The U.S. Dollar index is a geometrically average of six currencies weighted against the U.S. dollar. It was created by the Federal Reserve in 1973. The index contains six currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The euro replaced now-defunct five European currencies – the Deutsch Mark, the French franc, the Italian lira, the Dutch guilder and the Belgian franc.
Percentage Weights:
Currency
Weight
Euro (EUR)
0.576
Japanese Yen (JPY)
0.136
British Pound (GBP)
0.119
Canadian Pound (CAD)
0.091
Swedish Krona (SEK)
0.042
Swiss Franc (CHF)
0.036
Before the euro the weightings of five historical currencies were: Deutsch Mark (DEM) = 20.8%; French franc (FRF) = 13.1%; Italian lira (ITL) = 9.0%; Dutch guilder (NLG) = 8.3%; and Belgium franc (BEF) = 6.4%
The formula:
U.S. DX = (50.14348112) X (EUR/USD)-0.576X (USD/JPY)0.136X (GBP/USD)-0.119X (USD/CAD)0.091X (USD/SEK)0.042X (USD/CHF)0.036
In the formula the value of the ‘power’ is positive if the U.S. dollar is the base currency within the pair (JPY, CAD, SEK, and CHF) and the value is negative when it is not (EUR and GBP).
The value of the Dollar index is calculated by Reuters in real time approximately every 15 seconds from a multi-contributor feed of the spot prices.
Technical Analysis of Stock Trends2011 Reprint of 1958 Fourth Edition. Full facsimile of the original edition, not reproduced with Optical Recognition Software. In 1948 Robert D. Ed... Read More >
EWI senior analyst Jeffrey Kennedy shows you how to identify quality trade setups with supporting technical indicators.
“I always will be an Elliottician, but other technical tools have merit and are indeed worthwhile: they allow me to build a case, build a more confident reason for making a forecast and for taking a trade; making a trading decision.”
-Jeffrey Kennedy
I recently asked Elliott Wave International analyst Jeffrey Kennedy to name his 3 favorite technical tools (besides the Wave Principle). He told me that Japanese candlesticks, RSI, and MACD Indicators are currently his top methods to support trade setups.
In this 3-part series, we will share examples of how to use these 3 tools to “build a case” in the markets you trade. These practical lessons allow you to preview how Jeffrey applies techniques with proven reliability to support his analysis.
We begin this first lesson with a basic candlestick-style price chart.
You may be familiar with an Open-High-Low-Close (OHLC) chart: comprised of vertical lines with small horizontal lines on each side. The top of each vertical line is the high and the bottom is the low. The small horizontal lines on either side represent the open and close for that period.
Here’s an example of a Japanese Candlestick chart:
Japanese candlestick charts employ the same data that OHLC price charts do except that the data is expressed differently. The real body is the range between the open and close, and appears as a small block. Shadows are the lines that extend upward and downward from this block, and represent the highs and lows.
Next, take a look at the chart below.
Two bearish candlestick reversal patterns that Jeffrey finds highly reliable are the Evening Star and the Bearish Engulfing Patterns. This weekly continuation chart for the Canadian Dollar combines a 20-period moving average to show that the trend is down — allowing you to focus on bearish reversal candlestick patterns to spot trading opportunities.
Jeffrey notes that “combining these reversal patterns with moving averages makes them even more dynamic because they focus your attention in the direction of the larger trend.”
Japanese Candlesticks begin our spotlight on Kennedy’s top 3 ancillary tools for trading with the Wave Principle. We’ll share parts two and three via how Kennedy uses RSI and MACD indicators to support his Elliott wave interpretation in coming weeks.
To learn more about these tools now, access our FREE 10-Lesson Trading Series, “How to Apply Some of the Most Powerful Technical Methods
to Your Trading.”You will gain access to an archive of lessons that includes a wealth of information: in-depth guidance and insight on the Elliott Wave Principle and other technical approaches. You’ll learn some of the best technical indicators for analyzing chart patterns, anticipating price action, and spotting high-confidence trade setups.Learn how you can access your free lessons now >>
This article was syndicated by Elliott Wave International and was originally published under the headline Top 3 Technical Tools Part 1: Japanese Candlesticks. 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.
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The one simple insight that will change the way you invest forever
Some of the greatest problem solvers in history — Albert Einstein, for example — know that the secret to solving complex problems requires simplicity.
Einstein’s simple equation (E = mc²) revolutionized math and science because it offered a single simple solution to so many of the world’s mysteries.
