Saturday, September 5, 2009

Fresh from the Desk of EWI

Prechter Stands Alone Again... He's Done the Math

September 4, 2009

By Neil Beers

So Bob Prechter is bearish again

That may be no surprise to some, but recall that Prechter was about the only bull on February 23 of this year when he covered the short position he had recommended on July 17, 2007. That was nearly two years later and 800 points lower in the S&P. And the Daily Sentiment Index (DSI) reading for the S&P had gotten down to only 3% bulls!


His February 2009 Elliott Wave Theorist explained, "The market is compressed, and when it finds a bottom and rallies, it will be sharp and scary for anyone who is short." Elliott Wave analysis, the DSI, and other indicators suggested it was time for a Primary-degree bear market rally. And that is what we got.


Now in his August 2009 Theorist, Bob explains what "the prudent thing to do" in the markets is, based on the same Elliott wave pattern and sentiment indicators -- plus the Dow's 3/8 Fibonacci retracement from the March 9 low.

For more analysis from Robert Prechter, download a free 10-page July issue of Prechter's Elliott Wave Theorist.

What's so special about Fibonacci? And why is a certain level of Fibonacci retracement so significant in conjunction with The Wave Principle? Well...


In its broadest sense, the Wave Principle suggests the idea that the same law [the Golden Ratio] that shapes living creatures and galaxies is inherent in the spirit and activities of men en masse. Because the stock market is the most meticulously tabulated reflector of mass psychology in the world, its data produce an excellent recording of man's social psychological states and trends. This record of the fluctuating self-evaluation of social man's own productive enterprise makes manifest specific patterns of progress and regress. What the Wave Principle says is that mankind's progress (of which the stock market is a popularly determined valuation) does not occur in a straight line, does not occur randomly, and does not occur cyclically. Rather, progress takes place in a "three steps forward, two steps back" fashion, a form that nature prefers. More grandly, as the activity of social man is linked to the Fibonacci sequence and the spiral pattern of progression, it is apparently no exception to the general law of ordered growth in the universe. ... The briefest way to express this principle is a simple mathematical statement: the 1.618 ratio.
-Elliott Wave Principle, chapter 3


Fibonacci ratios in conjunction with The Wave Principle can help you anticipate trend changes. They allow you to calculate specific price levels of when and where a wave is likely to end. In this case, where the rally from the March 9 low is likely to end. There are several Fibonacci retracements that appear most commonly, so the market could of course move higher before it settles on the next wave down, "but we are no longer compelled to wait."


Bob Prechter's August Elliott Wave Theorist published a week and a half early: he did so to give subscribers time to prepare for what's ahead. The issue provides a list of levels that mark Fibonacci and Elliott-wave related retracements for the rally. He analyzes which one is the most likely end point, and even explains how you can make the most of the waning rally.


You don't have to be taken by surprise. Get the latest Elliott Wave Theorist and you'll see where the rally is likely to end. Think about the difference this knowledge can make for you.


For more analysis from Robert Prechter, download a FREE 10-page July 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

Neil Beers has a bachelors degrees in political science and philosophy, and a masters in classical languages. His broad range of study and focus on ancient and modern thought led him to Elliott Wave International to research and write about the Wave Principle, Socionomics, and human social behavior.

Wednesday, September 2, 2009

Fresh from the desk of EWI

How IRAs Can Tie Investors' Hands -- and What To Do About It
September 2, 2009

By Susan C. Walker


Editor's Note: The following article discusses Robert Prechter's view of investment vehicles and government-regulated plans. For more analysis from Robert Prechter, download a free 10-page July issue of Prechter's Elliott Wave Theorist.

It's a blessing and a curse. IRAs, 401(k)s, thrift plans -- some of the best ways to save money for retirement (the blessing) can tie your hands when you invest that money (the curse). Most savers didn't recognize the cursed side as the markets generally trended up over the years, increasing their nest eggs' earnings. But after a year like 2008, savers everywhere absorbed the shock that they couldn't protect their retirement savings from a bear market. Now, the real moment of truth arrives: EWI forecasts that the market will again turn bearish. How can you protect what you've got when your plan doesn't have any options for short-side investing? Bob Prechter addresses that question in his most recent Theorist.

Excerpted from The Elliott Wave Theorist, by Robert Prechter, published August 5, 2009

Investment Vehicles and Government-Regulated Plans

We receive many emails from subscribers asking specific questions about investing [such as,] “Is it O.K. to invest in such-and-such short fund if that is my only short-side option?” Again, given the market-tracking mechanics of such funds, the only answer we can give in good conscience is “no.” … But every question prompts others. Why is this our friend’s “only option”? The funds mentioned are the only ones in which a “long” is really a short, so we would guess that our friend has some sort of government-regulated retirement plan that allows only “long-side” purchases.

Others with retirement plans similarly complain that their plans do not include the option of owning Treasury-only paper and ask if such-and-such other money fund is safe enough to buy. In our view, most money funds assuredly do not offer the level of safety that we advocate. Moreover, such plans are often administered by brokers, and brokers will be in chaos during wave 3 down.

These questions reveal just some of the problems an investor encounters when playing the government’s games. Conquer the Crash (see Ch. 23) recommended taking every opportunity to cash out of IRAs, Keoughs, company-provided plans, etc., all of which are government regulated, thereby freeing up your money so that you would have full say over its use.

By signing up for one of the government’s “deals,” a potential short seller now has no good choices and is therefore effectively barred from selling short. A prudent investor who wants to own the safest debt may likewise be barred from buying T-bills if he participates in a government-regulated, company retirement plan. Should he buy the only money fund available and cross his fingers? Government rules often force people into bad decisions. In this case, the “good deal” the government engineered for your retirement is a trap that prohibits you—at the most important time in modern history—from buying the safest debt instruments and from making money in a bear market….

Irony attends both financial markets and government plans. Put them together—as we have witnessed throughout the financial crisis so far—and you get Kafka.

For more analysis from Robert Prechter, download a FREE 10-page July 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.

Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company.