Talking about market timing, when you read my indicators you get a good indication of the short term direction of the FTSE 100. Here is an example of a bullish signal:
We went long FTSE 100 on 13th March, this is what I said to my members:
The decline is a fourth wave….The 200-day moving average is at 6689, this level is strong support this is why I expect wave 4 to end near that level….The BTI is up which can be interpreted as bullish…6694 marks the bottom of wave 4 of an ending diagonal [1,2,3,4,5]…The Top 20 Differential is oversold (bullish)…The next target is a 7000 for wave 5.
That was the chart I published:
This gives you a good idea of the short term direction of the FTSE 100. When most indicators are bullish the FTSE 100 has an increased probability of going up. These indicators are very reliable, they have been used for many years and they make money!
But today volatility will be high at 6pm when the FOMC meeting minutes are released, this is an important announcement, so many investors focus on the direction of interest rates. If the statement hints at an early rise in interest rates, the stock market will sell off.
To subscribe to the FTSE short term forecast click here
Until next time
Editor's note: You'll find the text version of the story below the video.
The financial media has recently featured stories with an upbeat outlook for the U.S. economy.
For example: The economy is on track for "the fastest growth in a decade" (Associated Press), and "Experts expect jobs aplenty in '15" (USA Today).
This upbeat tone is related to December's U.S. jobless rate of 5.6%, its lowest since June 2008.
But Jim Clifton, Chairman and CEO of Gallup, offers a different perspective on the jobs data. His February 3 article on Gallup's website was headlined, "The Big Lie: 5.6% Unemployment."
Right now, we're hearing much celebrating from the media, the White House and Wall Street about how unemployment is "down" to 5.6%. The cheerleading for this number is deafening.
None of them will tell you this ... If you are so hopelessly out of work that you've stopped looking over the past four weeks -- the Department of Labor doesn't count you as unemployed. ... Right now, as many as 30 million Americans are either out of work or severely underemployed. ...
If you perform a minimum of one hour of work in a week and are paid at least $20 ... you're not officially counted as unemployed ... .
If you ... are working 10 hours part time because it is all you can find ... the government doesn't count you in the 5.6%.
There's no other way to say this. The official unemployment rate ... amounts to a Big Lie.
A Federal Reserve chart shows that the civilian labor force has been shrinking for 15 years.
The February Elliott Wave Financial Forecast comments:
Why is [the U.S. Labor Force Participation Rate] falling when job growth is rising? The answer, we think, is the emerging force of deflation. Notice that the peak participation rate of 67.3% came from January to March 2000, as the major stock indexes topped, after which inflation first began to falter. When stocks rallied to their 2007 top, there was a mild bounce in the rate, but the latest stock market rally failed to generate any sustained rise in the rate of work force participation. Workers appear so discouraged that the pool of available employees is back to where it was in 1978. The opening chapter of Conquer the Crash ...states, "The persistent deceleration in the U.S. economy is vitally important, because it portends a major reversal from economic expansion to economic contraction."
What will the jobless picture look like at the bottom of an economic contraction?
The third edition of Conquer the Crash published in July 2014 and forecast:
The true unemployment rate in the U.S. and in most countries around the world will rise and eventually exceed 25 percent ... .
In this free Special Report, you will learn about this unexpected but imminent risk to your portfolio AND you'll get 29 specific forecasts for stocks, real estate, gold, cultural trends -- and more (excerpted from Prechter's New York Times bestseller Conquer the Crash -- You Can Survive and Prosper in a Deflationary Depression).
Before I tell you about money management and risk/reward let me show you why the latest rally to 6900 was an important move. The previous high (6905) was recorded in September last year. If the FTSE 100 fails to break above that level we will have a double top with devastating consequences.
You see there are two ways to interpret the latest rally.
It could be an impulse wave up and in this case the stock market will rally again. But it's not clear because since last week we had a series of positive announcements and the stock market is not responding. Last week the ECB announced QE yet the FTSE and S&P are trading below the levels post announcement. Then on Tuesday Apple announced record results and yesterday's FOMC statement was as expected yet the stock market declined.
