silver and T-Bonds Will Behave in a Bear Market
MUCH MORE

Keep reading this 118-page Independent Investor eBook now, free -- all you need is a free Club EWI profile.

Parachutes vs. Pillows: Why Diversification Doesn't Work

2010-12-22T14:23:00.001-07:00

Parachutes vs. Pillows: Why Diversification Doesn't Work
Prechter and Kendall's "All the Same Market" Analysis Shows how Diversification Can't Protect You from Correlated Risk
December 22, 2010

By Elliott Wave International

A dear friend of mine wants to celebrate an important health milestone by going skydiving with friends. She feels happy and healthy and excited. She wants to do something very thrilling to celebrate.

I'm going to help my friend celebrate, by way of something very mundane: I intend to photograph the event from the ground. Of course I'm excited to be there, and I understand my friend's motivation -- it's just that I am not a thrill seeker (especially when it comes to heights)!

Similarly, I don't take big risks with my investments. I'm sure it's a thrill to make a million, but the risk of losing all my capital is too terrifying for me to stomach.

When I started to research my investment choices, the idea of "portfolio diversification" made a lot of sense to me. All of the "experts" said it's the key to reducing risk. It seemed safe in the same way that ropes and pulleys could really help a novice enjoy rock climbing or the trapeze.

But then I came across this gem of investing wisdom, written in terms that I understood on a visceral level:

Recommending diversification so that novices can reduce risk is like recommending that novice skydivers strap a pillow to their backsides to "reduce risk." Wouldn't it be more helpful to advise them to avoid skydiving until they have learned all about it? Novices should not be investing; they should be saving, which means acting to protect their principal, not to generate a return when they don't know how.

The Elliott Wave Theorist (April 29, 1994)

I can appreciate the metaphor.

What fascinates me even more is how this contrary view of diversification is magnified when you consider how markets can correlate.

In Conquer the Crash, Robert Prechter and Pete Kendall first put forth their "All the Same Market" hypothesis, stating that in the Great Asset Mania and its bear market aftermath, all markets "move up and down more or less together…as liquidity expands and contracts."

Consider, for instance, the tried and increasingly debilitating strategy of diversification. With the market smash extending across every investment front but cash, one might think that this concept would at least be challenged by now. But it remains a virtually uncontested truism among market advisors and their followers.

The Elliott Wave Financial Forecast (Oct 31, 2008)

The first edition of Conquer the Crash published in 2002; since then, our analysts have produced a multitude of chart-based evidence to demonstrate the coordinated trends across diverse financial markets.

Ready to turn in your pillow?

Anyone interested in making informed financial decisions can benefit from our newly available "Death to Diversification" eBook, which explains more about how you can avoid the false security of a diversified portfolio.

As a Club EWI member, we are proud to offer you this new FREE e-book: You can see for yourself the kind of analysis our subscribers have received and used for over 30 years.

Click here to login or sign up for instant access.

Learn Elliott Wave Analysis

2010-12-09T11:23:00.000-07:00

Learn Elliott Wave Analysis -- Free
Often, basics is all you need to know.
March 5, 2010

By Editorial Staff

Understand the basics of the subject matter, break it down to its smallest parts -- and you've laid a good foundation for proper application of... well, anything, really. That's what we had in mind when we put together our free 10-lesson online Basic Elliott Wave Tutorial, based largely on Robert Prechter's classic "Elliott Wave Principle -- Key to Market Behavior." Here's an excerpt:

Successful market timing depends upon learning the patterns of crowd behavior. By anticipating the crowd, you can avoid becoming a part of it. ...the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. In markets, progress ultimately takes the form of five waves of a specific structure.
The personality of each wave in the Elliott sequence is an integral part of the reflection of the mass psychology it embodies. The progression of mass emotions from pessimism to optimism and back again tends to follow a similar path each time around, producing similar circumstances at corresponding points in the wave structure.
These properties not only forewarn the analyst about what to expect in the next sequence but at times can help determine one's present location in the progression of waves, when for other reasons the count is unclear or open to differing interpretations.
As waves are in the process of unfolding, there are times when several different wave counts are perfectly admissible under all known Elliott rules. It is at these junctures that knowledge of wave personality can be invaluable. If the analyst recognizes the character of a single wave, he can often correctly interpret the complexities of the larger pattern.
The following discussions relate to an underlying bull market... These observations apply in reverse when the actionary waves are downward and the reactionary waves are upward.

