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Factors to watch

Latest economic data from the US was soft, this could delay any hike in US interest rates - bullish for stocks

Top 20 Differential is oversold, this indicator measure strength / weakness in the blue chips. When the blue chips are weak they tend to bounce back so it's bullish for stocks.

Bond yields are rising it could be because UK inflation is on the rise. If today's consumer price index is strong, the pound will strengthen and UK stocks could fall. A weak CPI would be bullish for stocks.

Netflix shares soar on bullish outlook.

Factors to watch

The strength of the S&P 500: declines are followed by large retracements

Sentiment is bearish, will the FTSE 100 remain below 6857? Risk of a slide.

Mining stocks: better than expected Chinese manufacturing could push mining stocks higher and this would support the FTSE 100

 

Better Trader, Better Forecast

As I said at the start of 2015, inflation and growth will drop sharply in coming months, the stock market will plunge. Greece was never the real issue, China was. I predicted the bursting of the Chinese stock market bubble and its consequences on Western economies and stock markets.

It's not the first time I have been spot on on the direction of the stock market and the events that will lead to a bear market. Back in April I made a bearish call LIVE at the UK Investor Show, warning investors of a massive correction during the summer. You can watch the video here:

Thierry Laduguie

 

 

When Investors Don't Trust Central Banks

The 13-day BTI is no longer oversold which means the FTSE is not oversold and there is now potential for a large fall. The Chinese stock market is closed today and the FTSE is down in pre-open, this time the influence is coming from Japan where stocks are down 3%. The real influence is more likely to be the global slowdown, when sentiment is bearish, bad news is bad news. So yesterday when Mario Draghi announced that inflation had been downgraded and growth cut, that was the bad news and investors should have sold stocks. Instead they bought. Why? Because Draghi also announced some good news, an increase in quantitative easing to boost growth. Investors focused on the good news and not the bad and that was a mistake. In a period of bearish sentiment you should focus on the bad news, the unexpected rally after 1.30pm was an opportunity to sell.

As I said before, inflation and growth will drop sharply in coming months, the stock market will plunge. I also said that investors will lose confidence in the central banks’ ability to stabilise the markets and the economy. We are seeing this new phenomenon right now. The announcement that the ECB will increase QE has failed to boost the stock market, the FTSE is down this morning. In the next few month or next year expect more of the same behaviour. Central banks and governments will intervene to stop the slide but this time bearish sentiment will be too strong. Bearish sentiment will grow with the slide.

To receive regular analysis and trading signals on the FTSE 100 subscribe to Better Trader

S&P 500 at key resistance

The rebound that follows a third of a third which is the most powerful wave down so far, tend to find resistance around the 38.2% retracement. This level is 1957 which is where the index is in pre-open. For this reason there is an increased probability that the rally will run out of steam.

Why we are long on FTSE 100

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:

 

I have re-designed the FTSE 100 short term forecast report, all the indicators are now in a table, see:

 

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

Thierry Laduguie

The "Big Lie" About the U.S. Jobs Picture

The "Big Lie" About the U.S. Jobs Picture
Some 30 million people are either out of work or severely underemployed

By Elliott Wave International

Editor's note: You'll find the text version of the story below the video.

Get Your FREE Special Report: What You Need to Know
NOW About Protecting Yourself from Deflation »

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 ... .

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Get Your Special Report: What You Need to Know NOW About Protecting Yourself from Deflation 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). Download your free report now >>

This article was syndicated by Elliott Wave International and was originally published under the headline The "Big Lie" About the U.S. Jobs Picture. 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.

FTSE 100 Failed To Break Above 6900

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:

https://www.eyield.co.uk/eyield/paymentSTF_trial655.htm

Until next time,

Thierry Laduguie

What's Bigger Than a $1.4 Billion Mortgage Ratings Scandal?

What's Bigger Than a $1.4 Billion Mortgage Ratings Scandal?
The great "inflated" expectations for gold, oil, commodities -- and now stocks

By Elliott Wave International

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.

Get insights on the economy and investing for 2015 and beyond.
Last chance to join our free, online State of the U.S. Markets Conference.

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."

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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.

This article was syndicated by Elliott Wave International and was originally published under the headline What's Bigger Than a $1.4 Billion Mortgage Ratings Scandal?. 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.