New research from EWI Founder and President Robert Prechter reveals that a relatively small (yet growing) group of investors has discovered a universal truth about investing that stands to revolutionize the fields of finance and economics. Prechter’s insight is simple yet counterintuitive. Here’s a short clip from his recent presentation at a major investment conference.
In the rest of this 23-minute video packed with charts, figures and commentary, Prechter explains:
How the impact of social and financial events like 9/11 and the Enron scandal on stocks is shocking in a different way than you think.
The surprising relationship between interest rates and stocks.
Why oil prices have zero predictive value to stocks.
Inflation and deflation’s impact on hard money.
Central bankers’ supposed power to turn trends.
What new data says about the long-term viability of investment models based on earnings and value.
The secret force that drives the investing decisions of futures traders, investment advisors, money managers, hedge fund managers and economists.
The full 23-minute video is online now and free to Club EWI members.
This article was syndicated by Elliott Wave International and was originally published under the headline (Video) How Market Losers Think – and How to Stop Doing It. 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.
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Financial historians will eventually describe the past 30 years as a time when investors embraced epic levels of financial risk.
Stock mutual funds are now so popular that they outnumber stocks. Bond, real estate and other types of mutual funds also exploded in number. Many financial instruments — such as derivatives — are so complex that you need an advanced degree in mathematics to grasp how they function.
So in this Great Asset Mania, to sock away money in a cash-equivalent account seems an unlikely way to win the financial race.
But in truth, the tortoise really has outpaced the hare for the past dozen years.
Since 2000, the S&P 500 has registered two plunges of more than 50 percent and several of more than 10 percent, leaving this index slightly lower today than it was 12 years ago.
‘Buy-and-hold investors have little to show for the roller-coaster ups and downs, aside from a nauseous gut,’ says [the chairman of a capital firm].
ABC News, Aug. 2, 2012
It’s true that a Treasury-bill account yields next to nothing. But at this financial juncture, the well-known saying of humorist Will Rogers has never been more relevant: “I am more concerned with the return of my money than the return on my money.”
Robert Prechter says that embracing financial risk because interest rates are low can be a snare.
Because interest rates are ‘too low,’ investors claim that they have ‘no choice’ but to invest in something with more ‘upside potential.’ Ironically but obviously necessarily, the last major interest-rate cycle was perfectly aligned to convince people to do the wrong thing. Two decades ago, when rates were high, people insisted that stocks were not worth buying. Now that rates are low, they insist that cash is not worth holding. It’s a psychological trap keeping investors from doing the right thing: buying stocks at the bottom (when rates were high) and selling them at the top (when rates are low).
Conquer the Crash, second edition,
pp. 161-162
There is a flip side to decades of epic financial risk:
I’m convinced that by the end of this decade people are going to feel even more negative towards stocks than they did in the ’40s. They’ll tell their children and grandchildren not to touch the stock market.
Robert Prechter, June 2010 interview
Get ready for the market changes ahead and start investing independently.
Learn to Think IndependentlyYou’ll get some of the most groundbreaking and eye-opening reports ever published in Elliott Wave International’s 30-year history; you’ll also get new analysis, forecasts and commentary to help you think independently in today’s tumultuous market.
This article was syndicated by Elliott Wave International and was originally published under the headline The Tortoise is About to Cross the Financial Finish Line. 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.
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The federal government defines the Producer Price Index (PPI) as “the average change over time in the selling prices received by domestic producers for their output.” With help from the Federal Reserve’s massive inflationary policies, the PPI has climbed even as the economy began to fall in 2008-09. All the while, the financial media persisted with stories of an economic recovery. EWI analysts offer an independent perspective.
The New York Times declares, “Economic Gloom Starting to Lift.”
Corporate America, however, is not so sure. This chart of producer prices [wave labels removed] probably illustrates why. After years of largely uninterrupted growth, the Producer Price Index appears to be on the cusp of a critical reversal that should turn into a steady decline in wholesale prices.
The Elliott Wave Financial Forecast, December, 2012
The latest Financial Forecast published Dec. 7, and the latest evidence reinforces the message of the chart’s title. The PPI elevator has already descended to a lower floor.
The Labor Department said its seasonally adjusted producer price index slipped 0.8 percent last month, the second straight decline.
November’s drop in wholesale prices was the sharpest since May.
Reuters, Dec. 13
The Producer Price Index decline is happening in tandem with a notable reversal in consumer sentiment.
The Thomson Reuters/University of Michigan’s preliminary reading of the overall index on consumer sentiment plunged to 74.5 in early December, the lowest level since August.
