DJ World Index: Through the Elliott Eye!

The world has had an incredible year so far, with misfortune striking many diverse populations, in the form of natural disasters. I believe it is our duty to lend our support, relief and prayers to those affected, to the best of our abilities. 

Are we about to witness a financial disaster as well? Attached below is a chart with a simplistic view of the world index through my Elliott eye. If the labelling is foreign to you, you may want to browse through this basic Elliott Wave Tutorial. If you use a magnifying glass, you may notice a discernible trendline break on the chart. Note that the US markets have a heavy weightage in this index.

The question is: Is the C wave done? or was this 1 of C?
The nature of the decline that is currently unfolding might give us some clues. Assuming the most bearish case, i have drawn a projection of the possible path the world markets could take.

Big Picture

Since markets are fractals, any form of wave labelling requires the big picture count to be accurate. You may want to check out Robert Prechter's free copy of the February Elliott Wave Theorist for the US market picture, if you haven't already done so. (Available until Mar-21)

Asian Markets - baked in the same oven?

Although all world markets have general correlations, not all of them are in the same wave junctures. Some more bullish than others. For the Asian Markets big picture, you may want to check out the Asian-Pacific Financial Forecast service, by the brilliant Mark Galasiewski.

Very Short-Term

In the very short-term, most markets seem to be a few declines away from a short rebound into the next few weeks, which will serve as a back-test.

All the best!

Elliott Wave Theorist, FREE until Mar-21

In response to the dramatic selloff in recent days, Elliott Wave International has released a free issue of Robert Prechter's Elliott Wave Theorist. EWI says:

"It includes more of Robert Prechter's experience than you’ll ever read in a single issue -- all 30-plus years of it. What matters is that he uses his experience at a moment when it can do the most good, namely when investors are most vulnerable. This is a unique opportunity for you to see what Prechter’s subscribers see. Don't miss out! This free issue is only available through March 21."


Click here for download page.

"Elliott Wave Principle": FREE online edition

Bob Prechter is releasing the online edition of Elliott Wave Principle: Key to Market Behavior, FREE to the public. This brilliant book is my trading bible, and i would strongly recommend anyone interested in trading or market psychology to have a go at this. Trading is an art (not a science). The general principles of Elliott Wave Theory are immensly beneficial to understading market moods, as well as in shaping a trading framework, in my humble opinion.

Click here to access the resource. You may have to sign up for a Club ID, which is free. I trust you will find this useful :)

(Video) Prechter on CNBC: "Not a bear among them"

"Market Manipulation" Is Not Why Most Traders Lose
A look at EWI president Robert Prechter's requirements for successful trading
November 2, 2010 By Elliott Wave International

How often have you heard analysts refer to a down day on Wall Street as "traders taking profits"? Sounds great, butthe sobering fact is that most traders -- in futures, commodities, or forex -- lose money. Any book on trading will list for you the many reasons why most traders lose. Yet some traders do win; some even set records. In 1984, Elliott Wave International's founder and president Robert Prechter won the U.S. Trading Championship, setting a new all-time profit record of 444.4% in a monitored real-money options account. Later in his monthly Elliott Wave Theorist, Prechter published a Special Report "What A Trader Really needs To Be Successful" with 5 important insights for would-be market speculators (including the explanation of why "market manipulation" is not why most traders lose.)

Here's a quick excerpt -- and to read Prechter's Special Report in full, free, look below.

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"What A Trader Really Needs To Be Successful" (excerpt)

By Robert Prechter
Ever since winning the United States Trading Championship in 1984 (see footnotes, p.4), subscribers have asked for a list of "tips" on trading, or even a play-by-play of the  approximately 200 short term trades I made while following hourly market data over a four month period. Neither of these would do anyone any good. What successful trading requires is both more and less than most people think. In watching the reports of each new Championship over the past three years, it has been a joy to see what a large percentage of the top winners have been Elliott Wave Theorist subscribers and telephone consultation customers. (In fact, in the latest "standings" report from the USTC, of the top three producers in each of four categories, half are EWT subscribers!) However, while good traders may want the input from EWT, not all EWT subscribers are good traders. Obviously the winners know something the losers don't. What is it? What are the guidelines you really need to meet in order to trade the markets successfully?

When I first began trading, I did what many others who start out in the markets do: I developed a list of trading rules. The list was created piecemeal, with each new rule added, usually, following the conclusion of an unsuccessful trade. I continually asked myself, what would I do differently next time to make sure that this mistake would not recur? The resulting list of "do's" and "don'ts" ultimately comprised about 16 statements. Approximately six months following the completion of my carved-in-stone list of trading rules, I balled up the paper and threw it in the trash. What was the problem with my list, a list typical of so many novices who think they are learning something? After several months of attempting to apply the "rules," it became clear that I made not merely a mistake here and there in the list, but a fundamental error in compiling the list in the first place. The error was in taking aim at the last trade each time, as if the next trading situation would present a similar problem. By the time 16 rules are created, all situations are covered and the trader is back to square one. Let me give you an example of the ironies that result from the typical method of generating a list of trading rules. One of the most popular trading maxims is, "You can't go broke taking a profit." (The brokers invented that one, of course, which is one reason that new traders always hear of it!) This trading maxim appears to make wonderful sense, but only when viewed in the context of a recent trade with a specific outcome.