1) First waves -- ...about half of first waves are part of the "basing" process and thus tend to be heavily corrected by wave two. In contrast to the bear market rallies within the previous decline, however, this first wave rise is technically more constructive, often displaying a subtle increase in volume and breadth. Plenty of short selling is in evidence as the majority has finally become convinced that the overall trend is down. Investors have finally gotten "one more rally to sell on," and they take advantage of it. The other half of first waves rise from either large bases formed by the previous correction, as in 1949, from downside failures, as in 1962, or from extreme compression, as in both 1962 and 1974. From such beginnings, first waves are dynamic and only moderately retraced. ...

Read the rest of this 10-lesson Basic Elliott Wave Tutorial online now, free! Here's what you'll learn:

What the basic Elliott wave progression looks like
Difference between impulsive and corrective waves
How to estimate the length of waves
How Fibonacci numbers fit into wave analysis
Practical application tips for the method
More

Keep reading this free tutorial today.

Simple Tools for Competent Traders

2010-12-02T23:03:00.000-07:00

Simple Tools for Competent Trades
Improve your Financial Decision-Making Skills with Guidance from EWI Chief Commodity Analyst Jeffrey Kennedy.
December 2, 2010

By Elliott Wave International

Improve your Financial Decision-Making Skills with Guidance from EWI Chief Commodity Analyst Jeffrey Kennedy.

As a high school freshman, I had a friend over to do math homework after school. It was cold in the room, so I stood on my chair and jumped up and down to try and bat open a closed heating vent.

My dad walked in and commented on the geometry problem we were working on, as I continued to struggle, unsuccessfully, to open the vent. Then, he handed me a ruler from the table and said:

"Simple tools are what separate us from the animals."

Without another word, he left us to finish our homework. Sadly, I don't remember any of the geometric formulas that I was trying to master on that winter's day. But you can bet that I have never failed to reach for a simple, practical tool since.

Here at Elliott Wave International, our technical analysts provide you with simple, practical tools that can help your analysis and trading.

EWI Senior Analyst Jeffrey Kennedy has spent years using and mastering — among many other technical trading tools — several well-known moving average techniques. In the process, he has even developed his own personal moving average method that he calls the "Stoplight System."

For a limited time, the first two chapters of "How You Can Find High-Probability Trading Opportunities Using Moving Averages" are available FREE when you join Club EWI.

In these excerpts, Jeffrey will teach you about:

Defining the Moving Average and Its Components
The Dual Moving Average Cross-Over System
Moving Average Price Channel System
Combining the Crossover and Price Channel Techniques
The Most Popular Moving Averages

Like any good mentor, Jeffrey's insights are meant to help you become more successful and highly evolved in your endeavors.

Here is one of the charts showing how moving averages are similar to the Wave Principle in signaling buying opportunities:

This chart of Corning shows how each time the market moves into the price channel (marked by the short vertical lines), it signals a buying opportunity. When Corning's price breaks through the price channel (indicated by the short diagonal line), the trend has turned to the downside. So, we have a clear uptrend followed by a clear downtrend.

Remember, "Simple tools are what separate us from the animals."

We have extended our special offer -- for a limited time, the first two chapters of "How You Can Find High-Probability Trading Opportunities Using Moving Averages" are available FREE -- through December 6th. Sign up for a free Club EWI membership and gain instant access to the excerpt by clicking here!

Don't Miss Out!

