EWI Insight

Hello, Elliott wavers, and welcome to the final episode of EWI Insight.

When we launched the podcast on January 21, the Dow was trading above 29,000. Yesterday it closed below 20,000. Oil fell to an 18-year low. Gold, silver and the cryptos have gotten shellacked. It has been quite a ride, and it's been a privilege to take that ride with you.

Let's talk about business opportunities in a bear market. Bear markets, recessions and depressions test the resolve of most businesses and business owners, but they also present a unique set of tangible and psychological needs that astute entrepreneurs can satisfy.

The Fed makes a second emergency rate cut and the market just doesn't care. First, let's get this out of the way. The Fed didn't act. It reacted. The yield on 3-month Treasuries had been falling fast, and the Fed was trying to keep up.

A lot of people think gold, silver and, more recently, cryptocurrency are so-called "crisis hedges," assets you can own that supposedly will do well if there were to be an economic or financial crisis. Well, stocks, gold, silver and the cryptos have gotten shellacked recently. So, what's going on?

Robert Prechter observes that at some periods in history gold has been money. But when it isn't, then the claim that gold is a crisis hedge fails. Which brings us to the real crisis hedge during deflation: cash.

The rout continues. And you may have started to see the new buzz phrase in the financial media, and that is that the stock market is in so-called "uncharted territory." What a crock.

There's so much confusion out there. People want to know what's going on in the stock market. And we want to help. So, we decided to make the entire U.S. stocks section from the latest issue of The Elliott Wave Financial Forecast, free to ClubEWI members.

The oil market has seen some huge moves. A 30% dive Sunday night. But what's happened in oil this year is so much bigger than that. In January, oil was $64 a barrel. It hit $27.34 intraday on Monday, so we're talking about a 57% fall in just two months. Now, a lot of folks are speculating about what this move means for stocks.

The truth is, the correlation between stocks and oil swings willy nilly from positive to negative throughout history. Pundits will try to use one market to predict the other, but the reality is there's no reliable relationship between the two at all. To understand each market, you have to look at each market's Elliott waves.

What a day we had yesterday. Circuit breakers triggered on the NYSE, oil plunges, rates down, global stocks down. If you were not ready for these moves, your pulse is probably through the roof. But that's the difference between Elliotticians and everyone else. When everyone else is panicked, we usually find ourselves feeling calm and prepared.

One of the themes we hit on EWI Insight is that the reasons the media gives you for the markets' moves aren't explanations at all but merely rationalizations. That truth gets laid bare in volatile markets. They never know what's going on, because they're always looking for causes outside the market to explain the market's movements. But financial markets are not regulated by outside causes. They're regulated by internal dynamics.

A hundred S&P points here, a hundred S&P points there. These are some wild times in the markets. And describing the markets as "volatile" doesn't really do them justice. So if you're riding these waves, I hope you have your Superman cape on, because you're going to need nerves of steel.

The U.S. invaded Afghanistan in October 2001, one of the manifestations of the same negative social mood trend that burst the dot-com bubble. More than 16,000 Dow points later, the U.S. decided to give peace a chance last week, a poetic bookend to the bull market in American equities.

Let's talk about the Fed's so-called emergency rate cut yesterday. We're being told that this is a revolutionary, proactive move that puts the Fed at the vanguard of central bank policymaking. But that could hardly be further from the truth.

We had a bit of a respite from the global selloff yesterday. Equities rebounded, which makes it a good time to talk about some articles we're starting to see in the media. We see these articles whenever the market heads lower for a while. And basically, journalists quote financial advisors who explain how they've helped their clients calm down during the decline, and how they've encouraged them to stay invested in the market.

Did you hear what happened on the TSX? Trading halted at the Toronto Stock Exchange a little after 2 Eastern yesterday due to what's being described as "a problem with order entry." The outage affected the main exchange, the Venture Exchange, the alternative Alpha Exchange and even Montreal's derivatives exchange. So just consider what it would be like for someone who is long in this situation.

