Thursday, September 24, 2009

How a Kid With a Ruler Can Make a Million

A Lesson in Drawing and Using Trendlines
September 24, 2009

The following article is adapted from a brand-new 50-page ebook from Elliott Wave International. Learn more about The Ultimate Technical Analysis Handbook, and download your free copy here.

By Jeffrey Kennedy

When I began my career as an analyst, I was lucky enough to have some time with a few old pros.

One in particular that I will always remember told me that a kid with a ruler could make a million dollars in the markets. He was talking about trendlines. I was sold.

I spent nearly three years drawing trendlines and all sorts of geometric shapes on price charts. And you know, that grizzled old trader was only half right.

Trendlines are one the most simple and dynamic tools an analyst can employ... but I have yet to make my million dollars, so he was wrong -- or at least early -- on that point.

Despite being extremely useful, trendlines are often overlooked. I guess it’s just human nature to discard the simple in favor of the complicated.

(Heaven knows, if they don’t understand it, it must work, right?)

In the chart above, I have drawn a trendline using two lows that occurred in early August and September of 2003.

As you can see, each time prices approached this line, they reversed course and advanced.

Sometimes, soybeans only fell to near this line before turning up.

Other times, prices broke through momentarily before resuming the larger uptrend.

What still amazes me is that two seemingly insignificant lows in 2002 pointed the direction of soybeans -- and identified several potential buying opportunities -- for the next six months!

Get more lessons like the one above in the free 50-page Ultimate Technical Analysis Handbook. Learn more and download your free copy here.

Jeffrey Kennedy is the Chief Commodity Analyst at Elliott Wave International (EWI). With more than 15 years of experience as a technical analyst, he writes and edits Futures Junctures, EWI's premier commodity forecasting service.

Saturday, September 19, 2009

Updated 2009 S&P 500 Opening Range Chart

S&P 500 Index (click to enlarge)

Nasdaq 100 Index - NDX
(click to enlarge)

The volume spikes on Friday can be attributed to options expiration. As markets across the globe made new highs for the year, the momentum in this new U.S.Market high is fading. Both the S&P 500 and the NDX are approached a new opening range level. This should act as resistance.

S&P 600 Small Cap Index(click to enlarge)

Russell 2000 Index (click to enlarge)

Ten Year Treasury Rate (click to enlarge)

Light Sweet Crude (click to enlarge)

U.S. Dollar Index
(click to enlarge)

Thursday, September 17, 2009

Germany's DAX: FREE Insight Into Europe's Leading Economy

September 17, 2009

By Elliott Wave International

It's one of the first rules in the book of mainstream economic wisdom: a country's economy is the thermometer which "reads" its stock market's temperature. If financial conditions are heating up, stocks rise; if they are cooling down, stocks fall. Were it so simple -- millionaires wouldn't make up a measly .15% of the global population.

Obviously, there's a major flaw with this logic; namely, it isn't true. Time and again, stock prices smolder to near boiling even as economic growth chills to the bone. (The opposite also holds: Stock prices cool down even as the economy is on fire.)

Take, for instance, Germany's main stock index, the DAX 30. On August 13, Europe's number one economy reported a .3% rise in gross domestic product (GDP) -- Germany's first quarter of growth since January 2008. Soon after, the DAX began to rally and finished the day at a fresh, ten-month high.

In no time at all, every financial media outlet from Wall Street to la-la land had their story: "Germany's DAX rose nearly 1% on the GDP data. The big picture will be one of ongoing gradual recovery through 2010." (LA Times)

One problem: the DAX's bullish flame has been burning since the index landed at a two-year low on March 9, 2009. YET -- the economic data over those six months has been about as "hot" as the Arctic Circle. Here, the following news stories from the time say plenty:

* March 24, Wall Street Journal: "There's a slew of evidence that Germany is in an economic freefall: A 19% drop in industrial output, a 23% decline in exports, a 35% drop in new manufacturing orders, and on. The numbers we're seeing are just mind-boggling."