2010-11-30T19:47:00.001-07:00

Due to strong demand, Robert Prechter’s Elliott Wave International (EWI) has extended the time you can get your FREE Moving Averages eBook until December 6!

The 10-page eBook, How You Can Find High-Probability Trading Opportunities Using Moving Averages by EWI Senior Analyst Jeffrey Kennedy, has rapidly become one of their most popular trading resources with thousands of downloads.

Download it now and you will see why.

Learn how Moving Averages, one of the most widely-used methods of technical analysis, can benefit your trading with this quick, 10-page lesson.

Download Your Free eBook Now.

(Don't miss out. This report will not be available after December 6.)

United STRAITS of America: The Muni Bond Crisis Is Here

2010-11-24T15:18:00.001-07:00

I am always an advocate of maintaining a grasp of the big picture. It is why I find the following article interesting....

United STRAITS of America: The Muni Bond Crisis Is Here
Elliott wave subscribers were prepared for municipal bonds troubles months in advance
November 24, 2010

By Elliott Wave International

This November, the whole world tuned in as the greater part of the U.S.A.'s 50 states turned red -- and no, I don't mean the political shift to a republican majority during the November 2 mid-term elections. I mean "in the red" -- as in, financially fercockt, overdrawn, up to their eyeballs in debt.

Here are the latest stats: California, Florida, Illinois, and New Jersey now suffer "Greek-like deficits," alongside draconian budget cuts, job furloughs, suspensions of city services, and the growing "rent-a-cop" trend of firing city workers and then hiring outside contractors to fill those positions.

Next is the fact that the municipal bond market has been melting like a snow cone in the Sahara desert. According to recent data, 35 muni bond issues totaling $1.5 billion have defaulted since January 2010, three times the average annualized rate going back to 1983. Also, in the week ending November 19, investors withdrew a record $3.1 billion from mutual and exchange-traded funds specializing in municipal debt, triggering the largest one-day rise in yields since the panic of '08.

In the words of a recent LA Times article "It's a cold, cold world in the municipal bond market right now."

And for those who never saw the muni bond crisis coming, it's a lot colder.

Since at least 2008, the mainstream experts extolled munis for their "safe haven resistance to recession." And while muni bond woes are only now making headlines, one of the few sources that foresaw the depth and degree of the crisis coming ahead of time was Elliott Wave International's team of analysts. Here's an excerpt from the April 2008 Elliott Wave Financial Forecast (EWFF):

“One of the most vulnerable sectors of the debt markets is the municipal bond market. Instead of being a source of state and local funding, many residents will become a cost. Default could hit at any moment after times get difficult… Yields on tax-exempt municipal bonds are above yields on US Treasuries for the first time in as long as anyone can remember, another sign of how limited the supply of quality bonds will become.”

EWI continued to warn subscribers ever since:

February 2009 EWFF: Special section “Out of the Frying Pan and into Munis” showed the continued rise in muni yields ABOVE Treasury yields and cautioned against the idea that tax-exempt debt was a “safe bet.”
September 2010 Elliott Wave Theorist: "The Next Disaster: The public has withdrawn some money from stock mutual funds... But most investors ... are shunning treasuries for high-yield money market funds and bond funds, which hold less-than-pristine corporate and municipal debt."

And now, in the just-published November 19 Elliott Wave Theorist, EWI president Robert Prechter captures the full extent of the unfolding muni crisis via the following chart:

Read more about Robert Prechter's warnings for holders of municipals and other bonds in his free report: The Next Major Disaster Developing for Bond Holders. Access your free 10-page report now.

This article was syndicated by Elliott Wave International and was originally published under the headline United STRAITS of America: The Muni Bond Crisis Is Here. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Robert Prechter Explains The Fed, Part III

2010-11-24T15:14:00.002-07:00

As promised, I've just posted Part III of the three-part series "Robert Prechter Explains The Fed."

Robert Prechter Explains The Fed, Part III

The world's foremost Elliott wave expert goes "behind the scenes" on the Federal Reserve
November 24, 2010

By Elliott Wave International

This is Part III, the final part of our series "Robert Prechter Explains The Fed." (Here are Part I and Part II.)

