The Market Perspective

Social Mood Moves the Markets

Friday July 23, 2021

 

Global Investing: Here's the Message of Consumer "Overconfidence"
Bear markets tend to follow this particular sentiment

By Elliott Wave International

In many global regions, economies are flourishing.

For example, here are two headlines about the U.S.:

What America's Startup Boom Could Mean For The Economy (npr.com, June 29)
Inflation Rose in June as Economic Recovery Continues (WSJ, July 13)

The goings-on in the United Kingdom provide another example. Employers in the UK are hiring people at the highest rate in more than six years. Plus, business and consumer spending are climbing swiftly -- at the fastest clip in a quarter of a century.

So, it wasn't surprising to see this June 18 CNBC headline:

Morgan Stanley picks the global stocks set to ride Europe's expected boom

However, here's what investors need to know: An economic boom follows an uptrend in the stock market, not the other way around. In other words, history shows that a booming economy may serve as a contrarian indicator.

Indeed, here's a chart and commentary from our July Global Market Perspective, a monthly Elliott Wave International publication which provides forecasts for 50+ worldwide financial markets:

The chart shows that consumer confidence in the European Union two months ago eclipsed the survey's pre-pandemic optimism from February 2020. Financial markets have traveled this territory before. In May 2020, GMP discussed two prior outbreaks of consumer overconfidence and noted that bear markets followed such sentiment. In the case of this survey, the all-time high came in May 2000.

The Stoxx 600 peaked in March of that year and fell 60% over the next 24 months. Consumer confidence peaked two months before the stock market's top in July 2007, and the Stoxx 600 declined 61% to March 2009.

Yes, consumer and business confidence might climb even higher. However, the point is: The "boom part of the cycle" appears to be in the "mature" zone. Another key takeaway is that many in the investment community see the economic upturn as a sign that the bull market in stocks will persist when history suggests just the opposite.

The best way to get a handle on the world's stock markets is to use the Elliott wave model, which reflects the repetitive patterns of investor psychology.

After all, as Frost & Prechter's Elliott Wave Principle: Key to Market Behavior notes, "The Wave Principle is governed by man's social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value."

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Volatility Reigns

Friday July 23 2021

Volatility Reigns in the Markets

Monday July 19 crude oil futures dropped 7.5%

 

In this space we frequently warn that the crude oil and its refined products are both an economic and a financial asset. In fact financial shenanigans have a much greater impact on stocks and bonds than economic forces.  Let’s take a look back a week ago.

The first indicator is implied volatility.  This statistic is compiled from option pricing and volume.  The indicator jumped  41.2% on  Monday.  That was the highest level since April  5.

The next clue  is the spread between call options, bets on higher prices, and put options, bets on lower prices.  Monday this spread fell to minus 13.7%, clearly a move to the bearish or downside potential in price.  The $66 put option traded in  huge volumes. Once the price decline began those  who sold puts had to either buy them back, at a loss, or sell futures.  Apparently most sold futures sending prices down.

That may seem a bit complex but it does explain the huge volatility of Monday. Prices 5ouched $65 Monday.  Price has re-bounded about half-way to Wall  the high o9f $75-76 since then.

It seems reasonable that prices might re-test that $65 level by the end of August.

Recall that Fed Chair Powell  has assured us higher prices, for everything, are transitory.  Tell that to the markets.  One group estimates prices that Unilever and Nestle, big food producers, pay will increase  14 % over the next year.   The Consumer Price Index CPI has soared from just over 1% to over 5% just since January!   the 1920s  witnessed a boom in Florida real estate.it  is  back.   A Beach FL vacant lot sold for $37 M  in 2017. It just re-sold for $140M, not a misprint. The Mansion section of today’s Wall Street Journal trumpets the Palm Beach Boom  A realtor knocked on my door just yesterday announcing the neighborhood had a 9% rise in prices this past year.

Soaring prices as with the dot.com mania in 1999-2000 are part of a developing market top.  But we will need to see much higher implied volatility in the VIX index which measures just that before a top can be called.

Meanwhile mood trends negative in Haiti, Cuba, Venezuela, Russia, Hong Kong, Mynamar, and Malaysia. The political mood is so negative that Texas Democrats fled the state to Washington, DC.   Democrats want to re investigate the Kavanaugh hearings. Murders in major cities are climbing fast. So far this negative mood has been ignored, Once things break over, expect crime to be headlined.

Dennis.elam@att.net

See what Elliott waves show next for 50+ global markets

Thursday July 21 2021

 

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That's not an easy question to answer. There is a lot to look at. In just the past 2-3 months:

• Bitcoin got cut in half
• Crude oil rallied from $62 to $76 - that's 20%
• Gold dropped ~8%, then rebounded
• USD had its sharpest rally in over a year
• Nikkei 225 dropped 1700 points and then rallied 1200
• Nasdaq rose1600 points - over 12%

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Bond Market Reverses at Monday High

Wed July 21, 2021

Stocks rallied in strong fashion the last two days, the bull market lives on

We thought July  8 as the high in bonds, we were wrong, it now appears that the high we saw this week was it.

