Stress Test: How to Find the Safest Banks in the U.S. and Abroad

August 3, 2010
By Elliott Wave International

Stress test results for the biggest European banks were recently released, while the largest U.S. banks took their first stress tests in May 2009. But most people don't really care how much stress their banks are under; they are more worried about their own stress levels. One thing that adds to personal stress is worrying about whether their deposits are in a safe place. Bob Prechter has encouraged people to find the safest banks for their money since he originally wrote his New York Times best-selling book, Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression in 2002. This excerpt explains why banks of all sizes are riskier than they used to be (think about portfolios stuffed with derivatives, emerging market debt and non-performing commercial loans). You can also get a list of the Top 100 Safest U.S. Banks -- two banks per state -- that was just updated in late June with the latest available data by joining Club EWI and receiving EWI's Safe Banks report.

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Excerpted from Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression, by Robert Prechter

Many major national and international banks around the world have huge portfolios of “emerging market” debt, mortgage debt, consumer debt and weak corporate debt. I cannot understand how a bank trusted with the custody of your money could ever even think of buying bonds issued by Russia or Argentina or any other unstable or spendthrift government. As At the Crest of the Tidal Wave put it in 1995, “Today’s emerging markets will soon be submerging markets.” That metamorphosis began two years later. The fact that banks and other investment companies can repeatedly ride such “investments” all the way down to write-offs is outrageous.

Many banks today also have a shockingly large exposure to leveraged derivatives such as futures, options and even more exotic instruments. The underlying value of assets represented by such financial derivatives at quite a few big banks is greater than the total value of all their deposits. The estimated representative value of all derivatives in the world today is $90 trillion, over half of which is held by U.S. banks. Many banks use derivatives to hedge against investment exposure, but that strategy works only if the speculator on the other side of the trade can pay off if he’s wrong.

Relying upon, or worse, speculating in, leveraged derivatives poses one of the greatest risks to banks that have succumbed to the lure. Leverage almost always causes massive losses eventually because of the psychological stress that owning them induces. You have already read of the tremendous debacles at Barings Bank, Long-Term [sic] Capital Management, Enron and other institutions due to speculating in leveraged derivatives. It is traditional to discount the representative value of derivatives because traders will presumably get out of losing positions well before they cost as much as what they represent. Well, maybe. It is at least as common a human reaction for speculators to double their bets when the market goes against a big position. At least, that’s what bankers might do with your money.

Today’s bank analysts assure us, as a headline from The Atlanta Journal-Constitution put it on December 29, 2001, that “Banks [Are] Well-Capitalized.” Banks today are indeed generally considered well capitalized compared to their situation in the 1980s. Unfortunately, that condition is mostly thanks to the great asset mania of the 1990s, which, as explained in Book One, is probably over. Much of the record amount of credit that banks have extended, such as that lent for productive enterprise or directly to strong governments, is relatively safe. Much of what has been lent to weak governments, real estate developers, government-sponsored enterprises, stock market speculators, venture capitalists, consumers (via credit cards and consumer-debt “investment” packages), and so on, is not. One expert advises, “The larger, more diversified banks at this point are the safer place to be.” That assertion will surely be severely tested in the coming depression.

There are five major conditions in place at many banks that pose a danger: (1) low liquidity levels, (2) dangerous exposure to leveraged derivatives, (3) the optimistic safety ratings of banks’ debt investments, (4) the inflated values of the property that borrowers have put up as collateral on loans and (5) the substantial size of the mortgages that their clients hold compared both to those property values and to the clients’ potential inability to pay under adverse circumstances. All of these conditions compound the risk to the banking system of deflation and depression.

Financial companies are enjoying big advances in the current stock market rally. Depositors today trust their banks more than they trust government or business in general. For example, a recent poll asked web surfers which among a list of seven types of institutions they would most trust to operate a secure identity service. Banks got nearly 50 percent of the vote. General bank trustworthiness is yet another faith that will be shattered in a depression.

Well before a worldwide depression dominates our daily lives, you will need to deposit your capital into safe institutions. I suggest using two or more to spread the risk even further. They must be far better than the ones that today are too optimistically deemed “liquid” and “safe” by both rating services and banking officials.

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.

This article, Stress Test: How to Find the Safest Banks in the U.S. and Abroad,was syndicated by Elliott Wave International. EWI is the world's largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

DJIA's 200-Day Moving Average: Will the Dow stay above or below this demarcation line?

June 23, 2010
By Elliott Wave International

Moving averages are one of the most widely followed indicator in technical analysis.
Simply put, when the price of an index or stock stays above a particular price moving average line on a chart, that price level serves as support -- a level where buyers reside.
If the price falls below a moving average line and "can't" break through from the underside, this price level is a line of resistance -- a price level where sellers hover.
That's an easy explanation of moving averages for you.

