Recent history proves that the Fed’s "control" is just an illusion.
March 31, 2010

By Editorial Staff

Think back to the fall of 2007. The deflationary "liquidity crunch" that over the next year-and-a-half cuts the DJIA in half, decimates commodities, real estate and world markets is only starting. Almost no one believes that the crash is coming — to a large degree, because everyone is convinced that the U.S. Federal Reserve Bank, with Ben Bernanke at the helm, will never allow deflation to happen: It can just print money!

The excerpt you are about to read is from EWI president Robert Prechter’s October 19, 2007, Elliott Wave Theorist. If you find it insightful, read more of Bob’s writings in the free Club EWI resource, "Robert Prechter’s Most Important Writings on Deflation." (Details below.)

You cannot pick up a newspaper, turn on financial TV or read an economist’s report without hearing that the Fed’s latest discount-rate cut is bullish because it indicates the Fed’s decision to “pump liquidity” into the system. This opinion is so completely wrong that it is hard to believe its ubiquity.

First of all, the Fed does not “decide” where it wants interest rates. All it does is follow the market. Figure 17 proves it. Wherever the T-bill rate goes, the Fed’s “target rate” for federal funds immediately follows. That’s all there is to it.

If you refuse to believe your eyes, then listen to the chairman; Alan Greenspan is very clear on this point. On September 17, a commentator on CNBC asked, “Did you keep the interest rates too low for too long in 2002-2003?” Greenspan immediately responded, “The market did.” Rates were not “too low” or the period “too long,” either, because the market, not the Fed, made the decision on the level and the time, and the market is never wrong; it is what it is. If investors in trillions of dollars worth of U.S. Treasury debt worldwide had demanded higher interest, they would have gotten it, period.

Second, falling interest rates are almost never bullish. All you have to do to understand this point is look at Figure 18.

Interest rates fell persistently through three of the greatest bear markets in history: 1929-1932 in the Dow, 1990-2003 in the Japanese Nikkei, and 2000-2002 in the NASDAQ. The only comparably deep bear market in the past 80 years in which interest rates rose took place in the 1970s when the Value Line index dropped 74%. Economists all draw upon this experience, but they ignore the others. Today’s environment of extensive investment leverage and an Everest of debt in the banking system is far more like 1929 in the U.S. and 1989 in Japan than it is like the 1970s. Why is a decline in interest rates bearish in such an environment? Because it means a decline in the demand for credit. When people want less of something, the price goes down.

The recent drop in rates indicates less borrowing, which means that the primary prop under investment prices — the expansion of credit — is weakening. That’s one reason why stock prices fell in 2000-2002 and why they are vulnerable now. This is the opposite of “pumping liquidity”; it’s a slackening in liquidity.

Read the rest of this important 63-page report, "Robert Prechter’s Most Important Writings on Deflation" online now, free! All you need is to create a free Club EWI profile. You’ll learn:

• When Does Deflation Occur?
• What Triggers the Change to Deflation
• What Makes Deflation Likely Today?
• How Big a Deflation?
• Why Bernanke Has Been Powerless Against Deflation
• The Big Bailout Bluff
• MORE 

Read more about the Deflation Survival Guide here.

Elliott Wave International (EWI) is the world’s largest market forecasting firm. EWI’s 20-plus analysts provide around-the-clock forecasts of every major market in the world via the internet and proprietary web systems like Reuters and Bloomberg. EWI’s educational services include conferences, workshops, webinars, video tapes, special reports, books and one of the internet’s richest free content programs, Club EWI.

How the Dow Has Really Performed When Measured in Real Money (Gold)
March 30, 2010

By Elliott Wave International

"Your cheating chart will tell on you."

Hank Williams may not have known about Elliott waves, but he did know when a story doesn’t add up.

Such is the case with the nominal rise of the Dow Jones Industrials from 2000 to 2007. In the language of country music, this stock index has a "Cheatin’ Chart" — it doesn’t tell the real story.

Download Robert Prechter’s FREE 40-Page Gold and Silver eBook. This valuable ebook explores the role of gold in today’s markets like no other resource has attempted. You will get more than Prechter’s long-term outlook on gold and silver; you’ll also learn how gold still plays an important role in determining the real value behind nominal share prices. Learn more, and download your Gold and Silver eBook here.

You don’t have to tell Bob Prechter this: He knows. A simple price chart of the Dow is, well, a bit too simple. First Bob explains that pricing via fiat currency is not the same as pricing the Dow in terms of real money (namely gold). Then he shows the difference.