It was far below November’s figure of 82.7.
Reuters, Dec. 7
The Federal Reserve’s machinations — which includes the Dec. 12 announcement of $45-billion in monthly Treasury bond purchases — will not stave off a developing deflationary trend.
In the second edition of Conquer the Crash (p. 114), Robert Prechter describes what generally happens, depending on the position of the Elliott waves, near the end of the Kondratieff cycle.
Near the end of the cycle, the rates of change in business activity and inflation slip to zero. When they fall below zero, deflation is in force. As liquidity contracts, commodity prices fall more rapidly, and prices for stocks, wages and wholesale and retail goods join in the decline. When deflation ends and prices reach bottom, the cycle begins again.
Can the Fed stop deflation? Should you rely on the government to protect you? Get the answers you need now — free! See below for full details.
8 Chapters of Robert Prechter’s Conquer the Crash — FREEThis free, 42-page report can help you prepare for your financial future. You’ll get valuable lessons on what to do with your pension plan, what to do if you run a business, how to handle calling in loans and paying off debt and so much more.Get Your FREE 8-Lesson “Conquer the Crash Collection” Now >>
This article was syndicated by Elliott Wave International and was originally published under the headline Two Signs That Deflation is Far From Over. 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.
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By Elliott Wave International, on March 14th, 2013
Senior Analyst Jeffrey Kennedy shows you how these volatility indicators support pattern recognition
As a technical trader, are you able to view financial market fluctuations clearly and reliably?
At Elliott Wave International, we hold that the Elliott Wave Principle is the most effective tool for analysis. Yet the Wave Principle works well with other technical tools. If you are ready to trade with Elliott, our educational subscription editor Jeffrey Kennedy can teach you how to integrate ancillary technical indicators — such as Bollinger bands — to build high-confidence setups in the markets you trade.
Bollinger bands identify periods of increased and decreased market volatility. Learn about the significance of these fluctuations in this video about Bank of America Corp. (BAC) taken from Jeffrey’s Elliott Wave Junctures service:
Here are Jeffrey’s notes from the lesson:
Bollinger bands form a two-period standard deviation channel based on a 20-period simple moving average. This channel will contain 95% of all price action with the moving average acting as a center line, which often provides support and resistance. The width of the Bollinger bands increases and decreases with market volatility.
Narrow Bollinger bands coincide with low market volatility, which often leads to big price moves. Option traders like this because option prices are low at this time. Conversely, wide bands imply that market volatility is high, which translates into expensive options.
The recent narrowing of the Bollinger bands in BAC signals decreasing volatility. Since periods of low volatility precede periods of high volatility, look for a big move in the days to come.
Learn to Apply Some of the Most Powerful Technical Methods to Your TradingGet more lessons like this in a FREE 10-lesson video series from Elliott Wave International. Analyst Jeffrey Kennedy will show you how to incorporate technical methods into your trading to help you spot high-confidence trade setups. You’ll learn the methods the professional traders use, like Elliott waves, MACD, RSI, candlestick patterns, Fibonacci and more!Access your free lessons now >>
This article was syndicated by Elliott Wave International and was originally published under the headline [Video] Bollinger Band Basics. 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.
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The Reserve Bank of India (RBI) and the Indian Ministry of Finance seem to be at loggerhead. The government is concerned with the slowing growth and is trying to implement growth policies and dropping strong hints to RBI to provide some help.
In its mid-year economic analysis presented in Parliament on Monday, the finance ministry said it expected GDP growth of between 5.7 per cent and 5.9 per cent for the year, which is lower than the 7.6 per cent budgeted but higher than 5.4 per cent achieved in the first half.
This, the government said, meant the growth rate for the second half would be “close to around 6 per cent”, as it made an undisguised pitch to RBI to oblige by cutting rates. “To achieve this, both fiscal and monetary policies, however, would need to be supportive to sustain investor confidence,” the review said.
But, the Reserve Bank of India is displaying its independence and is maintaining that the inflation risks remain. In its December meeting, RBI did not cut the key rates despite various pleas by the industry and government to lower them to spur growth.
The Reserve Bank of India (RBI) on Tuesday kept key policy rates including the cash reserve ratio (CRR) unchanged. While the repo rate was maintained at 8%, CRR was also maintained at status quo of 4.25%
D Subbarao (RBI Chairman) maintained that risks to inflation remain and emphasised the need to shift increasingly towards growth. The RBI hinted at a shift in stance towards pro-growth measures and has lauded the government’s policy initiatives.
