Now through noon Wednesday, Feb. 29 your audience has unrestricted free accessto all the charts, analysis and video forecasts for the world’s most traded currency pairs from EWI’s Currency Specialty Service.
You can access all the charts, analysis, videos and forecasts from EWI’s trader-focused Currency Specialty Service right now through noon Eastern time Wednesday, February 29. This service is valued at $494/month, but you can get it free for one week only!
It’s an exciting time in the Forex world. Since the mid-January low, the euro has rallied strongly against the U.S. dollar. Is this just a temporary setback in the EURUSD decline that began in May 2011, or is there more to this euro rally? Find out during EWI’s Forex FreeWeek — on right now!
A recently-published, landmark research paper shows the link between stock market performance and presidential election winners.
February 16, 2012
By Elliott Wave International
What’s the biggest influence on the outcome of presidential elections?
Many observers would identify the role of campaign spending by super PACs, a candidate’s debate performance, and, of course, the health of the economy ("stupid").
A lot of time, data analysis, and copious statistical evidence led them to this straightforward result: "Social mood as reflected by the stock market is a more powerful regulator of re-election outcomes than economic variables such as GDP, inflation and unemployment…"
In other words: If you want a good predictor for the result of an incumbent president’s re-election, look to the stock market.
Large amounts of earlier research have focused on stock performance after a presidential election. But very few scholars have reversed that order, to investigate a possible link between elections and preceding stock market performance. So reverse that order is what the authors did. What’s more, they’re the only ones to study the issue from a socionomic perspective — the premise that waves of social mood simultaneously drive the valuations of stocks and sitting presidents.
The group published their research on January 17, and it’s already getting attention. A Washington Post columnist read the paper and got its practical usefulness, by noting that Obama should benefit from a stock market that’s been mostly higher since 2008, while a Republican challenger "should hope the Dow crashes."
Some people like to get outside on the weekends, maybe playing tennis or working in the yard. Some people like to visit their friends or cook a big meal or go out to see a movie. And some people who are passionate about their work — such as Elliott Wave International’s futures analyst Jeffrey Kennedy — like to stare at hundreds of price charts on their computer screen to find patterns that point to trade setups. We used to worry for his health but not anymore, because he’s been doing it for years and he comes up with some neat stuff. A case in point is his discovery of a two-bar pattern that he named the Popgun. Find out more in this excerpt from the Club EWI eBook, How to Use Bar Patterns to Spot Trade Setups.
The Popgun
I’m no doubt dating myself, but when I was a kid, I had a popgun — the old-fashioned kind with a cork and string (no fake Star Wars light saber for me). You pulled the trigger, and the cork popped out of the barrel attached to a string. If you were like me, you immediately attached a longer string to improve the popgun’s reach. Why the reminiscing? Because "Popgun" is the name of a bar pattern I would like to share with you this month. And it’s the path of the cork (out and back) that made me think of the name for this pattern.
The Popgun is a two-bar pattern composed of an outside bar preceded by an inside bar. (Quick refresher course: An outside bar occurs when the range of a bar encompasses the previous bar and an inside bar is a price bar whose range is encompassed by the previous bar.) In Chart 1 (Coffee), I have circled two Popguns.
So what’s so special about the Popgun? It introduces swift, tradable moves in price. More importantly, once the moves end, they are significantly retraced, just like the popgun cork going out and back. As you can see in Chart 2 [not shown], prices advance sharply following the Popgun, and then the move is significantly retraced. In Chart 3 [not shown], we see the same thing again but to the downside: prices fall dramatically after the Popgun, and then a sizable correction develops.
How can we incorporate this bar pattern into our Elliott wave analysis? The best way is to understand where Popguns show up in the wave patterns. I have noticed that Popguns tend to occur prior to impulse waves — waves one, three and five. But, remember, waves A and C of corrective wave patterns are also technically impulse waves. So Popguns can occur prior to those moves as well.
As with all my work, I rely on a pattern only if it applies across all time frames and markets. To illustrate, I have included two charts of Sirius Satellite Radio (SIRI) that show this pattern works equally well on 60-minute and weekly charts. Notice that the Popgun on the 60-minute chart [not shown] preceded a small third wave advance. Now look at the weekly chart [not shown] to see what three Popguns introduced (from left to right), wave C of a flat correction, wave 5 of (3) and wave C of (4).
Find out How to Use Bar Patterns to Spot Trade Setups
In this comprehensive 15-page eBook, Jeffrey provides each pattern with a definition, illustrations of its form, lessons on its application and how to incorporate it into Elliott wave analysis, historical examples of its occurrence in major commodity markets, and ultimately — compelling proof of how it identified swift and sizable moves.
This article was syndicated by Elliott Wave International and was originally published under the headline A Two-Bar Pattern that Points to Trade Setups. 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.