Learn to integrate Elliott wave analysis with other technical disciplines. Read the FREE Ultimate Technical Analysis eBook to discover some of the favorite technical analysis methods used by the analysts at Elliott Wave International. Learn more and download your free, 50-page technical analysis ebook here.

A commonly watched line is the 200-day moving average.

After the DJIA fell below its 200-day moving average in May, prices remained mainly below the line until June 15, when the market rose 213 points. But, as this chart from Elliott Wave International's June 16 Short Term Update shows, the NYSE volume has remained muted:



"There was no follow-through today. More stocks closed down than up on the day on the NYSE, within the S&P 500 and also for the DJ Composite. Today's Big Board volume was similarly slow relative to yesterday. ..." -- Steven Hochberg, Short Term Update, June 16, 2010

With a lack of buying conviction, how long will the stock indexes remain above the 200-day moving average?

For the answer, you need to look at the DJIA's Elliott wave structure. It strongly suggests the market will move in a definite direction in a matter of days or weeks.

Learn to integrate Elliott wave analysis with other technical disciplines. Read the FREE Ultimate Technical Analysis eBook to discover some of the favorite technical analysis methods used by the analysts at Elliott Wave International. Learn more and download your free, 50-page technical analysis ebook here.

This article, DJIA's 200-Day Moving Average,was syndicated by Elliott Wave International. EWI is the world's largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Enjoy 8 Free Chapters from Robert Prechter's Conquer the Crash

Prechter's New York Times and Wall Street Journal business best-seller remains a useful read.

April 28, 2010
By Editorial Staff

n 2002, Elliott Wave International's president Robert Prechter published his New York Times and Wall Street Journal business best-seller Conquer the Crash, a prescient book that explained why a financial crisis was inevitable and predicted almost exactly how it would unfold.

Now in the 2nd edition, Conquer the Crash remains a very useful read. To give you an idea of just how useful, we are releasing 8 chapters of the book to all 150,000+ free Club EWI members. Here's an excerpt. (Details on how to read full report are below.)

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Robert Prechter
Conquer the Crash
Chapter 23, "What To Do With Your Pension Plan," excerpt

Make sure you fully understand all aspects of your government's individual retirement plans. In the U.S., this includes such structures as IRAs, 401Ks and Keoghs. If you anticipate severe system-wide financial and political stresses, you may decide to liquidate any such plans and pay whatever penalty is required. Why? Because there are strings attached to the perk of having your money sheltered from taxes. You may do only what the government allows you to do with the money. It restricts certain investments and can change the list at any time. It charges a penalty for early withdrawal and can change the amount of the penalty at any time.

What is the worst that could happen? In Argentina, the government continued to spend more than it took in until it went broke trying to pay the interest on its debt. In December 2001, it seized $2.3 billion dollars worth of deposits in private pension funds to pay its bills. ...

With the retirement setup in the U.S., the government need not be as direct as Argentina's. It need merely assert, after a stock market fall decimates many people's savings, that stocks are too risky to hold for retirement purposes. Under the guise of protecting you, it could ban stocks and perhaps other investments in tax-exempt pension plans and restrict assets to one category: "safe" long-term U.S. Treasury bonds. Then it could raise the penalty of early withdrawal to 100 percent. Bingo. The government will have seized the entire $2 trillion -- or what's left of it given a crash -- that today is held in government-sponsored, tax-deferred 401K private pension plans. I'm not saying it will happen, but it could, and wouldn't you rather have your money safely under your own discretion? ...

Perhaps you have no such opportunity for a tax saving and do not want to pay the penalty attached to premature withdrawal. If your balance is high enough, you may wish to consider converting your retirement plan investments into an annuity at a safe insurance company (see Chapter 24). It is highly likely (though not assured) that such investments would be left alone even in a national financial emergency. ...

If you or your family owns its own small company and is the sole beneficiary of its pension or profit sharing plan, you should lodge its assets in a safe bank or money market fund. As an alternative, depending upon your age and requirements, you may consider converting it into an annuity, issued by a safe insurance company. Such insurance companies are few and far between, but the next chapter shows you where to find them.

Read the rest of the 8 free chapters from Robert Prechter's Conquer the Crash now, free! All you need is to create a free Club EWI profile. 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.

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.

Raising The BAR: Bar Patterns & Trading Opportunities

How a 3-in-1 formation in cotton "triggered" the January selloff
April 16, 2010

By Nico Isaac

or Elliott Wave International's chief commodity analyst Jeffrey Kennedy, the single most important thing for a trader to have is STYLE-- and no, we're not talking business casual versus sporty chic. Trading "style," as in any of the following: top/bottom picker, strictly technical, cyclical, or pattern watcher.