When you have entered a trade at a good price, watched it go your way for a while, then watched it go against you and turn into a loss, the maxim sounds like a pronouncement of divine
wisdom. What you are really saying, however, is that in the context of the last trade "I should have sold when I had a small profit."

Now let's see what happens on the next trade. You enter a trade, and after just a few days of watching it go your way, you sell out, only to stare in amazement as it continues to go in the direction you had expected, racking up paper gains of several hundred percent. You ask a more experienced trader what your error was, and he advises you sagely while peering over his glasses, "Remember this forever: Cut losses short; let profits run." So you reach for your list of trading rules and write this maxim, which means only, of course "I should NOT have sold when I had a small profit." So trading rules #2 and #14 are in direct conflict. Is this an isolated incident? What about rule #3, which reads, "Stay cool; never let emotions rule your trading," and #8, which reads, "If a trade is obviously going against you, get out of the way before it turns into a disaster." Stripped of their fancy attire, #3 says, "Don't panic during trading" and #8 says, "Go ahead and panic!" Such formulations are, in the final analysis, utterly useless. What I finally desired to create was a description not of each of the trees, but of the forest. After several years of trading, I came up with -- guess what -- another list! But this is not a list of "trading rules"; it's a list of requirements for successful trading. Most worthwhile truths are simple, and this list contains only five items. ...

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Read the rest of Prechter's report now, free! Here's what you'll learn:

• Why a trading method is a "must" for your success
• What part discipline plays in your trading success
• Why "market manipulation" is not why most traders lose
• How to gain trading experience
• More

This article was syndicated by Elliott Wave International and was originally published under the headline "Market Manipulation" Is Not Why Most Traders Lose. 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.

Video (Part 3): Prechter - Investing in Extreme Markets

(Note: This interview was originally recorded on September 20, 2010)

In the video below, Robert Prechter talks to Yahoo! Finance Tech Ticker host Aaron Task and Henry Blodget about a technical pattern he sees forming in the Dow.

Get Up to Speed on Robert Prechter's Latest Perspective — Download this Special FREE Report Now.

Video (Part 2): Prechter: Ominous Pattern in the DJIA

(Note: This interview was originally recorded on September 20, 2010)

In the video below, Robert Prechter talks to Yahoo! Finance Tech Ticker host Aaron Task and Henry Blodget about a technical pattern he sees forming in the Dow.

Get Up to Speed on Robert Prechter's Latest Perspective — Download this Special FREE Report Now.

Video (Part 1): Prechter On Market Rally

(Note: This interview was originally recorded on September 20, 2010)

In the video below, Robert Prechter talks to Yahoo! Finance Tech Ticker host Aaron Task and Henry Blodget about extreme readings in various indicators that confirm his bear-market forecast.

Get Up to Speed on Robert Prechter's Latest Perspective — Download this Special FREE Report Now.

Socionomics - Prechter's Genius

Robert Prechter of EWI, has made some brilliant calls in his career. Although he may not have been on the  money, with his recent short-term market calls, but here's why i've loads of respect for this guy - the man's a genius when it comes to socionomics.

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Tea Party: Why NOW?
By Vadim Pokhlebkin

The Tea Party has gathered enough momentum to become a political force. According to an April Gallup Poll, "28% of U.S. adults call themselves supporters of the Tea Party." (gallup.com)

Earlier this year, New York Times columnist David Brooks wrote this (underline added): 

"Over the course of this year, the tea party movement will probably be transformed. Right now, it is an amateurish movement with mediocre leadership. But several bright and polished politicians... are unofficially competing to become its de facto leader. If they succeed, their movement is likely to outgrow its crude beginnings and become a major force in American politics."

I realize the Tea Party itself is a politically charged topic. But set aside your personal opinions for a moment, and please read the quotes below. They are from Robert Prechter's October 2003 Elliott Wave Theorist.

In that issue, EWI's president gave several prescient forecasts regarding social life and politics in the coming bear market (underline added):

• "Social groups, including economic, political, religious, genders and classes, will polarize and splinter further. I.e., they will polarize both internally and with respect to opposing groups."
• "Both patriotism and anti-government sentiment will grow into powerful emotional forces."
• "Politics will become far more polarized, splintered and radical."
• "The U.S. will accelerate its trend toward socialism. Opposition to that trend will be vigorous."
• "Third parties will gain political clout and win local elections. Libertarians, greens and others will capture many local offices and probably at least one state government." 