For six long years, we’ve had declining real values in stocks. Since the 2002 bottom, we’ve had rising values in nominal terms. This is the same set-up that we saw in the early ’70s except for one thing: it’s bigger. . .Ultimately, real prices are leading dollar prices, and we’re going to see a tremendous drop in the dollar price of the Dow as well, because I’m making a case that this is a much bigger top.

Elliott Wave Theorist, December 2006

If gold were our money, the major stock market indexes would have declined relentlessly from 2000 to the present, with a muted bounce in 2003. There would be no arguing the point of whether a bull or bear market was in force.

Elliott Wave Theorist, March 2006

This "oh-so-true" chart of the DJIA priced in gold showed the path that the "cheatin’" nominal Dow would eventually follow. Our forecast was that it’s just a matter of time. This analysis has played out as expected several times since the 1999 high in the Dow Jones Industrials.

The July 1999 top in the real Dow was the first in a long succession of rolling blow-offs that (The Elliott Wave Financial Forecast) successfully identified From the DJIA’s orthodox top in 2000 to the NASDAQ’s all-time high several weeks later to the top in residential real estate prices in 2005 to the nominal peaks in major stock indexes in 2007 to the wild commodity spikes in 2008, EWFF managed to anticipate many of the markets major trend changes. . .We owe these forecasting successes to the Wave Principle and its reflection of market psychology and its foreshadowing of larger social forces.

Elliott Wave Financial Forecast, July 2009

The monthly Elliott Wave Financial Forecast keeps a tireless eye on stocks, real estate, commodities and much more. We also keep track of the precious metals and the dollar — and even keep our finger on the pulse of developing social trends.

The quotes above confirm the power of Elliott wave analysis in identifying market turns in various asset classes.

Download Robert Prechter’s FREE 40-Page Gold and Silver eBook. This valuable ebook explores the role of gold in today’s markets like no other resource has attempted. You will get more than Prechter’s long-term outlook on gold and silver; you’ll also learn how gold still plays an important role in determining the real value behind nominal share prices. Learn more, and download your Gold and Silver eBook here.

Elliott Wave International (EWI) is the world’s largest market forecasting firm. EWI’s 20-plus analysts provide around-the-clock forecasts of every major market in the world via the internet and proprietary web systems like Reuters and Bloomberg. EWI’s educational services include conferences, workshops, webinars, video tapes, special reports, books and one of the internet’s richest free content programs, Club EWI.

Gold has had some dramatic moves in the last eighteen months and we expect it will have some equally dramatic moves in the future, but not right now. See our new gold market video here.

While I recognize that gold is one of the few commodity markets that people are really passionate about; the purpose of this article is not to take sides either with the gold bugs or those who reject the argument that gold is forever.  Rather, I want to discuss my interpretation of the markets cycle.

After spot gold made an all-time high against the dollar on December 2 at $1,226.37, gold has been in retreat mode. For the for the past several months gold has been in a broad trading range, seemingly unable to move one way or another. This process has created frustration from bulls and bears alike.

Here is the dirty little secret about the gold market. It can be a horrible investment and here’s why:

Gold first started trading in the 80s while I was on the floor of the Chicago Mercantile Exchange in Chicago as a member of the International Monetary Market, (IMM) which was at that time a division of the CME now the CME Group.  When gold opened up the public clamored to buy into the gold futures market and guess who sold it to them? That’s right it was the pros- the guys who made their living trading. As a result, gold hit an all-time high of around $850 an ounce back then and it took almost 25 years for gold to move over that level, at least in dollar terms. I don’t know what your timeline is, but 25 to 30 years is an awful long time to get even again.

So what is really happening in this market?

Everyone is aware of the problems in Europe with Greece, Portugal and a host of yet to be named countries. We all know that the huge amount of money being printed, coupled with the bank failures abroad contribute to the dollars declining value. These events, in conjunction with the American governments actions, also contribute to the devaluation of the dollar. The government claims that this is beneficial to exports, but the bottom line is that the purchasing power of the American dollar continues to erode in world markets.

Based on the declining value of world currency against gold you might ask- why isn’t gold trading at $2,000 or even $3,000 an ounce? What is wrong with this market? This is because a great deal of what goes into the gold market is psychological and reacts to cyclic trends driven by both psychological and economic factors.

So what does all this have to do with the price of gold now? It has everything to do with gold and nothing to do with gold.