When the stock market fails to rally on good news sentiment is bearish. Right now the BTI is till rising but it feels like sentiment will turn bearish in the short term. On the chart above the current decline is wave iv (circle) and once this decline is over the FTSE should rally to complete wave v (circle). But the key level of 6905 remains intact and as long as it remains intact there is a possibility the rally was wave 2 as shown on the alternate wave count:
If the rally was wave 2, the decline in the FTSE will continue because the next move is wave 3 down. This is a long term decline with a target near 5500. Given the potential downside risk it is not recommended to go long (except if you trade intraday). We need to see what the S&P 500 will do before taking a firm view on the next move. The US index is near a key support, if broken the stock market could plunge.
To receive regular updates and trading signal on the FTSE 100 click:
Until next time,
Last chance to get prepared for the major moves in U.S. stocks, commodities, gold, USD and more for 2015 and beyond -- Elliott Wave International's free State of the U.S. Markets online conference ends Wednesday, January 28! Register now and get instant access to a free video presentation from market legend Robert Prechter plus all of the great insights from our most recent publications and presentations from our key analysts.
Editor's note: You'll find the text version of the story below the video.
On January 21, one of the biggest financial lawsuits in recent history came to a costly end. The accused, ratings behemoth Standard & Poor's, agreed to a $1.4 billion settlement for "inflating credit ratings on toxic assets," thus accelerating and exacerbating the 2008 subprime mortgage crisis.
Settlement aside, there is a far bigger issue here than business ethics or conflicts of interests, which is not likely to get a hearing in the court of mainstream finance.
Which is: The professionals who are supposed to assess investment risks are no better at it than you or I.
Case in point: Think back to November 30, 2001. The world's largest seller of natural gas and electricity has gone from cash cow to dry bone. Its share price had plummeted 99%, from $90 to just under $1. YET-- the company continued to enjoy an "INVESTMENT GRADE" rating.
The company's name: Enron. Four days later, it filed for the largest bankruptcy in U.S. history.
Enron seems like a distant memory, but what about the subprime mortgage debacle? Moody's rating service slashed the ratings of 131 subprime bonds due to higher than expected defaults, in July 2007 -- two years after the market for non-traditional mortgages had already turned.
Spot a trend here? The "experts" failure to anticipate huge trend changes in companies, and in the overall economy. In the first edition of his business best-seller Conquer the Crash, EWI president Bob Prechter wrote:
"The most widely utilized ratings services are almost always woefully late in warning of problems within financial institutions. They often seem to get news about a company around the time everyone else does... In several cases, a company can collapse before the standard ratings services know what hit it."
So here's the question: What are the experts not seeing now that you and I need to prepare for?
What about gold? In 2012, with prices nearly reclaiming all-time high territory, the Federal Reserve's quantitative easing campaign was supposed to keep the wind at gold's back.
"Ben Bernanke has just offered gold investors a... gilded invitation to participate in the greatest secular bull market of our time." (April 14, 2012, Motley Fool)
Then this happened:
The same goes for the 2008 peaks in oil and commodities -- two more "safe-havens" that were supposed to benefit from the Fed's money-printing campaign, but instead prices fell to lows not seen since the 2007 financial crisis.
So, that leaves the remaining outlier -- equities, which have climbed to record highs. And, according to the experts, the path of least resistance remains up. A December 14, 2014 article in the New York Times:
"We don't see a lot on the horizon that could derail the U.S stock market in particular."
Our January 2015 Elliott Wave Theorist urges caution with this single chart of the S&P 500's year-end valuations since 1927. Every major peak of the last 90 years landed well outside the normal range: 1929, 1987, 2000, and 2007.
We believe the precarious placement of 2014 sends a similar message: "The stock market and the economy are not in a new multi-decade recovery as economists believe, but very late in a transition phase from boom to bust."