Though the industry was clamoring for and expecting a rate, many experts and economists were not. Goldman Sachs was expecting a 25 bps cut. But, some like HDFC are expecting a 50 bps cut by March.
India is facing duel problems for some time. Majority of developed nations are facing threats of deflation and lack of growth. They are also facing high sovereign debt and increasing budget deficit. So they have limited options. Their central banks are cutting rates to spur growth and keep deflation risks at bay without much getting much help from fiscal policies. Many developing nations are also facing slowing growth mostly because of the impact of the lack of growth in the developed economies. Unlike, advanced economies, developing nations are not facing deflation risks and the the inflation is moderate. So they have more options to implement growth oriented monetary and fiscal policies.
India, on the other hand is facing the duel problem of high inflation and slowing growth. Her expected growth of 5.7-to-6 per cent is impressive compared to that of developed nations but not for an emerging economy like India. The wholesale price index (WPI), India’s main inflation gauge is at 7.24 per cent, but it is at a 10 months low. The consumer price index remains at 9.9 per cent. Again, by developed nations’ standard, the inflation is high but based upon India’s situation, inflation is cooling down.
So it is natural that the government and the industry would like to see more growth oriented policies to be implemented. The government is running budget deficits but plans to limit it to 3 per cent of the GDP. This is not very good nut it gives some leeway to implement growth policies. But, the government also needs help from RBI for easy monetary policy. Hence its pleas for rate cuts.
D. Subbarao, the RBI Chairman is a cautious central banker who is more concerned about the threats of inflation than the lack of growth concerns. He is playing safe and keeping rates constant. But, then RBI has a history of doing such things and reacting later than what the industry expects. Here is the main Indian market index performance during RBI’s rate-cut and rate-hike stints.
From October 2004 to July 2008, RBI continuously raised rates in 25 bps increment – reaching a high of 9.00 percent by July 29, 2008. During this time the $SENSEX steadily rose before stalling at the beginning of 2008. At that time the global economies stumbled and SENSEX followed suit but RBI reacted ten months later in October.
Federal Reserve started to cut rate in the fall of 2007 but RBI started to cut rates only from October 29, 2008. It steadily cut rates till April 2009 before stopping at 4.75 per cent. Then it stood pat for next 11 months. After making a double bottom in March 2009, $SENSEX started to rise. It briefly traded in a range in early 2010 before testing the all time high in the later half of 2010.
Beginning March 2010, RBI started to raise rates to slow down the supper hot Indian economy. For next 19 months it implemented 25 bps increment – reaching a high of 8.50 per cent by October 2011. During this time $SENSEX tested the all time high and made a double top and them fell for most of 2011. From the high made in November 2010, $SENSEX fell by more that 21.9%.
During this time inflation was rising and economy was gradually slowing down. By late 2011, $SENSEX was in bear market territory, inflation was plateaued stubbornly at a high level and economy was stalled. So it was natural that the industry was looking for a respite. Experts floated various scenarios in which the RBI could lower rates. $SENSEX turned around and became one of the best equity market index of 2012. So fare it is up by over 24% year-to-date.
After making a low of 15135 in late 2011, $SENSEX rose to a high of 18523 by February 2012. It then declined to 15748 by June 2012. Since then the index is steadily rising. In the process it has formed an un-even head-&-shoulders pattern. The pattern has come after a short decline. $SENSEX declined from a high of 21080 made in early November 2010 to the low made in December 2011. Nevertheless, the pattern is visible and valid. $SENSEX broke above the February 2012 neckline high of 18523 in September and has stayed above the broke-out level.
Presently it is testing the breakout level but if the pattern holds then the potential target is near 21000, which is near the all time high.
NIFTY-fifty, the index of major Indian companies (DJIA of India), is also showing a similar H-&-S pattern.
EPI – Wisdomtree India Earnings Fund – could be used as a proxy for $SENSEX. EPI followed the index well during 2009 to 2010 rise but since 2011, it has been lagging. EPI made a double bottom in May 2012 – making a low earlier than $SENSEX but falling lower. Since this it has not gone above 2012 high whereas $SENSEX made new 2012 high. IF EPI reasserts its linkage with the country’s main index then it has much more room to go up. On the other hand, the bigger companies in the ETF markedly underperform then national index then the breakout in $SENSEX may not last.
