NASDAQ crosses important trend line
One of the most powerful technical tools that a trader possesses is a pencil and a ruler. It sounds kind of old-school, but the reality is trend lines in technical analysis are enormously important.
In this new video learn how the NASDAQ index has broken a very important trend line and what the ramifications are for this index.
We can all learn from the simplicity of this approach and how effective it is in the long run.
$EURUSD Trade Update 1/28/10
Our EUR/USD short continues to work out well (initiated at 1.5077). We were stopped out of 1/3 the position on January 4th and unfortunately missed the re-entry which should have occured on January 14th when the new pivot was formed and price ran into resistance at the Kijun Sen (blue line). Rather than chase it I made the decision to wait for a low risk entry on the next pullback. The 1/3 stop locked in 617 pips and the remaining 2/3 is currently up 1150 pips. This is close to a $3,000 gain assuming you started the trade with 3 units, which requires less than $500 with 100:1 margin. Not a bad return so far. I’m still targeting below 1.2400 before it’s all said and done.
Economics in One Lesson
The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups. - Henry Hazlitt
A nice overview of Henry Hazlitt’s book Economics in One Lesson.
Hazlitt’s Logic, For Those Who Care About Freedom
[American Affairs, 1946.]
Here is Henry Hazlitt exercising his gift for lucidity to produce a book entitled Economics in One Lesson. If there were such a book this would be it. It deals with those “economic fallacies that are at last so prevalent that they have almost become new orthodoxy,” — to the point that now there is not a major government in the world whose economic policies are not influenced or in fact determined by them.
He undertakes to expose them by analysis and reason and to chase them into the ground. But in the first place, how did they get abroad in this garb of respectability? How is their worldwide vogue to be explained?
Mr. Hazlitt’s explanation is that people have lost the habit of thinking beyond the present. They have been beguiled by the saying, “In the long run we are all dead.” They want everything today; let tomorrow take care of itself.
Bernanke’s Burn Notice — Why Now? Research Reveals Insight Into Fed Chairman’s Popularity
By Elliott Wave International
Like a spy who gets a burn notice, Federal Reserve Chairman Ben Bernanke has suddenly lost his support.
Bernanke has gone from being Time magazine’s Man of the Year in 2009 to … what? A Fed chairman embroiled in a controversial reconfirmation process before U.S. Congress. Why the sudden turnaround in his fortunes?
Robert Prechter, president of the research firm Elliott Wave International, has written about the history of the Fed and its chairmen several times over the years, and his research shows that their popularity rises and falls with social mood, which is measured by the stock market. Here is a compilation of excerpts from Prechter’s monthly market letter, The Elliott Wave Theorist, from 2005-2009 about the trouble he sees brewing at the Fed.
Can the Fed Stop Deflation? Robert Prechter answers this all-important question in his Free Deflation Survival Guide. The guide gives you a 60-page ebook that will help you understand deflation and its effects on society; you’ll even learn how to survive and prosper in such an environment. Download Your Free 60-Page Deflation eBook Here.
(November 2005) The Coming Change at the Fed | Public figureheads have a way of representing eras. This is certainly true of entertainment icons and politicians. The history of Fed chairmanship implies a similar tendency for changes of the guard to coincide with changes in social mood and therefore stock prices and the economy. [The chart below] depicts our social-mood meter—the DJIA—since the Fed’s creation in 1913, marked with the reigning chairmen according to a list on the Fed’s website.
The first chairman, Hamlin, presided over a straight-up boom. As it ended, Harding took over and presided over an inflationary period that accompanied a bear market, exiting just as a new uptrend was developing. Crissinger took over at the onset of the Roaring Twenties, and Young presided over the boom, the peak and the rebound into 1930. Meyer took over just as confidence was collapsing and left the office in early 1933 at the exact bottom of the Great Depression. The next three chairmen struggled through the choppy years of the 1940s. Then Martin presided over virtually the entire advance from the early 1950s through 1969, exiting just before the recession of 1970. Burns and Miller presided over a bear market and exited as the new uptrend was developing. Volcker, after weathering an inflation crisis, presided over the explosive ’80s. Greenspan has presided over the manic ’90s and the topping process. [Ben Bernanke] will have his own era. Given the eras that have immediately preceded the coming change in leadership, the odds are that this new environment will be a bear market.