(FreeWeek Kicks Off With Germany: On September 16, EWI launched its first-ever FreeWeek featuring its youngest subscriber services: European Short Term Update and Asian-Pacific Short Term Update. Take advantage of this amazing opportunity. Click HERE to sign on and get invaluable insight into Europe's #1 market.)

* April 30, New York Times reveals a 17% year-over-year decline in Germany's exports and writes, "With 47% of its GDP generated by exports, Germany would suffer a severe contraction in its economy."
* May 16, Wall Street Journal: "In the fourth-quarter 2009, Germany's GDP plunged 3.5%; its worst performance in nearly four decades."
* May 17: Tens of thousands of German workers march through downtown Berlin to express their anxiety over the alarming increase in unemployment: at 7.7%.
* June 29 Associated Press: Germany's GDP has now fallen by nearly 7% in the past four quarters with widespread expectations for a 5.5% to 6% contraction by the years end.
* July 3 WSJ: "Germany's own recession is the deepest of any major economy in the world, apart from Japan."
* September 8 speech by Germany's Chancellor Angela Merkel: "We are in the worst economic crisis that the Federal Republic of Germany has experienced in 60 years."

You get the picture: During the DAX's entire six-month long winning streak, Germany's economic figures have been bleaker than bleak. The mainstream correlation was broken in its box along with any pre-emptive opportunity to position for the uptrend.

That, however, was NOT the case for EWI's European Financial Forecast. Here, the following archive of our analysis shows the extent to which objective analysis of the market's internal measures keeps traders ahead of the biggest moves:

March 2009 European Financial Forecast(release date: February 25)

"We favor the fourth-wave contracting triangle interpretation for the DAX. The DAX broke through a solid support shelf at 4014 this week so selling pressure could intensify before we see a notable rally." The end of the wave v decline should come near 3440.

March 6 European Short Term Update (ESTU):

"The DAX situation is similar to the entire region. We believe that the market is closing in on a low; perhaps it's a week away from finding a decent bottom."
On March 9, the index did indeed "find" its bottom at 3588.

March 13 ESTU:

"We must entertain the possibility that the low earlier this week may hold for a time, weeks or months, and the risk-reward equation is not as heavily favorable for the bears."

So, where will Germany's DAX be headed next? Find out at the unbeatable price of $0.00. No, that's not a typo; it's how much it will cost you to read objective insight, view original price charts, and recieve trend-breaking, and making details about Germany's DAX for a full seven days. These are just few of the benefits of EWI's first-ever FreeWeek featuring European Short Term Update, and its Asian-Pacific counterpart.

FreeWeek continues from September 16 through September 23. Get all the details on how to participate in this amazing offer today.

Robert Prechter, Chartered Market Technician, is the world's foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

Tuesday, September 8, 2009

How A Bear Can Be Bullish And Still Be Right

Bob Prechter: the only good label is an Elliott wave label...

September 8, 2009

By Nico Isaac

In recent months, Elliott Wave International President Bob Prechter has become something of a household name. In the final two days of August 2009 alone, Bob was mentioned by several news outlets from MarketWatch to the New York Times. The claim to his "fame" --

EWI was one of the only technical analysis firms to anticipate a sharp rally in U.S. stocks as they circled the drain of a 12-year low this spring, a feat made ever more exceptional considering the widespread image of Bob as being the ultimate "Big, Bad Bear."

The lesson? Believe in the facts, not in the "widespread image."

Bob Prechter has always said that successful forecasting should look to the current wave count (and various other technical measures) for direction. He has never permanently tied himself to the mast of definition -- i.e. "bull" or "bear."

For this reason, EWI's team of analysts have been able to stay one step ahead of the biggest turning points in the Dow Jones Industrial Average, from the very start of the index's historic 2007 reversal.

To wit: This two-year chart of the Dow incorporates several calls from our past publications as they coincided with the market's most memorable peaks and troughs:

For more analysis from Robert Prechter, download a free 10-page July issue of Prechter's Elliott Wave Theorist.