That is the largest reversal yet more so than the past two. If stocks continue to rally the bond market can finally begin a sell off what  with the inflation headlines in most publications.

 

Well Finally

Monday July 19, 2021

 

We have stated again and again that there is way too much developing negative social mood to support such high values in stocks.

And we have noted that numerous 'indicator stocks' peaked months ago and that various indexes also with one major index not confirming another.

the sell off began in earnest today or got underway in a more serious manner depending on your point of view

I expect this to continue to September.

Money went from stocks to bonds jumping the long bond a couple of points, we were WAY too early, apparently the FED is massively buying bonds to inject money into the system but that won't save stocks now. Crude oil dropped as well, while all are worrying about inflation in fact a collapsing stock market id deflationary.

Expect a bounce back over the next few days.

 

Bond Yields Rise

Tuesday July 13 2021 after market close

TLT fell 1.12 and TBF rose modestly, the market is beginning to turn our direction. Yields rise and bond prices fall, stocks went from positive to negative today. The decline into a Fall Low has begun . I  in am on a  msft laptop so no graphs today, but things are moving in our direction, lower bond prices.

Crypto Super Mania, Super Meltdown

Tuesday July 13, 202

 

Meet SuperMania and its Ever-Present Sidekick, SuperMeltdown

By Elliott Wave International

---

Advance warnings about the recent crypto crash were there all along.

How did almost everyone miss them?

---

Anyone on Planet Earth in 2021 knows about the rise and fall of digital currencies.

Even many kids are aware.

But what has baffled just about everyone is what's BEHIND the moves.

This was made especially clear by the recent cryptocurrency crash, which saw Bitcoin plunge 50% from its April 15 peak. That move alone eliminated $1.3 trillion of wealth.

Days are lit powder kegs; like June 22, when Bitcoin plummeted below the $30 k level to erase its entire 2021 gains before recovering 24 hours later.

A June 4 CNN article quoted one spooked investor:

"... It's just stupid. I'm never going to have as much invested in crypto again."

Another June 9 UK Independent article led its pages with: "Crypto Market Faces 'Moment of Truth' After Crash Wipes Value from Ethereum and Dogecoin." It said the plunge had two causes:

1. On May 12, Tesla CEO Elon Musk tweeted that the electric carmaker would "stop accepting bitcoin for car purchases, citing environmental concerns."
2. On May 18, China banned the country's payment institutions from using cryptocurrencies.

Yet, a bit of analysis shows that the peak had been registered almost a month BEFORE the Musk and China announcements.

In fact, as decades of historical research have shown, financial markets are NOT driven by external events like these. Rather, they are driven by recurring waves of optimism and pessimism among investors, traders and society at large.

That's great news. It means that knowledgeable investors can predict the waves, and therefore market prices, to a surprising degree.

The "Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity" summarizes how the Elliott Wave Principle works. It is based on these facts:

1. Mass psychology swings from excessive optimism to pessimism and back again.
2. You can see these swings, or waves, in the markets, where optimistic and pessimistic investors bid prices up or down accordingly.
3. The waves repeat, making them quite predictable.

When you know which Elliott wave a market is in, you can forecast what's coming next. This gives Elliott wave traders and investors a very important advantage.

Here's just one recent example. Weeks before Musk's May 12 tweet and China's May 18 bitcoin ban, the Elliott Wave Financial Forecast predicted the top in cryptos was near. It showed subscribers several charts, including this one highlighting Paul Montgomery's famous Magazine Cover indicator.

The Financial Forecast explained:

The Magazine Cover indicator... postulates that when a financial trend is established enough to reach the cover of a general interest news magazine, which is rare, that trend is near exhaustion.

The magazine cover at the top of bitcoin's long rise is from the latest issue of Newsweek. The story says that 'The Smart Money' is betting on bitcoin.

Bitcoin's susceptibility to such a signal is clear from the 'Rhymes With Bitcoin' BusinessWeek cover at the bottom of the chart. As The Elliott Wave Theorist noted on December 21, 2018, the negative appraisal appeared a few days from bitcoin's December 14, 2018 low.

A few days later, an Update to Financial Forecast told subscribers:

Barron's magazine put bitcoin on its cover over the weekend. On Wednesday, April 14, Coinbase, 'the fastest-growing exchange at the center of the speculative frenzy in cryptocurrencies,' (Bloomberg, Apr. 12) will issue an IPO with an expected valuation of $100 billion, more than the New York Stock Exchange and the NASDAQ combined.

Bullish sentiment toward cryptocurrencies, and in particular bitcoin, is extreme and compatible with a change of trend.

To be clear, both of these issues of the Financial Forecast warned subscribers BEFORE bitcoin's peak, BEFORE bitcoin's crash, and BEFORE Musk and China made their announcements.