How was Bob Prechter able to predict the emergence of a third party and the polarization that's been tearing this country apart for the past few years?

He did so by using socionomics, the new science of social prediction based on the Elliott Wave Principle. It postulates that social mood (an unconsciously shared herding impulse) drives social events. Elliott wave patterns in stock market charts reflect social mood. Thus by forecasting the stock market you can also anticipate the tenor of social events -- often with stunning accuracy, as you can see.

Find the idea of socionomics fascinating? You're not alone -- the folks at EWI's sister organization The Socionomics Institute share your passion. You can read their latest socionomic observations and forecasts every month in The Socionomist. Take a look at what's inside the latest issue. (You also get instant access to May, April, March and February Socionomist issues.)

S&P500 Short-Term: Trendline break

Last post on the SPX500 called for at least a consolidation from the wedge formation. We got one now with the trendline break, and sharp one too! Although oversold in the very short-term, with the possibility of a weak bounce, we can expect further downside into next week.

Any bounce up will be capped by 1100-1105spx, before turning down. In the unlikely event of a further push up, 1120-1130 will definitely contain the price in the short-term.

Supports

Price is right now at 1090 support. A convincing break below will see next support around 1060 & 1040. SPX behaviour at 1010 is key for medium-term direction.

Elliott Wave Labelling

Looks like wave B(or 2) correction has ended, and wave C(or 3) down has started. Just before the last trading session, Robert Prechter of Elliott Wave International released an Interim Elliott Wave Theorist, warning of imminent downside action, along with his wave count.

Check out the "Education & Resources" section if you need more information on Elliott Wave Theory. All the best!

S&P500: A-B-C or W-A-V-E 3?

Last post on the SPX talked about resistance levels. Price kissed the downtrendline shown, and reversed with some real sting on Friday. Short-term oversold, but no reversal signals from the usual momentum indicators - so probably more downside to come early next week. Question is, did we complete an A-B-C at 1010, or are we looking at a completed, nested 1-2, i-ii with serious downside(dreaded wave 3) ahead?

Prechter's View

Most of you are already familiar with Elliott Wave International(EWI)'s Robert Prechter, and his views. For those who have not had a chance, click here to download a time-limited, free copy of the Elliott Wave Theorist. They are looking at the latter view of serious downside. The report will give you a detailed picture.

Reasons to consider the A-B-C view:

1. Move up from Mar-09 was in 5-waves on the weekly chart (Although, note that the internal wave structure did not have impulsive qualities at all)
2. Unless we ignore the vertical part of the flash crash, the decline so far looks more corrective than impulsive.

Death Cross

The 50-day MA(red) crossing the 200-day MA(green) from above, is a bearish indicator also known as the Death Cross. This supports EWI's bearish picture, at least for the medium-term.

Resistance & Support

The upper trendline in red is crucial resistance for any further upside attempts. A sustained break above will change the picture to bullish. 1070 support did not hold on Friday, and unless it's regained quickly, all hopes of an upside breakout will be dashed.

Down below, we're looking at support just below 1040, followed by 1010. Further downside will see support around 950 initially.

Personally, i am leaning towards neutral-to-bearish, based on the price action. But gonna take a rain check on the US markets, and trade Asia for now.

All the best!

Prechter on CNBC: Prechter's Perspective on Stocks

Robert Prechter joins host Maria Bartiromo on CNBC's Closing Bell to talk about his bearish forecast for stocks and offer investment advice.



FREE Report: 20 Questions with Robert Prechter
Noted financial commentator Jim Puplava asks Robert Prechter tough questions about fiat currency, gold, the Fed, the Great Depression, financial bubbles, government intervention and how to protect your money -- and even profit -- in today's environment. Read Prechter's candid answers for FREE now. Access the 20-page report here.

"What A Trader Really Needs To Be Successful"

A great article on the psychology of trading.

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In 1984, Elliott Wave International's founder and president Robert Prechter won the U.S. Trading Championship, setting a new all-time profit record of 444.4% in a monitored real-money options account in 4 months. In the average 4-month contest, over 75% of contestants, mostly professionals, fail to report profits.

Later in his monthly Elliott Wave Theorist, Prechter published a Special Report "What A Trader Really Needs To Be Successful" with 5 important tips to would-be market speculators. Here's a quick excerpt. (To read Special Report in full, free, look below.)

"What A Trader Really Needs To Be Successful" (excerpt)

By Robert Prechter

There are many denials of reality which automatically disqualify millions of people from joining the ranks of successful speculators. For instance, to moan that "pools," "manipulators," "insiders," "they," "the big boys" or "program trading" (known today as "high-frequency trading" -- Ed.) are to blame for one's losses is a common fault.