LAST CHANCE to Join Elliott Wave International's free State of the U.S. Markets online conference -- Ends Wednesday, January 28.
Get prepared for the major moves in U.S. stocks, commodities, gold, USD and more for 2015 and beyond. Register now and you can still get instant access to a free video presentation from market legend Robert Prechter plus all of the great insights from our most recent publications and presentations from our key analysts. Hurry - Ends Wednesday, January 28.
Do you have a New Year resolution?
My resolution is to help you make money in 2015...Remember what I said last week?
In the meantime, the Fed's quantitative easing program has come to an end, interest rates are set to rise, crude oil as well as copper are collapsing, China's economy is slowing down, Europe's economy is on the brink of deflation, to a certain extent this will spread to the UK and the US.
The stock market is at risk, it could go down by 20-30% this year if we don't see an improvement in the global economy.
Let's start the New Year with some resolutions, what are we going to do and more importantly can we avoid deflation?
To be honest with you I have not got a clue whether or not we will face deflation. What I know is that 2015 will trigger a series of events that will impact positively on Better Trader members. You must be prepared too, so here are your resolutions:
Become more disciplined
Do not bet too much
Know where to place your stop loss
Do not overtrade
Take up a subscription to Better Trader Premium click here
This last point is the most important. By the end 2015 you will thank me, I hope.
Stay tuned, I will explain the above points and how you will become a better trader in 2015.
Until next time,
Have you ever seen Donald Duck play pool? Trust us, it isn't pretty.
An expert pool player, on the other hand -- well, he can just look at the billiards table and imagine lines drawn out, marking the trajectory the cue ball must take to make the shot.
Now, what if you could just look at a financial market's price chart -- and see actual lines drawn out that aim straight for the "pocket" of opportunity?
According to our resident Monthly Commodity Junctures editor and chief commodity analyst Jeffrey Kennedy, you can.
All you need to do is implement a tried-and-true tool of technical analysis known as trendlines. (And let's just say, what Paul Newman is to the game of pool in the Hustler, Jeffrey Kennedy is to the field of technical analysis in real life.)
In part 1 of our series, we showed you how Jeffrey used trendlines to identify a major break-out point in cocoa back in May 2014. Part 2 played the video of Jeffrey's April 2014 corn forecast, where he used trendlines to fortify his bearish wave count -- right before corn prices embarked on a powerful sell-off to 4-year lows.
Today, we're returning to that April 2014 Monthly Commodity Junctures video to show you 3 more examples of how Jeffrey used trendlines to "call the pocket" in coffee, sugar, and the U.S. dollar. Roll the tape!
Of coffee, Jeffrey said: "We can expect a counter-trend move back to near the previous fourth wave extreme, roughly say between 170 and 160.
Coffee prices indeed sold off in three waves (i.e. counter-trend action) to the "previous fourth wave extreme" after breaking through the lower boundary of the trend channel:
Of sugar, Jeffrey said: "Once complete, wave (Y) of the larger fourth wave will give way to additional selling to back below the actual 2014 low."
Here's what happened to sugar prices after they fell below their trendline:
Of the U.S. dollar, Jeffrey said: "Ideally we'll begin to see this third wave move [up] develop soon... in a nice, volatile move to the upside."
The dollar indeed rallied strongly off that trendline:
It's safe to say, once you truly understand the risk-managing power of trendlines, they will become one of the most valuable tools in your technical toolbox. And nobody can attest to that fact more than Jeffrey Kennedy.
In fact, Jeffery loves trendlines so much, he wrote a book about them. Well, a free eBook -- titled "Trading the Line: 5 Ways You Can Use Trendlines to Improve Your Trading."
As the title of Jeffrey's eBook states, there are 5 ways trendlines improve your trading:
Want to learn how to draw your own trendlines -- and gain an advantage you've never had before?