That would be, drumroll please, Chicago Fed President Charles Evans, again. This is via MarketWatch:
In a speech to the C.D. Howe Institute, an independent not-for-profit economic research firm based in Toronto, Evans said policy makers should vow low rates until unemployment falls below 6.5%, as long as inflation is not forecast to rise above 2.5%.
He says that 7% threshold now seems “too conservative.”, and, we concur. The US economy may be recovering gradually, the persistent high unemployment remains a big cause for concern. And, although, global economy is a-okay at the moment, it is placed very precariously. Also, the global-growth-engines status of major emerging economies is still kind of justified, they cannot continue to pull the world ahead without significant help from the ‘old growth-engine’, the USA, now that her usual sidekick, Europe, is going to be AWOL for considerable future.
Evans also notes that even with a policy stance like the one he suggested, Fed will have many course correction opportunities that it could avail.
“If we continue to have few concerns about inflation along the path to a stronger recovery, there would be no reason to undo the positive effects of these policy actions prematurely just because the unemployment rate hits 6.9%,” he said.
Not that he is concerned that inflation will trump unemployment concern soon. Adding:
“We’re much more likely to reach the 6.5% unemployment threshold before inflation begins to approach even a modest number like 2.5%,” he said.
The market is also agreeing as it does not seem to be fearing any rise in inflation in the near future. Here is the weekly chart of 30-year treasury yields, which is trading at the near all-time low and is showing no sign of getting off that level. From 2002 to 2008, when the unemployment was sub-5%, the yields fluctuated between 5.4%-to-4.14%. Today it is it is around 2.79%.
The annual inflation – annual change in CPI – during this period was, also, not very high. For most part it fluctuated between 1% and 3%. Presently it is around 2%.
The Goldman Sachs Commodity Index (GSCI) is also not showing runaway prices for commodities. It fact it is stuck in a descending triangle, which is a bearish chart pattern. If the pattern holds true to its usual intent then a breakdown in commodities prices will indicate deflation and not inflation.
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Carney cuts a statesman-like figure, rising above partisan affiliation, respected even by his detractors, and consistently open to dialogue, say bankers, all of whom are critical of the intellectual and operational thrust of Basel III.
But, Carney seems to be having a running feud with JP Morgan’s Jamie Dimon or, perhaps more accurately, Dimon is waging it and Carney is merely responding.
Carney seems comfortable with the universal banking model – if buttressed by low leverage, prudent lending practices and strong supervision, as Canada’s success lays bare – but his ideological antipathy to Dimon’s views runs deep. Dimon’s attack on Basel III – reflecting the views of many of his global banking peers, who rarely speak on the record with such candour on regulatory affairs – is rooted in a laissez-faire view of the world. In an illuminating testimony to US policymakers in January 2010, Dimon incurred the wrath of reformers with the following statement: “My daughter asked me when she came home from school, ‘What’s the financial crisis?’ and I said, ‘It’s something that happens every five to seven years.’”
He is pro-reform.
For Carney reform is do or die. He says: “The major emerging market economies, having been side-swiped by the last crisis, have a concern about the health at the core of the global financial system, so the idea that we can somehow slow down the reform process and release capital rather than build it, and somehow that will help reinforce an open global economy, is fanciful.”
He is aggressive in battling off one of the central, and most emotive, arguments advanced by banks: that higher capital requirements and restrictive capital formation frameworks threaten to torpedo an already weak global economy while exacerbating pro-cyclical debt deflation. “The argument that financial reform is causing a shortfall of capital fails to take into account the fact that there are jurisdictions where there appears to be a fundamental shortfall of capital in a material number of institutions that is preventing the functioning of that financial system,” he says. “The shortfall is down to the fact that these banks are a long way from a reasonable level of capitalization in any way that’s transparent.”
He is a shrewd observer and a prescient analyst.
While the European Central Bank delivered a rate increase in July of that year, Carney’s market instincts rightly judged that the leveraged-loan crisis would trigger global contagion. And when policy rates in Canada hit the effective lower-bound, the central bank combated the crisis with the nonstandard monetary tool: the “conditional commitment’” in April 2009 to hold the policy rate for at least one year, in a boost to domestic credit conditions and market confidence more generally. Output and employment began to recover from mid-2009, in part thanks to monetary stimulus.
And, a pragmatic regulator.