The House of Mouse has a new leader. Bob Iger is out as Disney’s CEO. He’d held the position since 2005. During his tenure, he grew Disney’s empire with acquisitions of Pixar, Marvel, Lucasfilm and 21stCentury Fox. He expanded the company’s theme parks, opened Shanghai Disney in 2016, launched Disney+ last year. He oversaw mega successful live-action remakes of Disney’s animated classics, re-started the Star Wars franchise, brought new hits to the screen like Frozen, Moana, Frozen II and the Marvel movies. And to top it all off, last year Disney had the biggest year of any studio in box office history, and the company’s stock price registered its all-time high. Suffice to say, it’s been a busy time for Iger and Disney.

Pop quiz. Can you think of a major equity index that's above its January high? There's only one: the Shenzhen Composite Index in China, a country at the epicenter of the disease outbreak that we're told is responsible for sending global markets lower. Raises an eyebrow, doesn't it?

Back in 2016, there were editorials aplenty about how a Donald Trump win would be terrible for the stock market. When you look at all the history and adjust for outliers, the stock market has done about the same under Democrat and Republican presidents on average.

Conventional wisdom says epidemics should make the stock market go down, but we looked at more than 150 years of history and found that epidemics are most likely to occur toward major lows in the stock market or shortly thereafter.

Spoiler alert. The Oscar for Best Picture went to Parasite. If you know its director’s reputation, then you know that his movies are famous for sudden shifts in mood. You think he’s telling you one kind of story, headed down one path, and then, boom, it turns out he’s going in a totally different direction. That’s something you can pull off if you are a master storyteller.

The coronavirus narrative is still kicking in the financial press. Look, we’re used to the media pointing to any news item at all to explain moves in financial markets, but I don’t know if I’ve ever seen a single event used to explain literally any move—up, down or sideways—in any market on the planet.

Alright, check your politics at the door. We’re talking about a pair of Middle Eastern markets today: the Palestine Stock Exchange Al Quds Index and Israel’s Tel Aviv 125. Now the trends in these two indexes could hardly be more different. Since its 2005 high, the Palestine Al Quds Index is down 60% while the Tel Aviv 125 is up 80% over the same period.

Yesterday was Fed day. Were you sitting on the edge of your seat, biting your nails, hardly able to breathe until you found out the Fed’s rate decision? Well, that’s what a lot of traders do, but around here we mostly yawn and go to lunch because we’ve observed for decades that the Fed just follows the rates set on the freely traded Treasury market. The yield on 3-month T-bills has been flat since early November, so it’s no surprise that the Fed kept its rate flat as well.

And, look, we’re talking about the U.S. because of the rate decision yesterday, but you can do this with any country. If you’re the kind of person who has fun looking at financial charts, well you can have a whale of a time pulling up a chart of any central-bank-set rate on the planet and comparing it to a chart of the yield on freely traded short-term government debt for the same country. You’ll find time and time again that the central bank is a market follower, not a market leader. The market’s in control, not the Feds of the world.

A cactus with sunglasses would direct the course of interest rates just as effectively as a central bank—actually more so because the cactus is cheaper.

Happy surfing, Elliott wavers. Let’s talk again tomorrow.

Using central banks to forecast the markets? That’s putting the cart before the horse. For analysis of global rates, equities and more that puts the horse before the cart, click the link in the show notes.

President Trump is planning to sign the USMCA today. The agreement replaces NAFTA. And, of course, Phase 1 of the U.S.-China trade agreement got signed a couple weeks ago. Now for the better part of two years, the media’s blamed just about every bout of market volatility on global trade tensions, yet now that we have two major international trade agreements, volatility in global equities is back.

We had a significant day in the stock market yesterday. U.S. equities down. We saw the strongest downside breadth on the NYSE since August. Wow. VIX had its highest close since October. The Dow shed 453 points, closing down 1.57%, as did the S&P which snapped its 70-day streak of closes that were within one percent of the previous session close.

Alright, let’s talk Tesla. The stock tripled over the past eight months. It’s market cap eclipsed GM and Ford combined. Now, was it the Cybertruck? China? Elon Musk’s striptease? I mean, surely there’s someone out there who thinks it’s because he smoked pot on Joe Rogan’s show.