Here is what I’ve been able to observe in the last several years in gold and seems to be holding true.  It is something that you should pay attention to if you’re interested in the next big move in the gold market.

Before gold can move higher it needs to create what I call an "energy field".  The most recent energy fields in gold were between May 12, 2006 and September 20, 2007. This 17 month energy field saw gold prices oscillate between a broad trading range bound by $730.08 (upside) and $541.80 (downside).  That energy field produced enough power to propel gold to the new high of $1,012.40 on March 17, 2008. This marked the first time gold exceeded, in dollar terms, the highs set in the early 80s mentioned earlier.

The energy fields I have observed for gold are taking somewhere between 17 and 18 months to complete. If the energy field holds, then the December 3rd 2009 high of $1,226.37 should remain in place for quite some time. If the same cycle remains true then the recent lows that we witnessed, at $1,050, should also remain intact as they represent the 15 to 16 month cycle low.

With the lows in place the next question becomes when is the next cyclical high in gold? Based on the existing cycle, we can expect the next major gold high in 2011.

To summarize: I expect gold to be locked in a broad trading range for the next 12 months bounded by the December 09 highs of 1,226.37 and the lows of $1,050.00. If the gold cycle holds true, we expect that gold tops the $1,226.37 marker by April or May of 2011.

On the on the upside we will also be looking for gold to make a nature cyclic high in October or November of 2011. It’s impossible to predict the future with any degree of accuracy; however when we look at the cycles in gold this reads as a pretty good bet.

No matter what happens we expect gold will offer some great trading opportunities that investors and traders should be able to take advantage of.

Here is the link to the gold market video.

As I always discuss- in trading one should approach gold or any other market with a game plan and proper money management stops. The key to success in this decade will be an investors willingness to move in and out of asset classes such as gold and be well diversified into more than one asset class. That way you wont be left holding the bag for the next 25 years. Our World Commodity Portfolio is a good example of this approach and one I believe will serve investors well in the coming years.

All the best,
Adam Hewison
President, INO.com
Co-creator, MarketClub

March 29, 2010

By Editorial Staff

The word Fibonacci (pronounced fib-oh-notch-ee) can draw either blank stares or an enthusiastic response. There’s hardly any in-between ground. But for those who ask how an esoteric mathematical relationship can apply to price charts and trading, here’s a quick lesson. Everyone who uses Elliott wave analysis will sooner or later want to try using Fibo techniques, and Elliott Wave International’s Jeff Kennedy has written about five of them in a Trader’s Classroom column. For an example of why people are so fascinated by Fibonacci, read part of Kennedy’s article here:

* * * * *

How to Apply Fibonacci Math to Real-World Trading
Have you ever given an expensive toy to a small child and watched while the child had less fun playing with the toy than with the box that it came in? In fact, I can remember some of the boxes I played with as a child that became spaceships, time machines or vehicles to use on dinosaur safaris.

In many ways, Fibonacci math is just like the box kids enjoy playing with imaginatively for hours on end. 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 I apply Fibonacci math in my own analysis.

Fibonacci Retracements
Financial markets demonstrate an uncanny propensity to reverse at certain Fibonacci levels. The most common Fibonacci ratios I use to forecast retracements are .382, .500 and .618. On occasion, I find .236 and .786 useful, but I prefer to stick with the big three. You can imagine how helpful these can be: Knowing where a corrective move is likely to end often identifies high-probability trade setups (Figures 7-1 and 7-2).

Kennedy then goes on to explain Fibonacci extensions, circles, fans and time, using 11 charts to show what he means. Whether or not you are a math geek, you can learn a lot from this six-page introduction to Fibonacci math.

Get Your Fibonacci Techniques Right Here. Jeffrey Kennedy has been using and teaching these techniques for years, and he has written a quick description of five Fibonacci techniques in his Trader’s Classroom column — now available to you for free by signing up as a Club EWI member. Read more about the 6-page report here.

Elliott Wave International (EWI) is the worlds largest market forecasting firm. EWIs 20-plus analysts provide around-the-clock forecasts of every major market in the world via the internet and proprietary web systems like Reuters and Bloomberg. EWIs educational services include conferences, workshops, webinars, video tapes, special reports, books and one of the internets richest free content programs, Club EWI.

In today’s short video, we take a look at Nike stock and project what we see in the future for this market.

As you know, we’ve discussed energy fields in the past and just how important they are to markets and Nike is no different. There is a huge energy field under this market capable of carrying it much, much higher. In the video I discuss a specific target zone for this stock.