(June 2006) Economists are convinced that the Fed can “fight” inflation or deflation by manipulating interest rates. But for the most part, all the Fed does is to follow price trends. When the markets fall and the economy weakens, the price of money falls with them, so interest rates go down. When the markets rise and the economy strengthens, the price of money rises with them, so interest rates go up. The Fed’s rates fell along with markets and the economy from 2001 to 2003. They have risen along with markets and the economy since then. Regardless of the Fed’s promise to keep raising rates, you can bet that the price of money will fall right along with the markets and the economy. Pundits will say that the Fed is “fighting” deflation, but it will simply be lowering its prices in line with the others.
It is highly likely that the next eight years or so will test the nearly universally accepted theory—among bulls and bears alike—that the Fed can control anything at all. The Great Depression made it look like a gang of fools, as will the coming deflationary collapse. We have predicted unequivocally that the new Fed chairman will go down as Hoover did: the butt of all the blame, and if you are reading the newspapers you can see that it’s already started. “When Bernanke Speaks, the Markets Freak” (San Jose Mercury News, June 10, 2006); “Bernanke is being blamed for spooking Wall Street” (USA Today, June 7, 2006); “Bernanke to blame for volatility” (Globe and Mail, Canada, Jun 13, 2006). The new chairman had a brief honeymoon (which we also predicted), but it’s already over.
By the way, I heard his commencement speech at MIT last week, and in it he spoke eloquently of the value of technology and free markets. But he also opined that economists have successfully applied technology to macroeconomics. We believe that the collective unconscious herding impulse cannot be tamed, directed or managed. In our socionomic view, the Fed cannot control the mood behind the markets, but rather, the mood behind the markets controls how people judge the Fed. We’ll ultimately find out who’s right.
Can the Fed Stop Deflation? Robert Prechter answers this all-important question in his Free Deflation Survival Guide. The guide gives you a 60-page ebook that will help you understand deflation and its effects on society; you’ll even learn how to survive and prosper in such an environment. Download Your Free 60-Page Deflation eBook Here.
(December 2009) Bernanke’s greatest achievement was not the measly $1.25t. of debt that he arranged to have the Fed monetize; it was convincing the government to shift the burden of debt default from the speculators and creditors to taxpayers.
(September 2009) Thanks to the Fed Chairman and two Treasury Secretaries, profligate bankers have been cashing checks off the Fed’s and the Treasury’s accounts, and the poor savers and taxpayers who fund these institutions are unaware that their personal bank accounts are being tapped by counterfeiters and thieves.
That lack of awareness may soon change. Declining social mood is fueling the drive to expose the Fed’s secrets. [Ed. note: Bloomberg News has sued the Fed under the Freedom of Information Act; Congressmen Ron Paul, R-Texas, and Barney Frank, D-Mass., are leading a charge to audit the Fed.] Exposing the Fed’s secret deals could lead to scandal and the collapse of major money-center banks. But most important to our monetary outlook, it will serve to curb the Fed’s reflation efforts. As I have written many times, deflation will win. Social mood is impulsive and cannot be stopped. The downtrend will claim its victims by whatever measures it must take to do so.
(August 2009) On July 26, in a speech in Kansas City, MO, Fed Chairman Ben Bernanke declared, “I was not going to be the Federal Reserve chairman who presided over the second Great Depression.” (WSJ, 7/27) We think this implication of a fait accompli is premature. Clearly, the Fed Chairman and the majority of economists are of the opinion that the worst of the financial crisis is past and that the Fed’s unprecedented lending has averted deflation and depression. But wave 3 down in the stock market will dispel these illusions. Years ago, we suggested that Chairman Greenspan quit if he wanted to keep his lofty reputation. He didn’t do it. Now Chairman Bernanke should consider this option.
So will Bernanke serve a second term as Fed chairman? The January 2010 Elliott Wave Financial Forecast says, “Social mood is still too elevated to deny Bernanke reappointment as head of the Fed. … But rising political tension confirms that his next term will be far more stressful than his first.”
Can the Fed Stop Deflation? Robert Prechter answers this all-important question in his Free Deflation Survival Guide. The guide gives you a 60-page ebook that will help you understand deflation and its effects on society; you’ll even learn how to survive and prosper in such an environment. Download Your Free 60-Page Deflation eBook Here.
Robert Prechter, Chartered Market Technician, is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.
New Year: New Economic Boom? Why 2010 Should Be One to Remember
Elliott Wave International’s latest free report puts 2010 into perspective like no other. The Most Important Investment Report You’ll Read in 2010 is a must-read for all independent-minded investors. The 13-page report is available for free download now. Learn more here.
By Nico Isaac
In the realm of market psychology, there’s a big difference between optimism and extreme optimism. The first is seeing the glass half full. The second is seeing the glass half full deep in the heart of a bone-dry desert. In finance, it’s what we call “Buying the Dip” mentality — when all outcomes, even losses, are cause for celebration.