Anyone who utters such a conviction is doomed before he starts. [My] observation, after eleven years "in the business," is that the biggest obstacle to successful speculation is the failure merely even to recognize and accept the simple fact that losses are part of the game, and that they must be accommodated.

The perfect trading system does not exist. Expecting, or even hoping for, perfection is a guarantee of failure. Speculation is akin to batting in baseball. A player hitting .300 is good. A player hitting .400 is great. But even the great player fails to hit 60% of the time! He even strikes out often. But he still earns six figures a year, because although not perfect, he has approached the best that can be achieved. You don't have to be perfect to win in the markets, either; you "merely" have to be better than almost everybody else, and that's hard enough.

Practically speaking, you must include an objective money management system when formulating your trading method in the first place. There are many ways to do it. Some methods use stops. If stops are impractical (such as with options), you may decide to risk only small amounts of total capital at a time. After all is said and done, learning to handle losses will be your greatest triumph.

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Read the rest of Prechter's 5 tips to would-be market speculators now, free! All you need is to create a free Club EWI profile. Here's what else you'll learn:

• Why a trading method is a must for your success
• What part discipline plays in your trading success
• How to gain trading experience

(Already a free Club EWI member? Finish reading the report here.)

(Video) Prechter on CNBC's Closing Bell

With the dollar up nearly 20% since December 2009, Robert Prechter put that number into context and offered his forecast for the U.S. currency on CNBC's Closing Bell. Watch the video excerpt below from his June 10 interview with host Maria Bartiromo to hear what he had to say about the dollar, the euro and the looming bear market.



Five minutes not enough insight from Robert Prechter? Get up to speed on Prechter's latest perspective by downloading this free report of some of his best nuggets directly from his Elliott Wave Theorist.

Already a Club EWI member? Click here to login and access your free report.

Prechter on Yahoo! Finance: "Even $1 Trillion Can't Save the Euro, But Gold is No Safe Haven"

The euro's recent loss has been the dollar's gain, which means that it's not the best time to buy the U.S. dollar. Meanwhile, the most popular alternative to currencies, gold, isn't such a good buy either. Watch the second excerpt from Robert Prechter's May 20 interview with Yahoo! Finance Tech Ticker host Aaron Task to hear what Prechter thinks is in store for the U.S. currency and gold.

For more information from Robert Prechter, download a FREE 10-page 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. Hurry! This free offer expires June 7.

(Video) Robert Prechter on Tech Ticker

First part of a 3-part interview with Robert Prechter, president of Elliott Wave International. Some of his market calls may have been historically too early, to the chagrin of short-term traders. Let's face it, no one can predict the future 100%, unless you work in God's office (even then, it would be insider trading - a terrible sin!).

But, i've got enormous respect for this guy - especially his socionomic observations, and medium-long-term market calls. Enjoy!



Part 2 - Gold is no Safe Haven
Part 3 - Finance: Bank Reform Will Shrink Credit, Kill the Economy

Tech Ticker Article on Yahoo.

S&P500 short-term: Impulsive Decline!

Thursday, the market showed surprising strength, and i remarked on a comment thread, that this might be an exhaustion gap on the small cap index. Friday, the markets were overdue for a correction, and would have gone down on the slightest excuse (Goldman or not!), and they did. The decline was impulsive suggesting more downside ahead towards 1176. We are surely at a significant short-term top, but whether it's a significant medium-long-term top remains to be seen.

Head & Shoulders

First thing to take note is the red channel break. Then, SPX got oversold, and bounced right off an important short-term trendline (purple). Price is forming a slightly declining Head & Shoulders, with left shoulder at 1200, head at 1214, and right shoulder at 1198. If it works out, we can expect a decline towards 1176 area initially. Good support is at 1150 area. A break of 1200 upwards, may retest the highs at 1214.

As an aside, RUT looks like it has a bit more upside to go.

Short-Term Trading Idea

I may take a short-position right here with a stop just above 1200, and a target of 1176.

Latest EWT

So is this the start of a regular correction at the end of wave 5, with more upside to come? Or is it the end of a corrective C of some kind, with serious declines ahead? The latest Elliott Wave Theorist, from Robert Prechter of Elliott Wave International, presents a very impressive, and comprehensive timing analysis going all the way back to the 1900s. Here's an article which drops a few hints as to the content. Without giving away too much, he explains the surprising strength of this "rally", why a very significant long-term top for US markets may be close at hand, and the nature of the declines to come. No one can predict the future 100%, but this newsletter is definitely worth a read. :)

As most of my trades are in the short-medium term, i'll stick mostly to analysis in these time frames. Will be posting again with an update of sentiment, and slightly longer-term charts, after watching the current decline. Meanwhile, keep in mind that the medium-term uptrendline is at the bottom of the chart (in grey).

As always, be safe and remember to use "protection". All the best!