As always, our videos are free to watch and there are no registration requirements. I would really like to hear back from you in regards to your thoughts on this video. Watch this video.

All the best,
Adam Hewison
President, INO.com
Co-creator, MarketClub

Today we dissect this market and look at it step-by-step.

What is happening in this market is very interesting and I think you will see in this short video just what we have in mind.

As always, our videos are free to watch and there are no registration requirements. Do you agree with my analysis of the dollar index? Leave a comment and let us know what you see

All the best,
Adam Hewison
President, INO.com
Co-creator, MarketClub

Our friends at Elliott Wave International have just released a free 34-page eBook, Understanding the Fed. It’s the free report the Federal Reserve doesn’t want you to read!

This eye-opening free report, which represents more than 10 years of research by Robert Prechter, goes beyond the Fed’s history and government mandate; it digs into the Fed’s real motivations for being the United States’ "lender of last resort." In this 34-page report, you’ll discover how the Fed’s actions, combined with public outrage, may ultimately lead to its demise, plus much more about its secret activities and how it affects your money.

Download your free copy of EWI’s Understanding the Fed eBook, here.

———-
About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

You don’t have to sift through the latest economic data as if they were tea leaves.
March 24, 2010

By Editorial Staff

This is an excerpt from Elliott Wave International’s free Club EWI resource, "What Can a Fractal Teach Me About the Stock Market?" by EWI’s president Robert Prechter.

In the 1930s, Ralph Nelson Elliott described the stock market as a fractal — an object that is similarly shaped at different scales. Scientists today recognize financial markets’ price records as fractals, but they presume them to be of the indefinite variety. Elliott found something different:

You see that each “wave” within the overall structure subdivides in a specific way. 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).

Understanding how the market progresses at all degrees of trend gives you an invaluable perspective. No longer do you have to sift through the latest economic data as if they were tea leaves. You gain a condensed view of the whole panorama of essential trends in human social mood and activity, as far back as the data can take you.

OK, now you try it. Figure 3-7 shows an actual price record. Does this record depict two, three, four or five completed waves? Based on your answer, what would you call for next?

Let’s compare your answer with mine. From the simple idea that a bull market comprises five waves, The Elliott Wave Theorist in September 1982 called for the Dow to quintuple to nearly 4000 and on October 6 announced, “Super bull market underway!” The November 8 issue then graphed the forecast for the expected fifth wave up, as you can see in Figure 3-8.

As you can see, Elliott waves are clear not only in retrospect. They are often — particularly at turning points — quite clear in prospect.

Read the rest of this important report now, free! All you need is to create a free Club EWI profile. Here’s what you’ll learn:

• How Is the Stock Market Patterned?
• The Necessity and Efficiency of .5-3.
• Examples of Real-World Long-Term Waves: DJIA, Gold, CRB
• The Fibonacci Sequence in the Wave Principle
• Why Is the Stock Market Patterned? Investors’ Herding Impulse
• More

Visit Elliott Wave International to learn more about the free "What Can a Fractal Teach Me About the Stock Market?" report.

Elliott Wave International (EWI) is the world’s largest market forecasting firm. EWI’s 20-plus analysts provide around-the-clock forecasts of every major market in the world via the internet and proprietary web systems like Reuters and Bloomberg. EWI’s educational services include conferences, workshops, webinars, video tapes, special reports, books and one of the internet’s richest free content programs, Club EWI.

A FREE report keeps you on the right side of precious metals
March 23, 2010

By Nico Isaac

Right now, the gold BULL-ion bandwagon is more crowded than a New York subway train during rush hour. But before you squeeze your way into the crowd of passengers, you should know one thing: Those steering the course are using outdated maps based on ill-conceived notions and illusory hopes.

Where can you get better information about gold and silver? Take a look at the latest FREE resource from Club EWI, the Gold and Silver eBook. This riveting, 40-page eBook pools the recent and archived writings on the precious metals by EWI president Bob Prechter himself. The result is a comprehensive collection that spans the last four decades of gold and silver history to expose the most dangerous market myths. Off the top is this familiar bit of "wisdom" from the school of Alan Greenspan:

It is impossible to foresee the end of major trends in precious metals

BEFORE they occur. Hindsight is foresight.

NOT SO, says Prechter. Since gold and silver established their all-time record peaks in 1979-80, he has stayed one step ahead of the metals’ history-making turns. Here, Chapters 2 and 3 of the Gold & Silver eBook offer up the following excerpts from Bob’s earliest writings:

Silver

• November 18, 1979, Elliott Wave Theorist (EWT): With silver prices hovering near $20/ounce, Bob wrote: “If my wave count is valid, silver can be expected to drop back down to between $4 and $6, $3.20-$3.49 some time in the next decade.”