The chart above presents the abstract details of our past analysis. Here is the expanded version of those insights as they appeared in real-time:

July 17, 2007 TheElliott Wave Theorist:

"Aggressive speculators should return to a fully leveraged short position now. We may be early by a couple of weeks, but the market has traced out the minimum expected rise, and that's enough to act on."

Soon after, as the DJIA neared its own historic Oct. 11, 2007 apex, the Oct. 9 and 10 Short Term Update amped up the urgency of its analysis and wrote:

“Odds have increased that a market high is in place. The structure, coupled with turns in the other markets, suggests a top is in place. The potential, at the least, is four a large selloff... Watch Out! The market faces a stout correction."

Before landing at its March 10, 2008 bottom, the March 5 Short Term Update afforded respect to a bullish alternate count and wrote: "Prices should carry above the wave a high (13165) before it ends."

At its four-month high, the March 16 2008 Elliott Wave Theorist went on high, bearish alert and wrote: The DJIA is entering "Free Fall territory."

One week before the U.S. stock market landed at its 12-year low of March 9, our Feb. 27, 2009 Short Term Update utilized a traditional turning pattern to outline a specific time window for the onset of a major upside reversal. In STU's own words:

"By all indication, this pattern is back on track... the turn will come on or near March 10, 2009. Anywhere in this time period may mark a turn, which will obviously be a market low."

Once the bullish winds of change had turned, the March 16 Short Term Update wrote:

"When the market speaks, it behooves us to listen. The implications of this are that the... major stock indexes are in the initial stages of a multi-month advance."

Finally, the April 2009 Elliott Wave Financial Forecast calculated a specific target range for the Dow's rally: the 9,000-10,000 level.

So, now that the upside objective is met, where are prices set to go next? For more analysis from Robert Prechter, download a free 10-page July issue of Prechter's Elliott Wave Theorist.

Robert Prechter, Chartered Market Technician, is the world's foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

Friday, September 4, 2009

Prechter Stands Alone Again... He's Done the Math

By Neil Beers

So Bob Prechter is bearish again.

That may be no surprise to some, but recall that Prechter was about the only bull on February 23 of this year when he covered the short position he had recommended on July 17, 2007. That was nearly two years later and 800 points lower in the S&P. And the Daily Sentiment Index (DSI) reading for the S&P had gotten down to only 3% bulls!

His February 2009 Elliott Wave Theorist explained, "The market is compressed, and when it finds a bottom and rallies, it will be sharp and scary for anyone who is short." Elliott Wave analysis, the DSI, and other indicators suggested it was time for a Primary-degree bear market rally. And that is what we got.

Now in his August 2009 Theorist, Bob explains what "the prudent thing to do" in the markets is, based on the same Elliott wave pattern and sentiment indicators -- plus the Dow's 3/8 Fibonacci retracement from the March 9 low.

For more analysis from Robert Prechter, download a free 10-page July issue of Prechter's Elliott Wave Theorist.

What's so special about Fibonacci? And why is a certain level of Fibonacci retracement so significant in conjunction with The Wave Principle? Well...

In its broadest sense, the Wave Principle suggests the idea that the same law [the Golden Ratio] that shapes living creatures and galaxies is inherent in the spirit and activities of men en masse. Because the stock market is the most meticulously tabulated reflector of mass psychology in the world, its data produce an excellent recording of man's social psychological states and trends. This record of the fluctuating self-evaluation of social man's own productive enterprise makes manifest specific patterns of progress and regress. What the Wave Principle says is that mankind's progress (of which the stock market is a popularly determined valuation) does not occur in a straight line, does not occur randomly, and does not occur cyclically. Rather, progress takes place in a "three steps forward, two steps back" fashion, a form that nature prefers. More grandly, as the activity of social man is linked to the Fibonacci sequence and the spiral pattern of progression, it is apparently no exception to the general law of ordered growth in the universe. ... The briefest way to express this principle is a simple mathematical statement: the 1.618 ratio.

-Elliott Wave Principle, chapter 3

Fibonacci ratios in conjunction with The Wave Principle can help you anticipate trend changes. They allow you to calculate specific price levels of when and where a wave is likely to end. In this case, where the rally from the March 9 low is likely to end. There are several Fibonacci retracements that appear most commonly, so the market could of course move higher before it settles on the next wave down, "but we are no longer compelled to wait."