Money, Credit and the Federal Reserve Banking System
Conquer the Crash, Chapter 10
By Robert Prechter
How the Federal Reserve Has Encouraged the Growth of Credit
Congress authorized the Fed not only to create money for the government but also to “smooth out” the economy by manipulating credit (which also happens to be a re-election tool for incumbents). Politics being what they are, this manipulation has been almost exclusively in the direction of making credit easy to obtain. The Fed used to make more credit available to the banking system by monetizing federal debt, that is, by creating money. Under the structure of our “fractional reserve” system, banks were authorized to employ that new money as “reserves” against which they could make new loans. Thus, new money meant new credit.
It meant a lot of new credit because banks were allowed by regulation to lend out 90 percent of their deposits, which meant that banks had to keep 10 percent of deposits on hand (“in reserve”) to cover withdrawals. When the Fed increased a bank’s reserves, that bank could lend 90 percent of those new dollars. Those dollars, in turn, would make their way to other banks as new deposits. Those other banks could lend 90 percent of those deposits, and so on. The expansion of reserves and deposits throughout the banking system this way is called the “multiplier effect.” This process expanded the supply of credit well beyond the supply of money.
Because of competition from money market funds, banks began using fancy financial manipulation to get around reserve requirements. In the early 1990s, the Federal Reserve Board under Chairman Alan Greenspan took a controversial step and removed banks’ reserve requirements almost entirely. To do so, it first lowered to zero the reserve requirement on all accounts other than checking accounts. Then it let banks pretend that they have almost no checking account balances by allowing them to “sweep” those deposits into various savings accounts and money market funds at the end of each business day. Magically, when monitors check the banks’ balances at night, they find the value of checking accounts artificially understated by hundreds of billions of dollars. The net result is that banks today conveniently meet their nominally required reserves (currently about $45b.) with the cash in their vaults that they need to hold for everyday transactions anyway. [1st edition of Prechter's Conquer the Crash was published in 2002 -- Ed.]
By this change in regulation, the Fed essentially removed itself from the businesses of requiring banks to hold reserves and of manipulating the level of those reserves. This move took place during a recession and while S&P earnings per share were undergoing their biggest drop since the 1940s. The temporary cure for that economic contraction was the ultimate in “easy money.”
We still have a fractional reserve system on the books, but we do not have one in actuality. Now banks can lend out virtually all of their deposits. In fact, they can lend out more than all of their deposits, because banks’ parent companies can issue stock, bonds, commercial paper or any financial instrument and lend the proceeds to their subsidiary banks, upon which assets the banks can make new loans. In other words, to a limited degree, banks can arrange to create their own new money for lending purposes.
Today, U.S. banks have extended 25 percent more total credit than they have in total deposits ($5.4 trillion vs. $4.3 trillion). Since all banks do not engage in this practice, others must be quite aggressive at it. For more on this theme, see Chapter 19 [of Conquer the Crash].
Recall that when banks lend money, it gets deposited in other banks, which can lend it out again. Without a reserve requirement, the multiplier effect is no longer restricted to ten times deposits; it is virtually unlimited. Every new dollar deposited can be lent over and over throughout the system: A deposit becomes a loan becomes a deposit becomes a loan, and so on.
As you can see, the fiat money system has encouraged inflation via both money creation and the expansion of credit. This dual growth has been the monetary engine of the historic uptrend of stock prices in wave (V) from 1932. The stupendous growth in bank credit since 1975 (see graphs in Chapter 11) has provided the monetary fuel for its final advance, wave V. The effective elimination of reserve requirements a decade ago extended that trend to one of historic proportion.
The Net Effect of Monetization
Although the Fed has almost wholly withdrawn from the role of holding book-entry reserves for banks, it has not retired its holdings of Treasury bonds. Because the Fed is legally bound to back its notes (greenback currency) with government securities, today almost all of the Fed’s Treasury bond assets are held as reserves against a nearly equal dollar value of Federal Reserve notes in circulation around the world. Thus, the net result of the Fed’s 89 years of money inflating is that the Fed has turned $600 billion worth of U.S. Treasury and foreign obligations into Federal Reserve notes.
Today the Fed’s production of currency is passive, in response to orders from domestic and foreign banks, which in turn respond to demand from the public. Under current policy, banks must pay for that currency with any remaining reserve balances. If they don’t have any, they borrow to cover the cost and pay back that loan as they collect interest on their own loans. Thus, as things stand, the Fed no longer considers itself in the business of “printing money” for the government. Rather, it facilitates the expansion of credit to satisfy the lending policies of government and banks.
If banks and the Treasury were to become strapped for cash in a monetary crisis, policies could change. The unencumbered production of banknotes could become deliberate Fed or government policy, as we have seen happen in other countries throughout history. At this point, there is no indication that the Fed has entertained any such policy. Nevertheless, Chapters 13 and 22 address this possibility.