Back in the day, one of the first things I "learned" about investing was that low or declining interest rates are good for stock prices.
I’ve since had to "unlearn" this.
A certain market commentator recently reminded me of the "lower rates equal higher stocks" myth. He opined that stocks aren’t being kept afloat by hopes for a European debt solution, but then claimed that the real reason to be bullish is very low interest rates.
Yet is the near-zero rate on T-bills the reason stocks have held up since early October?
"[The chart below] shows a history of the four biggest stock market declines of the past hundred years. They display routs of 54% to 89%. In all these cases, interest rates fell, and in two of those cases they went all the way to zero! In those cases, investors should have traded all their bonds for stocks. But they didn�t; instead, they sold stocks and bought bonds."
Elliott Wave Theorist, February 2010
Have a look at the chart:
From the evidence, you can see why the notion that low interest rates and a rising stock market almost always "go together" is just not accurate.
Now, we do know that stocks can fall when interest rates are high:
"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 percent. 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."
Conquer the Crash, second edition, (pp. 429-431)
Interest rates do not dictate the market’s price pattern — nor does any other event outside of the market itself.
The market has a life of its own, as revealed by the Elliott Wave Principle.
See the evidence that refutes 10 false claims on what drives stock prices — and find out what really moves the markets — in the 50-page Independent Investor eBook.
You’ll also get some of the most groundbreaking and eye-opening reports ever published in Elliott Wave International’s 30-year history, with new analysis, forecasts and commentary to help you think independently in today’s market.
This article was syndicated by Elliott Wave International and was originally published under the headline Do Low Interest Rates Power Stocks Higher?. 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.
Patterns are everywhere. We see them in the ebb and flow of the tide, the petals of a flower, or the shape of a seashell. If we look closely, we can see patterns in almost everything around us. The price movements of financial markets are also patterned, and Elliott wave analysis gives you the tools to interpret those patterns.
The Fibonacci sequence is vital to Elliott wave analysis — as a matter of fact, R.N. Elliott wrote that the Fibonacci sequence provides the mathematical basis of the Wave Principle. Once you understand the Fibonacci sequence, it’s easy to apply it to the markets you trade.
The following excerpt is from a new eBook from Elliott Wave International Senior Tutorial Instructor Wayne Gorman: How You Can Use Fibonacci to Improve Your Trading. Wayne explains how the Fibonacci sequence is derived and how it can be used to understand market behavior.
Learn how you can download the entire 14-page eBook below.
The Golden Ratio and the Golden Spiral
Let’s start with a refresher on Fibonacci numbers. If we start at 0 and then go to the next whole integer number, which is 1, and add 0 to 1, that gives us the second 1. If we then take that number 1 and add it again to the previous number, which is of course 1, we have 1 plus 1 equals 2. If we add 2 to its previous number of 1, then 1 plus 2 gives us 3, and so on. 2 plus 3 gives us 5, and we can do this all the way to infinity. This series of numbers, and the way we arrive at these numbers, is called the Fibonacci sequence. We refer to a series of numbers derived this way as Fibonacci numbers.
We can go back to the beginning and divide one number by its adjacent number — so 1�1 is 1.0, 1�2 is .5, 2�3 is .667, and so on. If we keep doing that all the way to infinity, that ratio approaches the number .618. This is called the Golden Ratio, represented by the Greek letter phi (pronounced "fie"). It is an irrational number, which means that it cannot be represented by a fraction of whole integers. The inverse of .618 is 1.618. So, in other words, if we carry the series forward and take the inverse of each of these numbers, that ratio also approaches 1.618. The Golden Ratio, .618, is the only number that will also be equal to its inverse when added to 1. So, in other words, 1 plus .618 is 1.618, and the inverse of .618 is also 1.618.
This is a diagram of the Golden Spiral. The Golden Spiral is a type of logarithmic spiral that is made up of a number of Fibonacci relationships, or more specifically, a number of Golden Ratios. For example, if we take a specific arc and divide it by its diameter, that will also give us the Golden Ratio 1.618. We can take, for example, arc WY and divide it by its diameter of WY. That produces the multiple 1.618. Certain arcs are also related by the ratio of 1.618. If we take the arc XY and divide that by arc WX, we get 1.618. If we take radius 1 (r1), compare it with the next radius of an arc that�s at a 90� angle with r1, which is r2, and divide r2 by r1, we also get 1.618.
Fibonacci-Based Behavior in Financial Markets
We can visualize that the stock market or financial markets are actually spiraling outward in a sense. This is a diagram of the stock market whereby the top of each successive wave of higher degree (in terms of the Wave Principle) becomes the touch point of an exponential expansion or logarithmic spiral. We can actually visualize the market in this sense, and we will see later on, in terms of Fibonacci ratios and multiples, how this unfolds.