The zeal with which Carney introduced this financial stability objective into the central bank’s mandate reflects the same philosophy that underpins his approach to regulation: the financial bubbles in the pre-Lehman Greenspan world order highlight the foolhardy contention that market forces can regulate finance. By contrast, ex-ante regulation, fleshed out in a necessarily imperfect framework, can and should mitigate excesses, he reckons. It’s a belief that also reflects Canada’s intellectual heritage, in the vein of William White, former chief economist at the Bank for International Settlements, and Malcolm Knight, the BIS’s former chief executive, two Canadians who have occupied senior posts in international finance. Both White and Knight sounded early alarms over weak regulation and excess risk-taking that fed the US sub-prime mortgage bubble, with White currently an influential proponent of the view that the loose G7 monetary policy cycle is fuelling asset bubbles.
Overall, he may be the doctor that UK needs.
It’s clear Carney is no career-serving technocrat or a soldier simply executing the regulatory battle for his G20 generals. Although David Dodge, Carney’s predecessor as governor, occasionally commented on public policy challenges, Carney “has played a more active role in economic affairs than any other central banker in recent Canadian history,” says Nixon. “He has rightly broadened, informally, the central bank’s mandate and has done so because he has the platform, the economic skills and practical working knowledge of capital markets.”
And why not? It’s paying 0.38 to 0.93 percentage points more than comparable Treasury rates in interest for the bonds, which mature in 3, 5, or 10 years.
As of the last quarter, Amazon had $5.25 billion in cash and short-term securities, and no long-term debt. But it has plenty of uses for that cash: First, its headquarters, which it just agreed to buy for $1.16 billion. Second, its gigantic fulfillment centers, which it is planting across the United States as the old sales-tax regime (where online retailers where exempt from collecting tax) falls apart.
Chart pattern for Amazon is also indicating that something is in the stores for AMZN. It is in the process of making a cup-&-handle pattern on the weekly chart. The cup started its formation in October 2011 and completed the shape in September 2012, with right rim slightly higher than the left rim. The subsequent retracement reached to about 38.2% Fibonacci ratio of the rise from the bottom of the cup to the right rim.
Currently, the handle is not complete though it has taken about 11 weeks to form. The cup took 48 weeks to form. If the C-&-H breakout completes in another 3-5 weeks than the pattern will have significance.
It seems that the Wizard of Omaha has seen so many Jon Stewart and Colbert Nation episodes that some of their talents has rubbed on him. From his op-ed in New York Times:
And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion. That’s more than five times the $300 billion total in 1992. In recent years, my gang has been leaving the middle class in the dust.
A huge tail wind from tax cuts has pushed us along. In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4 percent of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9 percent. It’s nice to have friends in high places.
The group’s average income in 2009 was $202 million — which works out to a “wage” of $97,000 per hour, based on a 40-hour workweek. (I’m assuming they’re paid during lunch hours.) Yet more than a quarter of these ultrawealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And — brace yourself — a few actually paid nothing.
In case anybody is wondering, Warren, – can I call you Warren, since it seems that I know you so well, never mind that you don’t even know that I exist – has some sturdy experience to draw ideas for his op-ed:
Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent — and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then. Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.
My favorite part of the piece is:
Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P. — levels that have been attained over extended periods in the past and can clearly be reached again. As the math makes clear, this won’t stem our budget deficits; in fact, it will continue them. But assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America’s debt stable in relation to the country’s economic output.
After all issue is never the level of debt but the ability to pay the debt and if the GDP is growing at a faster rate then the national debt, then the level of debt will not be an issue for bond holders. Ever wonder why some people can get mortgages of more that $1 million dollar whereas some can’t get more than $200K? Hint: people who get higher mortgage have a higher income to expanses ratio – same as higher GDP to debt ratio for countries. And, the ability to pay notion for countries come from their ability to raise taxes – something that USA has been continuously ruling out, which is like telling the market that we are against generating more revenue.
The preliminary reading was 50.4 for a purchasing managers’ index released today by HSBC Holdings Plc (HSBA) and Markit Economics. It compares with a final level of 49.5 for October. A reading above 50 indicates expansion.
Gains in manufacturing bolster prospects for a sustained pickup in economic growth that slowed last quarter to the weakest pace in more than three years. A rebound may smooth a once-a-decade leadership transition for the ruling Communist Party, set to install Li Keqiang as premier in March, and reduce the likelihood of additional monetary stimulus.
[…]
Economists have scrapped projections for any easing of monetary policy in the rest of 2012. Analysts surveyed by Bloomberg News Nov. 14-19 see China holding the reserve- requirement ratio for the biggest banks at 20 percent through the end of the year, based on the median estimate. That compares with the median forecast for a 0.5 percentage-point cut in last month’s survey.