What actually happened: From there, silver prices embarked on a 13-year bear market that saw prices plunge into the $3.50-per-ounce area.

• March 26, 1993, EWT: “Silver is approaching a major bottom" of its decades-plus long downtrend.

What actually happened: Silver found its low in 1993.

Gold

• December 9, 1979, EWT: "After 13 years of rise, Elliott counts now suggest an important top is near in gold. The downside target is at least $282.50."

What actually happened: While the price projection for gold’s peak was far off the mark (the Theorist cited the upper $480/ounce range), the time target of early 1980 was met with accuracy. From its 1980 peak, gold prices plummeted nearly 70% before hitting bottom in 2001.

• At the Crest of the Tidal Wave, 1995: “One attractive termination date for the gold bottom is New Year’s Day of 2001 (plus/minus a month). That way, it will have lasted a … a lean 21 years from the 1980 peak."

What actually happened: Gold registered its low at $255 on February 20, 2001.

Now that we can see that it is possible to benefit from foresight about the end of major trends in precious metals, what about these other popular notions –

• Gold always goes up in recession and depressions.
• Gold always performs better than stocks in economic downturns.
• Gold and Silver are just beginning (as in the year 2010) their biggest bull market runs ever.

Download Robert Prechter’s FREE 40-Page Gold and Silver eBook. Is gold a simple buy-and-hold at today’s prices? The independent insights in this valuable ebook deliver Prechter’s complete analysis and help you decide how to – and how not to – incorporate gold and silver successfully into your own investment strategy. Learn more, and download your Gold and Silver eBook here.

Nico Isaac writes for Elliott Wave International, a market forecasting and technical analysis firm.

March 19, 2010

By Editorial Staff

You got your brackets filled out before the NCAA Men’s Basketball Tournament’s opening game on Thursday afternoon. Good — now sit back and enjoy the games. But if you’re looking for a good read during the numerous and lengthy time outs, we’ve got just the thing. It’s the most important investment report you will read in 2010. Forget the theoretical and hypothetical sorts of analysis that occupy so much space online. Bob Prechter gives 22 real-life examples of how deflation is beginning to spread in the U.S. economy — along with 13 charts that make the examples even clearer.

You want to know whether to prepare for inflation or deflation? This report will answer your questions. Read this excerpt to see what we mean. Oh, and try to forget that a No. 2 seed (Villanova) almost got upset in the first round and that Georgetown, a No. 3 seed, got beat by Ohio University, a 14 seed.

* * * * *

States Are Broke and Approaching Insolvency
While state “regulators” clamp down on profligate banks, the same states’ legislatures continue to blow money. For years, state governments have been spending every dime they could squeeze out of taxpayers plus all they could borrow. (The lone exception is Nebraska, which prohibits state indebtedness over $100k. Whatever Nebraska’s official position on any other issue, by this action alone it is the most enlightened state government in the union.)

But now even states’ borrowing ability has run into a brick wall, because the basis of their ability to pay interest—namely, tax receipts—is evaporating. The goose—the poor, overdriven taxpayer—is dying, and the production of golden eggs, which allowed state governments to binge for the past 40 years, is falling. The only reason that states did not either default on their loans or drastically cut their spending over the past year is that the federal government sucked a trillion dollars out of the loan market and handed it to countless undeserving entities, including state governments.

“It’s hard to imagine what happens when stimulus money runs out,” says a budget expert. (USA, 10/29/09) But it is not at all hard to imagine what will happen. Conquer the Crash imagined state insolvency seven years ago. The breezy transfer of money from innocent savers to state spenders is going to end, and when it does, states will cut spending and “services” drastically. They will also default on their debts, which will be deflationary.

Elliott Wave International’s latest free report puts 2010 into perspective like no other. The Most Important Investment Report You’ll Read in 2010 is a must-read for all independent-minded investors. The 13-page report is available for free download now. Learn more here.

Elliott Wave International (EWI) is the world’s largest market forecasting firm. EWI’s 20-plus analysts provide around-the-clock forecasts of every major market in the world via the internet and proprietary web systems like Reuters and Bloomberg. EWI’s educational services include conferences, workshops, webinars, video tapes, special reports, books and one of the internet’s richest free content programs, Club EWI.