Bob Prechter's August Elliott Wave Theorist published a week and a half early: he did so to give subscribers time to prepare for what's ahead. The issue provides a list of levels that mark Fibonacci and Elliott-wave related retracements for the rally. He analyzes which one is the most likely end point, and even explains how you can make the most of the waning rally.

You don't have to be taken by surprise. Get the latest Elliott Wave Theorist and you'll see where the rally is likely to end. Think about the difference this knowledge can make for you.

For more analysis from Robert Prechter, download a FREE 10-page July issue of The Elliott Wave Theorist. It challenges current recovery hype with hard facts, independent analysis, and insightful charts. You'll find out why the worst is NOT over and what you can do to safeguard your financial future.

Neil Beers has a bachelors degrees in political science and philosophy, and a masters in classical languages. His broad range of study and focus on ancient and modern thought led him to Elliott Wave International to research and write about the Wave Principle, Socionomics, and human social behavior.

Wednesday, September 2, 2009

How IRAs Can Tie Investors' Hands -- and What To Do About It

By Susan C. Walker

Editor's Note: The following article discusses Robert Prechter's view of investment vehicles and government-regulated plans. For more analysis from Robert Prechter, download a free 10-page July issue of Prechter's Elliott Wave Theorist.

It's a blessing and a curse. IRAs, 401(k)s, thrift plans -- some of the best ways to save money for retirement (the blessing) can tie your hands when you invest that money (the curse). Most savers didn't recognize the cursed side as the markets generally trended up over the years, increasing their nest eggs' earnings. But after a year like 2008, savers everywhere absorbed the shock that they couldn't protect their retirement savings from a bear market. Now, the real moment of truth arrives: EWI forecasts that the market will again turn bearish. How can you protect what you've got when your plan doesn't have any options for short-side investing? Bob Prechter addresses that question in his most recent Theorist.

* * * * *

Excerpted from The Elliott Wave Theorist, by Robert Prechter, published August 5, 2009

Investment Vehicles and Government-Regulated Plans

We receive many emails from subscribers asking specific questions about investing [such as,] “Is it O.K. to invest in such-and-such short fund if that is my only short-side option?” Again, given the market-tracking mechanics of such funds, the only answer we can give in good conscience is “no.” … But every question prompts others. Why is this our friend’s “only option”? The funds mentioned are the only ones in which a “long” is really a short, so we would guess that our friend has some sort of government-regulated retirement plan that allows only “long-side” purchases.

Others with retirement plans similarly complain that their plans do not include the option of owning Treasury-only paper and ask if such-and-such other money fund is safe enough to buy. In our view, most money funds assuredly do not offer the level of safety that we advocate. Moreover, such plans are often administered by brokers, and brokers will be in chaos during wave 3 down.

These questions reveal just some of the problems an investor encounters when playing the government’s games. Conquer the Crash (see Ch. 23) recommended taking every opportunity to cash out of IRAs, Keoughs, company-provided plans, etc., all of which are government regulated, thereby freeing up your money so that you would have full say over its use.

By signing up for one of the government’s “deals,” a potential short seller now has no good choices and is therefore effectively barred from selling short. A prudent investor who wants to own the safest debt may likewise be barred from buying T-bills if he participates in a government-regulated, company retirement plan. Should he buy the only money fund available and cross his fingers? Government rules often force people into bad decisions. In this case, the “good deal” the government engineered for your retirement is a trap that prohibits you—at the most important time in modern history—from buying the safest debt instruments and from making money in a bear market….

Irony attends both financial markets and government plans. Put them together—as we have witnessed throughout the financial crisis so far—and you get Kafka.

For more analysis from Robert Prechter, download a FREE 10-page July issue of The Elliott Wave Theorist. It challenges current recovery hype with hard facts, independent analysis, and insightful charts. You'll find out why the worst is NOT over and what you can do to safeguard your financial future.

Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company.