This is a diagram of the Elliott wave pattern. It is a typical diagram showing us the higher degree in Roman numerals with wave I up (motive) and wave II down (corrective). One of the connections to Fibonacci ratios and numbers is that with Elliott wave, if we look at how many waves there are within each wave, we end up with Fibonacci numbers.
Learn How You Can Use Fibonacci to Improve Your Trading
If you’d like to learn more about Fibonacci and how to apply it to your trading strategy, download the entire 14-page free eBook, How You Can Use Fibonacci to Improve Your Trading.
EWI Senior Tutorial Instructor Wayne Gorman explains:
The Golden Spiral, the Golden Ratio, and the Golden Section
How to use Fibonacci Ratios/Multiples in forecasting
How to identify market targets and turning points in the markets you trade
This article was syndicated by Elliott Wave International and was originally published under the headline Applying Fibonacci to Stock Market Patterns. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
Part I: How One Technical Indicator Can Identify Three Trade Setups
January 27, 2012
By Elliott Wave International
Trading using technical indicators — such as the MACD, for example — can do one of two things: help you or hurt you.
Elliott Wave International’s Jeffrey Kennedy explains what he loves and hates about technical indicators and shows you how he uses them to his advantage in this excerpt from his FREE eBook, The Commodity Trader’s Classroom.
I love a good love-hate relationship, and that’s what I’ve got with technical indicators. Technical indicators are those fancy computerized studies that you frequently see at the bottom of price charts that are supposed to tell you what the market is going to do next (as if they really could). The most common studies include MACD, Stochastics, RSI, and ADX, just to name a few.
The No. 1 (and Only) Reason to Hate Technical Indicators
I often hate technical studies because they divert my attention from what’s most important – PRICE.
Have you ever been to a magic show? Isn’t amazing how magicians pull rabbits out of hats and make all those things disappear? Of course, the "amazing" is only possible because you’re looking at one hand when you should be watching the other. Magicians succeed at performing their tricks to the extent that they succeed at diverting your attention.
That’s why I hate technical indicators; they divert my attention the same way magicians do. Nevertheless, I have found a way to live with them, and I do use them. Here’s how: Rather than using technical indicators as a means to gauge momentum or pick tops and bottoms, I use them to identify potential trade setups.
Three Reasons to Learn to Love Technical Indicators
Out of the hundreds of technical indicators I have worked with over the years, my favorite study is MACD (an acronym for Moving Average Convergence-Divergence). MACD, which was developed by Gerald Appel, 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 (usually seen as 12/26/9�so don’t misinterpret it as a date). Even though the standard settings for MACD are 12/26/9, I like to use 12/25/9 (it’s just me being different). An example for MACD is shown in Figure 10-1 (Coffee).
The simplest trading rule for MACD is to buy when the MACD line (the thin line) crosses above the Signal line (the thick line), and sell when the MACD line crosses below the Signal line. Some charting systems (like Genesis or CQG) may refer to the MACD line as MACD and the Signal line as MACDA. Figure 10-2 (Coffee) highlights the buy-and-sell signals generated from this very basic interpretation.
Although many people use MACD this way, I choose not to, primarily because MACD is a trend-following or momentum indicator. An indicator that follows trends in a sideways market (which some say is the state of markets 80% of the time) will get you killed. For that reason, I like to focus on different information that I’ve observed and named: Hooks, Slingshots and Zero-Line Reversals. Once I explain these, you’ll understand why I’ve learned to love technical indicators.
Keep reading about Hooks, Slingshots, and Zero Line Reversals in The Commodity Trader’s Classroom. This free eBook is filled with 32 pages of actionable trading lessons, such as:
How to Make Yourself a Better Trader
How the Wave Principle Can Improve Your Trading
When to Place a Trade
How to Identify and Use Support and Resistance Levels
How to Apply Fibonacci Math to Real-World Trading
How to Integrate Technical Analysis into an Elliott Wave Forecast
This article was syndicated by Elliott Wave International and was originally published under the headline Technical Indicators: A Love-Hate Relationship. 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 discusses what’s backing your dollars
January 26, 2012
By Elliott Wave International
In this video clip, taken from Robert Prechter’s interview with The Mind of Money, Prechter and host Douglass Lodmell discuss "real" money vs the FIAT money system, and what is backing your dollars under our current system. Enjoy this 4-minute clip and then watch Prechter’s full 45-minute interview here >>
Watch the full 45-minute interview FREE
Get even more valuable insights as Mind of Money host Douglass Lodmell interviews Elliott Wave International’s President, Robert Prechter, about how to keep your money safe, the deflation versus inflation debate, and many more topics that are critical to your financial future.
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