Do you want to really understand the Fed? Then keep reading this free eBook, "Understanding the Fed", as soon as you become a free member of Club EWI.

Discover the Dynamics of Using Moving Averages

2010-11-23T14:24:00.000-07:00

Discover the Dynamics of Using Moving Averages
How to Spot High-Probability Trading Opportunities
November 23, 2010

By Elliott Wave International

The "moving average" is a technical indicator which has stood the test of time. Nearly 25 years ago, Robert Prechter described this indicator in his famous essay, "What a Trader Really Needs to be Successful." What he said then remains true today:

"...a simple 10-day moving average of the daily advance-decline net, probably the first indicator a stock market technician learns, can be used as a trading tool, if objectively defined rules are created for its use."

Indeed, "objectively defined rules" are vital to the successful use of moving averages. And as you might imagine, advanced rules and guidelines work to the benefit of more advanced technicians.

What is a moving average? As EWI's Jeffrey Kennedy puts it, "A moving average is simply the average value of data over a specified time period, and it is used to figure out whether the price of a stock or commodity is trending up or down."
Jeffrey also says, "One way to think of a moving average is that it's an automated trend line."

A 15-year veteran of technical analysis, Jeffrey wrote "How You Can Find High-Probability Trading Opportunities Using Moving Averages."
[Descriptions of the following charts are summaries from that eBook]:

Let's begin with the most commonly-used moving averages among market technicians: the 50- and 200-day simple moving averages. These two trend lines often serve as areas of resistance or support.

For example, the chart below shows the circled areas where the 200-period SMA provided resistance in an April-to-May upward move in the DJIA (top circle on the heavy black line), and the 50-period SMA provided support (lower circle on the blue line).

Let's look at another widely used simple moving average which works equally well in commodities, currencies, and stocks: the 13-period SMA.

In the sugar chart below, prices crossed the line (marked by the short, red vertical line), and that cross led to a substantial rally. This chart also shows a whipsaw in the market, which is circled.

Jeffrey's 33-page eBook also reveals a useful tool to help you avoid "whipsaws."

You can read the first two chapters for FREE for a limited time, once you become a Club EWI member.

The first two chapters reveal:

The Dual Moving Average Cross-Over System
Moving Average Price Channel System
Combining the Crossover and Price Channel Techniques

Jeffrey's insights are all about making you a better trader. Remember, the first two eBook chapters are FREE through November 30. So take advantage of this limited time offer by clicking here!

Robert Prechter Explains The Fed, Part II

2010-11-22T10:39:00.002-07:00

Robert Prechter Explains The Fed, Part II
The world's foremost Elliott wave expert goes "behind the scenes" on the Federal Reserve

November 22, 2010
By Elliott Wave International

This is Part II of our three-part series "Robert Prechter Explains The Fed." You can read Part I here -- and come back later this week for Part III.