Jeffrey himself is (and always has been) a "trend" trader, meaning: he uses the Wave Principle as his primary tool, with a few secondary means of select technical studies. Such as: Bar Patterns. And Jeffrey counts one bar pattern in particular as his favorite: the 3-in-1.

Here's the gist: The 3-in-1 bar pattern occurs when the price range of the fourth bar (named, the "set-up" bar) engulfs the highs and lows of the last three bars. When prices penetrate above the high -- or -- below the low of the set-up bar, it often signals the resumption of the larger trend. Where this breach occurs is called the "trigger bar." On this, the following diagram offers a clear illustration:



Now, how about a real world example of the 3-1 formation in the recent history of a major commodity market? Well, that's where the picture below comes in. It's a close-up of Cotton from the February 5, 2010 Daily Futures Junctures.



As you can see, a classic 3-in-1 bar pattern emerged in Cotton at the very start of the New Year. Within a few day the trigger bar closed below the low of the set-up bar, signaling the market's return to the downside. Immediately after, cotton prices plunged in a powerful selloff to four-month lows.

February arrived, and with it the end of cotton's decline. In the same chart you can see how Jeffrey used the Wave Principle to calculate a potential downside target for the market at 66.33. This area marked the point where Wave (5) equaled wave (1), a reliable for impulse patterns. Since then a winning streak in cotton has carried prices to new contract highs.

This example shows the power of a fully-equipped technical analysis "toolbox." By using the Wave Principle with Bar Patterns, one has a solid, objective chance of anticipating the trend in volatile markets.

And in a 15-page report titled "How To Use Bar Patterns To Spot Trade Set-ups," Jeffrey Kennedy identifies the top SIX Bar Patterns included in his personal repertoire. They are Double Inside Days, Arrows, Popguns, 3-in-1, Reverse 3-in-1, and Outside-Inside Reversal.

In this comprehensive collection, 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.
Best of all is, you can read the entire, 15-page report today at absolutely no cost. You read that right. The limited "How To Use Bar Patterns To Spot Trade Setups" is available with any free, Club EWI membership.

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

The Wave Principle: Where The Rubber Hits The Road

Elliott wave analysis saw corn's biggest moves coming
April 1, 2010
By Nico Isaac

You could be to technical analysis what tweens are to texting, and it wouldn't make a lick of difference: You still wouldn't necessarily be trading at your fullest potential. The reason being: Without Elliott wave in your technical analysis toolbox, it's like looking at the world of opportunity through a narrow keyhole and ultimately missing the big picture.

The Wave Principle can help you unlock that door. Teaching you how to do it is the goal of the latest free educational report from our Club EWI resource center, titled "How the Wave Principle Can Improve Your Trading." In this six-page article, our editorial staff reveals these (and many more) ways in which the wave model makes up for the ways ordinary technical methods fall short:

* Technical studies can get you on board a trend, but the Wave Principe can say specifically at which point that trend has failed -- namely, when prices violate critical support or resistance levels in your price charts.
* Technical studies can identify the direction of a trend, but the Wave Principle can determine how high prices will rally or how low they will fall.
* Technical studies can recognize the strength of a trend, but the Wave Principle can discern the maturity of one; when it's time to take profits or raise protective stops.
* Technical studies can recognize the strength of a trend, but the Wave Principle can discern the maturity of one; when it's time to take profits or raise protective stops.

Now for the fun part: Putting the Wave Principle to use in the real-time action of a well known market. For this, we turn to EWI's chief commodity analyst and long-time Futures Junctures Service editor Jeffrey Kennedy. (Note: Futures Junctures Service is a two-part package that includes Daily Futures Junctures and its long-term sister publication Monthly Futures Junctures.)

Over the last year, Jeffrey's timely navigation of the Corn market showcases the ability of Wave analysis to identify high-probability trade set-ups. To illustrate, we'll start with this price chart of corn since March 2009 (courtesy of ino.com) -- punctuated with brief excerpts from Jeffrey's Monthly Futures Junctures.



Below are the expanded versions of Jeffrey's analysis:

June 2009 Monthly Futures Junctures:

"The Party's Over In Grains: The corrective advance in corn that began in December 2008 is complete at 450 (basis July). This means that the stage is set for renewed selling that should push corn prices to below the 2008 low of 325 1/4. Moreover, considering the manner and extent of the decline since the early June top, wave patterns argue strongly that this is an intermediate tradable top."

September 2009 Monthly Futures Junctures: Presented an updated chart that showed prices set to embark on a powerful uptrend above $4 and wrote: "After a Rally, More Decline."

January 2010 Monthly Futures Junctures: Price chart showed wave c of a zigzag coming to an end and wrote: Wave c = .618 times wave a + wave a at $4.26.



When applied skillfully, no method gets you into a trend earlier and out of a failed move faster than the Wave Principle. Read the entire free 6-page report "How the Wave Principle Can Improve Your Trading" today.

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.

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