We are there now.
To wit: With a new year upon us, the mainstream has already come up with a fresh tagline to define the next 360-or so days. It even rhymes: The Bull Runs Again In 2010. This projection is in no way “in spite of” the fact that the U.S. stock market just finished its first decade of negative returns since the Great Depression; it’s because of that fact.
See, according to the mainstream experts, this “Lost Decade” of abysmal stock performance (in which the Dow ended 9% in the red, the S&P 500 – 24%, and the NASDAQ Composite – 44%) is the very foundation on which a new bull market will apparently be born. One economic scholar recently coined the phenomenon the “Slingshot Effect” — the more severe the downturn, the faster the recovery. (Associated Press)
Adding to the upbeat chorus are these recent news items:
“The horrible decade has wiped out all the excesses of the previous two decades and put us back on track for more normal returns.” (USA Today) — AND — “It may be the best of all possible worlds.” (Business News)
Back in the late 1990s, when the “unstoppable” NASDAQ began to experience regular days of double-digit drops, it was “Buy-the-Dip.” Now, it’s “buy the entire lost decade.” And, as the Dec.31, 2009 Elliott Wave Financial ForecastShort Term Update reveals — current sentiment readings “continue to show that stock market bears have packed up and moved to Florida for the winter.”
The Dec. 31 Short Term Update also reveals two mind-blowing charts of the S&P 500 versus Investor Intelligence Advisors Survey Percentage of Bears — AND, the S&P 500 versus the percentage of “Fully Committed” bullish advisors since 2000. The current reading is the lowest bearish percentage in 22 years.
Take one look at the evidence, and you’ll see that a defining pattern emerges: Low levels of bearishness have consistently coincided with one kind of market move. Combine this picture with the other measures of investor sentiment like momentum, volume and Elliott wave structure, and the evidence tilts overwhelmingly in favor of an unforgettable year.
Elliott Wave International’s latest free report puts 2010 into perspective like no other. The Most Important Investment Report You’ll Read in 2010 is a must-read for all independent-minded investors. The 13-page report is available for free download now. Learn more here.
Nico Isaac writes for Elliott Wave International, a market forecasting and technical analysis firm.
Why You Should Care About DJIA Priced in Gold
By Vadim Pokhlebkin
The following article is provided courtesy of Elliott Wave International (EWI). For more insights that challenge conventional financial wisdom, download EWI’s free 118-page Independent Investor eBook.
————-
Of the many forward looking market indicators we at EWI employ, one of the most interesting tools (and least discussed in the financial media) is the DJIA priced in gold — “the real money,” as EWI’s president Robert Prechter calls it.
We’ve been tracking the Dow/Gold ratio for many years and it has serves our subscribers well. It’s not a short-term timing tool, yet in the longer term, as our January 6 Short Term Update put it, “the nominal Dow eventually plays catch up to what is transpiring in the Dow/Gold ratio.”
Here’s a good example. Remember when the nominal DJIA hit its all-time high? October 2007, just above 14,000. At that time, most investors expected new highs still to come. But our Elliott Wave Financial Forecast warned five months prior, in May 2007:
One key reason [for a coming top in the DJIA] is the undeniable bear market status of the Dow Jones Industrial Average in terms of gold, the Real Dow…
Notice, by contrast, the relative strength of the Real Dow versus the nominal Dow, the index in terms of dollars, from 1980 to 1982. By August 1982 when the Dow denominated in dollars bottomed, the Real Dow was rising strongly from its 1980 low… The nominal Dow soon played catch-up, and they both rallied more or less in sync until 1999.
Now, instead of soaring the Real Dow is crashing relative to the nominal Dow. In fact, it’s barely off its low of May 2006. This dichotomy reveals the weakness that underlies the financial markets’ push higher. When mood turns and credit inflation reverses, the ensuing drop in the nominal value of the market should be dramatic.
“Dramatic drop” did indeed follow: Between October 2007 and March 2009, the DJIA lost 53%, high to low.
For more information, download Robert Prechter’s free Independent Investor eBook. The 118-page resource teaches investors to think independently by challenging conventional financial market assumptions.
Vadim Pokhlebkin joined Robert Prechter’s Elliott Wave International in 1998. A Moscow, Russia, native, Vadim has a Bachelor’s in Business from Bryan College, where he got his first introduction to the ideas of free market and investors’ irrational collective behavior. Vadim’s articles focus on the application of the Wave Principle in real-time market trading, as well as on dispersing investment myths through understanding of what really drives people’s collective investment decisions.