Right now, we are offering the entire 17-page eBook (14 of those pages include Jeffrey's carefully chosen charts and analysis) as part of our FREE trader resources. Once you join the 325,000-plus members of our Club EWI family, it's yours for the reading -- at absolutely no cost.
The FTSE completed a decline in five waves [i,ii,iii,iv,v] from 10 April. This pattern is what you would expect to see in a downtrend, so it looks like the trend is down in the FTSE. The UK Index is struggling to move above its 200-day moving average, for this reason and given the decline in five waves the FTSE is already in a downtrend.
The current wave down is probably a third wave. Yesterday's rally occurred after negative developments in Ukraine, but US retail sales and Citigroup earnings pleased therefore I conclude that investors focussed on the good news. In terms of Elliott wave the decline in five waves should be followed by a rally in three waves and this is what we are seeing now. After the rally the UK index should decline to 6400. What is not clear is where the current bounce will end, we have two possible wave counts on the S&P (see below), one of them is a big rally.
The action in the FTSE is not confirmed by the S&P (unless I am wrong on the S&P) which means I don't have enough confidence to give a forecast. I would like to see a bearish pattern on the S&P, this would give me more confidence in calling for a decline.
I believe that the events in Ukraine pose a big risk to the rally, the situation is very volatile and despite the positive influence from earnings reports I would not like to be long. Instead I favour going short from higher levels.
The strong rally in the S&P yesterday suggests that the decline is over because we have three waves down [(a),(b),(c)]. I am not entirely sure that this is the case, the decline retraced only 50% of wave i (circle), if the pattern is an ending diagonal wave ii (circle) should retrace at least 61.8% of wave i (circle). For this reason we could see another decline to 1800 today. If this happens the move down will be in five waves as shown on the alternate wave count below:
If we assume that last Friday's low is the bottom of wave (iii) of a five-wave decline, the current move up is wave (iv) and this move should end below 1837.5 which is the bottom of wave (i). A fourth wave can not overlap the first, so today if the S&P fails to break above 1837.5 and goes sideways the odds of a five wave decline will increase and in this case the S&P will confirm the FTSE's bear trend. In this scenario the decline to 1800 would be wave (v).
Bullish e-Yield Sentiment Indicator (ESI)
Declining bond yields
Bullish technical pattern
Extended Bull market
S&P 500 well above 200-day moving average
First degree extreme in bullish sentiment
Fed tapering asset purchases
Slowdown in emerging markets
Put/Call Ratio 10 day average at an extreme
Margin debt at record high
Percentage of bearish advisor at record low
There is nothing surprising in the current move down, it's a second wave and second waves can retrace 100% of the first wave. The first wave started from 6679, so in theory the second wave could go down to a maximum of 6679. This is a maximum retracement, in general the retracement is more likely to end between the 38.2% and 78.6% retracement of the first wave. I would say the most obvious support is (subscribers only) from where the FTSE 100 should rally.
Alternatively join Thierry's FTSE trading service to find out support/resistance levels
Optimism about Britain's recovery outlook grew on Tuesday as a trio of surveys flagged rising house prices, improved business confidence and steady growth in retail sales.
* UK manufacturing and industrial output data for May, due to be published at 0830 GMT, was expected to show growth from the previous month.
* MARKS & SPENCER - The British retailer on Tuesday posted an eighth consecutive quarterly fall in underlying sales of general merchandise, though the outcome did represent a slowing in the rate of decline.
* ROYAL DUTCH SHELL said on Tuesday its Downstream Director, Ben van Beurden, would take over as the new group chief executive from next year, to replace Peter Voser who had already announced his departure.
* BP - The oil major drew tough questions on Monday from U.S. appeals court judges hearing a complaint by the oil company objecting to the payment of certain claims for damages related to the Gulf of Mexico spill, casting doubt on BP's effort to curb the payouts.
* ROYAL BANK OF SCOTLAND - The British government has ruled out a broad investigation into whether Royal Bank of Scotland should be broken up and sold off in smaller component parts to foster more competition in the banking sector, The Guardian reported on Tuesday.