This bearish bitcoin analysis was only the beginning of how Elliott waves predicted cryptos' top and then, early in the plunge, identified it as a crash. The May 2021 Financial Forecast said "evidence of market-peak psychology" in Dogecoin amounted to "a perfect setup for a bet against" the altcoin.

In the May 5, 2021 Crypto Pro Service, Elliott wave experts posted a Special Update on Dogecoin. It evaluated the extreme optimism surrounding the market. The message was clear:

FOMO (Fear of Missing Out) is out of hand as people try to catch up here and jump in because of the huge percentage moves that Dogecoin is making.

We do think a crash in prices is very likely. At its current reading, Dogecoin has entered extreme overbought territory.

As with the Financial Forecast's analysts, Crypto Pro Services' analysts had used Elliott waves to predict massive run-ups in digital currencies prior to the top.

The extreme psychology in DOGE coincided with a mature Elliott wave pattern; namely, a five-wave impulse. The "Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity" report shows this structure:

The market's progression unfolds in waves. ...progress ultimately takes the form of 5 waves...

There are two modes of wave development: motive and corrective. Motive waves have a 5-wave structures, while corrective waves have a 3-wave structure or variation thereof…

In the May 5 Crypto Pro Service, analysts showed a chart of DOGE with a clearly completed five-wave impulse.

Currency Pro Service's Elliott analysts warned that the pattern implied DOGE was primed to fall hard:

When fifth waves crash, the crash is very substantial.

Why We Are Here

Economist Milton Friedman made this prediction about the rise of a universally adopted digital currency:

I think that the Internet is going to be one of the major forces for reducing the role of government. The one thing that's missing, but that will soon be developed, is a reliable e-cash method whereby on the Internet you can transfer funds from A to B without A knowing B or B knowing A.

Friedman made that prediction in 1999. He nailed the reason bitcoin and other cryptocurrencies were later invented.

What he didn't necessarily see was the wild fluctuations in sentiment that came to surround the digital coins.

Before the recent meltdown, mainstream experts extolled cryptos as better than "gold" and said "Bitcoin Is the Only Sound Money" (April 23 Medium).

Again, these comments make a sound point about the utility of bitcoin and other cryptos.

The wisdom of investing in them is another matter entirely. In markets where emotion is such a significant component, Elliott waves are massive -- and fortunes can be made and lost, literally, in a few moments.

Investors have a choice. They can fall victim to the waves of sentiment surrounding the coins. Or, they can use the waves to their advantage -- predicting them, in both directions, and responding objectively.

---

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For Crypto Traders and Just "Crypto-Curious"...

When it debuted in 2009, one Bitcoin was worth ~0.5 a cent. By 2011, it suffered one blow after another, from hacking and theft, and remained currency-non-grata to most of the world.

But the contrarians at Elliott Wave International saw Bitcoin's potential as early as 2012; quote:

"Presuming Bitcoin succeeds as the world's best currency -- and I believe it will -- it should rise many more multiples in value over the years."

Result: What happened next... well, you already know.

The question is, how do you ride Bitcoin's upcoming twists and turns? (And there will be many!)

EWI's free crypto report gives you 5 clear Bitcoin strategies.

Read EWI's "Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity" now.

This article was syndicated by Elliott Wave International and was originally published under the headline Meet SuperMania and its Ever-Present Sidekick, SuperMeltdown. 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.

1

Return of the Plunge Protection Team?

Weekend July 10, 2021

30 minute DJIA

After the 987 October crash, the story circulated that the FED had organized a Plunge Protection Team.

The idea was to harness the buying power of the FED and probably some willing accomplices in the fund industry to do a  massive buy to bring the market back. One has ot wonder if that is not exactly what happened Thursday, plunge, Friday, marvelous recovery.

 

 

 

 

Long dated bond fund

 

the new high Thursday and then a gap down reversal the next day Friday likely signals the end fo large Wave 4. And on thursday the bond price closed in the red after setting a new high, another probable sign of a top. TBF recovered 20 cents and TLT fell 1.41%.

TBF TLT Ratio Chart

 

I am reorganizing my home office. Today I am posting from my school office, that will be the case until  the home office comes together once again. I will be at school M W so expect updates those days until things return to normal. This should be a great set up for TBF shares.

 

Bond Price Top Thursday

Fiday July 9 2021

 

Yesterday I suggested we might be seeing a final blow off spike high in bond prices ending the fourth wave.

The bond closed down for the day after posting a new high.That is the sort of reversal that marks a top.

We will update at end of day on what happens but it does appear our TBF trade is finally getting underway.

Blow Off Top in Bonds?

Thursday July 8, 2021

We have been looking for a top in bond prices this week. Today the long bond hit a new high and has pulled back, not into negative territory but the continued moves up look like a final high week. It is now 2:00 PM CST with an hour to go to close.