China’s gross domestic product is poised to expand 7.7 percent this year, the weakest pace since 1999, based on the median estimate of analysts surveyed by Bloomberg News this month. Growth may pick up to 8.1 percent in 2013, according to the median of 46 forecasts.
Shanghai Composite peaked in October 2007 at 6124 after rising almost six fold from July 2005 low of 1015. Then along with rest of the global equity markets it crashed, finally bottoming in October 2008 by reaching a low of 1665. Since then once a global leader, it has been a global laggard. In the post financial crisis rally, it recovered slightly more than 38.2% Fibonacci retracement level of the big fall whereas S&P 500 recovered to 89% Fibonacci level.
Moreover, Shanghai Composite made a post-financial-crisis high in August 2009 but S&P made its last high in September 2012. Since August 2009, the Composite has been trending down retracing to 78.6% Fibonacci level of the rise from 2008 low to 2009 high. But, now the index seems to be ready for, at least, a short term bounce as the weekly chart is showing a 9-period RSI divergence. The chart below is in log scale to include the complete weekly price action from 2005.
The daily chart is also indicating a higher likelihood of a bounce. After making a fresh low since August 2009, the index bounced off, forming a hammer on November 19th and it also made a Wyckoff Spring pattern. Then on Wednesday it formed a bullish engulfing candle in higher volume. In the process it successfully tested the low of the hammer. This increases the chance of a test of October high of 2138, which was the resistance level formed by the lows made on last December-January. Twice the index retreated from this level. Will third time be the charm?
FXI – iShares FTSE China 25 Index Fund – is a good proxy for the Shanghai Composite. And, FXI price action is slightly more encouraging than the index. In 2012 when the index was busy making lower lows and breaking below the lows of 2011, FXI was making a symmetrical triangle staying above the low of 2011. The pattern is more visible on the weekly chart. In October, it broke above the upper limit of the triangle. Since then it has retraced to test the breakout and is again poised to continue the breakout.
The FXI price action on daily chart is also conducive to a bounce. On Monday, November 19th, FXI made a bullish golden cross – 50-Day SMA moved above the 200-Day SMA. The daily chart is also showing few patterns. The first is a horizontal channel that the ETF made between June and September. After breaking out, it almost reached the measured target but was thwarted by the resistance made by the May 2012 high. Since then it seems to be successfully defending the breakout.
The other pattern was an ABCD pattern – indicated by A1-B1-C1-D1 on the chart. The CD leg was almost twice of the AB leg.
Now a third pattern is emerging – another ABCD pattern. Here A2 is C1 and B2 is D1. If today’s bullish engulfing in Shanghai Composite withstands the US session open, then FXI’s Thursday’s low of 35.45 has a higher chance of making the C2 point of the second ABCD pattern.
The first measured target of this pattern is estimated to be 41.60 with AB=CD ratio. This is slightly above the high of 2012 and is 15% above Tuesday close of 36.19. The second measured target at 1.618 times of AB is estimated to be 45.39, which will take the ETF to the high of symmetrical triangle on weekly chart and 25% of Tuesday close.
Off course, both, the Shanghai Composite and FXI, made up-&-down movement over the last couple of years resulting in a number of resistance levels. The ETF will have to overcome them along its move toward the measured targets. These targets are not guaranteed but the chart is showing that such a move is plausible. Further price action will validate or invalidate the probabilities. Also, Europe saga is a big overhang on the global markets and could derail even a high probability pattern, which the FXI’s ABCD pattern is not as there are still serious questions about China’s leadership change, her current overcapacity and general economic weakness. So caution is advised and tight stops.
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Here’s my advice: View the Elliott wave Principle as your road map to the market and your investment idea as a trip.
You start the trip with a specific plan in mind, but conditions along the way may force you to alter course. Alternate counts are simply side roads that sometimes end up being the best path.
Elliott’s highly specific rules keep the number of valid interpretations to a minimum. The analyst usually considers the “preferred count” to be the one that satisfies the largest number of guidelines. The top “alternate” is the one that satisfies the next largest number of guidelines, and so on.
There are only three hard-and-fast rules with the Wave Principle:
Wave two cannot retrace more than 100% of wave one.
Typically wave four does not end within the price territory of wave one but may do so from time to time in highly leveraged markets.
Wave three is never the shortest wave of an impulse.
Elliott’s rules give specific “make-or-break” levels for a given interpretation. In Figure 2, for example, if the move labeled (2) continues below the level of the beginning of wave (1), then the originally preferred interpretation would be instantly invalidated.