Money, Credit and the Federal Reserve Banking System
Conquer the Crash, Chapter 10
By Robert Prechter

... Let’s attempt to define what gives the dollar objective value. As we will see in the next section, the dollar is “backed” primarily by government bonds, which are promises to pay dollars. So today, the dollar is a promise backed by a promise to pay an identical promise. What is the nature of each promise? If the Treasury will not give you anything tangible for your dollar, then the dollar is a promise to pay nothing. The Treasury should have no trouble keeping this promise.

In Chapter 9 [of Conquer the Crash], I called the dollar “money.” By the definition given there, it is. I used that definition and explanation because it makes the whole picture comprehensible. But the truth is that since the dollar is backed by debt, it is actually a credit, not money. It is a credit against what the government owes, denoted in dollars and backed by nothing. So although we may use the term “money” in referring to dollars, there is no longer any real money in the U.S. financial system; there is nothing but credit and debt.

As you can see, defining the dollar, and therefore the terms money, credit, inflation and deflation, today is a challenge, to say the least. Despite that challenge, we can still use these terms because people’s minds have conferred meaning and value upon these ethereal concepts.

Understanding this fact, we will now proceed with a discussion of how money and credit expand in today’s financial system.

How the Federal Reserve System Manufactures Money

Over the years, the Federal Reserve Bank has transferred purchasing power from all other dollar holders primarily to the U.S. Treasury by a complex series of machinations. The U.S. Treasury borrows money by selling bonds in the open market. The Fed is said to “buy” the Treasury’s bonds from banks and other financial institutions, but in actuality, it is allowed by law simply to fabricate a new checking account for the seller in exchange for the bonds. It holds the Treasury’s bonds as assets against -- as “backing” for -- that new money. Now the seller is whole (he was just a middleman), the Fed has the bonds, and the Treasury has the new money.

This transactional train is a long route to a simple alchemy (called “monetizing” the debt) in which the Fed turns government bonds into money. The net result is as if the government had simply fabricated its own checking account, although it pays the Fed a portion of the bonds’ interest for providing the service surreptitiously. To date (1st edition of Prechter's Conquer the Crash was published in 2002 -- Ed.), the Fed has monetized about $600 billion worth of Treasury obligations. This process expands the supply of money.

In 1980, Congress gave the Fed the legal authority to monetize any agency’s debt. In other words, it can exchange the bonds of a government, bank or other institution for a checking account denominated in dollars. This mechanism gives the President, through the Treasury, a mechanism for “bailing out” debt-troubled governments, banks or other institutions that can no longer get financing anywhere else. Such decisions are made for political reasons, and the Fed can go along or refuse, at least as the relationship currently stands. Today, the Fed has about $36 billion worth of foreign debt on its books. The power to grant or refuse such largesse is unprecedented.

Each new Fed account denominated in dollars is new money, but contrary to common inference, it is not new value. The new account has value, but that value comes from a reduction in the value of all other outstanding accounts denominated in dollars. That reduction takes place as the favored institution spends the newly credited dollars, driving up the dollar-denominated demand for goods and thus their prices. All other dollar holders still hold the same number of dollars, but now there are more dollars in circulation, and each one purchases less in the way of goods and services. The old dollars lose value to the extent that the new account gains value.

The net result is a transfer of value to the receiver’s account from those of all other dollar holders. This fact is not readily obvious because the unit of account throughout the financial system does not change even though its value changes.

It is important to understand exactly what the Fed has the power to do in this context: It has legal permission to transfer wealth from dollar savers to certain debtors without the permission of the savers. The effect on the money supply is exactly the same as if the money had been counterfeited and slipped into circulation.

In the old days, governments would inflate the money supply by diluting their coins with base metal or printing notes directly. Now the same old game is much less obvious. On the other hand, there is also far more to it. This section has described the Fed’s secondary role. The Fed’s main occupation is not creating money but facilitating credit. This crucial difference will eventually bring us to why deflation is possible.

[Next: Prechter explains "how the Federal Reserve has encouraged the growth of credit."]