By eliminating subjectivity, the rules help you firm up your investment strategy — and reduce your risk.
“Are We There Yet?”
You’ve heard that irritating question, “Are we there yet?,” from the back seat just about a million times. Every map has a scale, and it’s the scale that helps me determine how many miles I have to travel before I reach my destination. When using the Wave Principle,Fibonacci relationships are the scale.
Many investors today know that Fibonacci ratios are used for market forecasting. But few realize that Fibonacci analysis of the markets was pioneered by R.N. Elliott. The use of Fibonacci ratios requires a valid Elliott wave interpretation as a starting point. Unfortunately, many non-Elliott analysts try to find Fibonacci proportions between market moves that are not related to each other in any way. This has made the approach appear to be far less valuable than it is.
Elliott wave analysis has two chief insights concerning Fibonacci relationships within waves. First, corrective waves tend to retrace prior impulse waves of the same degree in Fibonacci proportion. For example, wave (2) in Figure 2 retraces 38% of wave (1). That’s a common relationship. Other frequent wave relationships are 50% and 62%. Second, impulse waves of the same degree within a larger impulse sequence tend to be related to one another in Fibonacci proportion. For example, common relationships include wave three traveling 1.62 times the distance traveled by wave one of the same degree. When that occurs, wave five often tends toward equality with wave one of the same degree.
Planning the Trip
Just as I sit down and plan my trips before shoving off, I rely on wave interpretations and Fibonacci relationships to help establish investment strategies and reduce risk exposure when I analyze the markets for our clients. Investors use these same wave analysis methods to help decide where to get into a market, where to get out and at what point to give up on a strategy. The Wave Principle lets you identify the highest probability direction for the market, as you also adopt an optimum position to take advantage of it — all while protecting yourself against lower probability outcomes. You couldn’t ask more from your own GPS.
By the way, we did make it to Cades Cove on our way back across Smoky Mountain National Park. I turned off my GPS and consulted my map. The old tried and true worked like a charm.
Who is Jim Martens? Jim is one of the very few forex Elliott wave instructors in the world, and a long-time editor of EWI’s Currency Specialty Service. A sought-after speaker, Jim has been successfully applying Elliott since the mid-1980s, including 2 years at the George Soros-affiliated hedge fund, Nexus Capital, Ltd.
Catch up on Jim’s latest thoughts about FX markets and the business of trading them at his Twitter feed.
Download Your Free 14-page eBook: “Trading Forex: How the Elliott Wave Principle Can Boost Your Forex Success”Here’s some of what you’ll learn:
Which Elliott waves to trade
Which Elliott waves set up your forex trade
When your analysis is wrong
Guidelines for projecting price targets
How to evaluate an Elliott wave structure
How to use the bigger picture to give you perspective on the market’s next major move
Jim also takes you through two real-world trading examples to reinforce what you’ve learned and apply it to your own trading.
This article was syndicated by Elliott Wave International and was originally published under the headline Which Works Best — GPS or Road Map? (Part 3). 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.
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“Under current law, on January 1, 2013,” Bernanke said, “there’s going to be a massive fiscal cliff of large spending cuts and tax increases.”
Bloomberg contd.
The vivid imagery and false urgency of the term transformed budget arcana into a national Wile E. Coyote moment. The words lent themselves to media overexposure and political opportunism. Despite efforts by Chris Hayes, Ezra Klein and Suzy Khimm to rebrand it the “fiscal curb” or “austerity crisis” — either of which would be more consistent with reality — Bernanke’s original phrasing has held fast.
[…]
The irony is that while economic recovery rests largely in Bernanke’s hands, the tyranny of impending austerity is leading Congress toward poor decisions about the long-term structure of public spending and tax policy. These are mistakes monetary policy could never offset.
[…]
If Congress does not act, what is coming is $500 billion in net deficit reduction in the next year — four-fifths in tax hikes, one-fifth in spending cuts — and $7.1 trillion over the next decade. Of that $7.1 trillion, $4.8 trillion would be in increased revenue from higher tax rates on income, estates and payrolls. The other $2.3 trillion is in spending cuts to defense, Medicare and discretionary spending. Though it will not mean immediate disaster, the fiscal cliff would probably result in a recession and the return of 9 percent unemployment, according to a broad consensus of economic forecasts.
[…]
A reasonable solution might be a combination of spending cuts and revenue increases which stabilizes both at 18 or 19 percent of gross domestic product. That would be in line with their 50-year historical average. Increases or decreases beyond this level demand larger arguments about the proper size and role of government.
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