Come back later this week for Part III of the series "Robert Prechter Explains The Fed." Or, read more now in the free Club EWI report, "Understanding the Federal Reserve System."

Happy Trading!!

Robert Prechter Explains The Fed, Part I

2010-11-19T13:36:00.000-07:00

Robert Prechter Explains The Fed, Part I
The world's foremost Elliott wave expert goes "behind the scenes" on the Federal Reserve
November 19, 2010

By Elliott Wave International

The ongoing financial crisis has made the central bank's decisions -- interest rates, quantitative easing (QE2), monetary stimulus, etc. -- a permanent fixture on six-o'clock news.

Yet many of us don't truly understand the role of the Federal Reserve.

For answers, let's turn to someone who has spent a considerable amount of time studying the Fed and its functions: EWI president Robert Prechter. Today we begin a 3-part series that we believe will help you understand the Fed as well as he does. (Excerpted from Prechter's Conquer the Crash and the free Club EWI report, "Understanding the Federal Reserve System.") Here is Part I.

Money, Credit and the Federal Reserve Banking System
Conquer the Crash, Chapter 10
By Robert Prechter
An argument for deflation is not to be offered lightly because, given the nature of today’s money, certain aspects of money and credit creation cannot be forecast, only surmised. Before we can discuss these issues, we have to understand how money and credit come into being. This is a difficult chapter, but if you can assimilate what it says, you will have knowledge of the banking system that not one person in 10,000 has.
The Origin of Intangible Money
Originally, money was a tangible good freely chosen by society. For millennia, gold or silver provided this function, although sometimes other tangible goods (such as copper, brass and seashells) did. Originally, credit was the right to access that tangible money, whether by an ownership certificate or by borrowing.
Today, almost all money is intangible. It is not, nor does it even represent, a physical good. How it got that way is a long, complicated, disturbing story, which would take a full book to relate properly. It began about 300 years ago, when an English financier conceived the idea of a national central bank. Governments have often outlawed free-market determinations of what constitutes money and imposed their own versions upon society by law, but earlier schemes usually involved coinage. Under central banking, a government forces its citizens to accept its debt as the only form of legal tender. The Federal Reserve System assumed this monopoly role in the United States in 1913.
What Is a Dollar?
Originally, a dollar was defined as a certain amount of gold. Dollar bills and notes were promises to pay lawful money, which was gold. Anyone could present dollars to a bank and receive gold in exchange, and banks could get gold from the U.S. Treasury for dollar bills.
In 1933, President Roosevelt and Congress outlawed U.S. gold ownership and nullified and prohibited all domestic contracts denoted in gold, making Federal Reserve notes the legal tender of the land. In 1971, President Nixon halted gold payments from the U.S. Treasury to foreigners in exchange for dollars. Today, the Treasury will not give anyone anything tangible in exchange for a dollar. Even though Federal Reserve notes are defined as “obligations of the United States,” they are not obligations to do anything. Although a dollar is labeled a “note,” which means a debt contract, it is not a note for anything.
Congress claims that the dollar is “legally” 1/42.22 of an ounce of gold. Can you buy gold for $42.22 an ounce? No. This definition is bogus, and everyone knows it. If you bring a dollar to the U.S. Treasury, you will not collect any tangible good, much less 1/42.22 of an ounce of gold. You will be sent home.
Some authorities were quietly amazed that when the government progressively removed the tangible backing for the dollar, the currency continued to function. If you bring a dollar to the marketplace, you can still buy goods with it because the government says (by “fiat”) that it is money and because its long history of use has lulled people into accepting it as such. The volume of goods you can buy with it fluctuates according to the total volume of dollars -- in both cash and credit -- and their holders’ level of confidence that those values will remain intact.
Exactly what a dollar is and what backs it are difficult questions to answer because no official entity will provide a satisfying answer. It has no simultaneous actuality and definition. It may be defined as 1/42.22 of an ounce of gold, but it is not actually that. Whatever it actually is (if anything) may not be definable. To the extent that its physical backing, if any, may be officially definable in actuality, no one is talking. ...

Do you want to really understand the Fed? Then keep reading this free eBook, "Understanding the Fed", as soon as you become a free member of Club EWI.

eBook teaches you how to apply Moving Averages to your trading or investing

2010-11-18T04:02:00.000-07:00

Robert Prechter’s Elliott Wave International (EWI) has just released a free 10-page trading eBook: How You Can Find High-Probability Trading Opportunities Using Moving Averages, bySenior AnalystJeffrey Kennedy.

Moving averages are one of the most widely-used methods of technical analysis because they are simple to use, and they work. Now you can learn how to apply them to your trading and investing in this free eBook. Let EWI's Jeffrey Kennedy teach you step-by-step how moving averages can help you find high-probability trading opportunities. Jeffrey's trading eBooks have been downloaded thousands of times because he knows how to take complex trading methods and teach them in a way you can immediately understand and apply. You'll be amazed at how quickly you can benefit from Moving Averages with just this quick, 10-page lesson.

Improve your trading and investing with Moving Averages!

Download Your Free eBook Now.

(Don't miss out. It's only available until November 30.)

How to Find Correct Elliott Wave Patterns in Market Charts

2010-11-16T20:00:00.000-07:00

How to Find Correct Elliott Wave Patterns in Market Charts

(Note: This video was originally recorded on August 10, 2007)
In this timeless trading lesson on Elliott wave analysis, Elliott Wave International's Senior Currency Analyst Jim Martens gives you an answer to a very important question: "If you've identified the wrong Elliott Wave pattern, how do you find the right one?"

NEW! Get 32 pages of FREE practical trading lessons in EWI's new Trader's Classroom eBook.

Download your FREE Trader's Classroom eBook now.
A few minutes of learning not enough? Get 32 pages of free practical lessons in EWI's new Trader's Classroom eBook. Taken from EWI's Jeffrey Kennedy's renowned Trader's Classroom series, this FREE 32-page collection of actionable lessons can help you find opportunities in commodities and other markets with more confidence.

Euro's Twists and Turns: What's Next for the Currency?

2010-11-16T19:57:00.000-07:00

Euro's Twists and Turns: What's Next for the Currency?

(Note: This video was recorded on November 5, 2010)
Since the November 4 high, the euro has declined sharply against the U.S. dollar. Does this mean that it's time for a trend change in the dollar? Watch the free video below to get Elliott Wave International's Senior Currency Strategist Jim Martens' take on what he thinks is coming next.

EWI's Forex FreeWeek is happening now! For an entire week you get free access to EWI's intensive Currency Specialty Service. Hurry! Forex FreeWeek ends Thursday, Nov. 18..

FOREX EDUCATION AND ANALYSIS

Learn to Find Trading Opportunities Using Fibonacci

(Video) Bob Prechter Explains 'Triple Top' Forming in U.S. Stock Market

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How to Find and "Hook" Potential Trade Setups

Here's anothr free lesson on how deploy the Elliott Wave Princple in your trading plan...

Happy Trading!!

How to Find and "Hook" Potential Trade Setups

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Club EWI's free "Independent Investor eBook, 2011 Edition" offers you an unorthodox view of the Fed's quantitative easing program

June 28, 2011

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Can the Fed and Economists Forecast the Future? See This Startling Chart.

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Stocks Rally On the News of Bin Laden's Death, You Say? It's Not That Simple

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January 10, 2012

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Plus: The check is STILL in the mail.
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Robert Prechter reveals why he embraced the Wave Principle.
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Learn to apply Fibonacci ratios to calculate price targets in stocks
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And What Does It Have to Do with the Stock Market?
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May 19, 2011

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May 12, 2011

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A free Club EWI report teaches the basics of Fibonacci analysis of commodities and other markets
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April 20, 2011

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Everything You Ever Wanted to Know About the Elliott Wave Principle, Free
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