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Prechter’sGLOBAL MARKET PERSPECTIVECopyright © 2009 by Robert R. Prechter, Jr.

Prechter’s GLOBAL MARKET PERSPECTIVE is published by Elliott Wave International. Mailing address: Post Office Box 1618, Gainesville, Georgia, 30503, USA. Phone: 770-536-0309. Fax: 770-536-2514. E-Mail: [email protected]. All contents copyright © 2009 Elliott Wave International. All rights reserved. Reproduction is illegal and strictly forbidden. Otherwise, feel free to quote, cite or review if full credit is given. GMP is published usually at the beginning of each month, although the schedule can vary to allow publication to occur when the analysts judge their thoughts to be most timely and/or conclusive.

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Stock MarketsA Primary-degree bear-market rally in U.S. stocks is underway and should last months. By the time it ends, prices will not be near new highs, but optimism may rival the readings registered near the October 2007 peak. Though the European bear market has far more downside potential long-term, the strength of the rally and a completed five-wave pattern argue that the March 9 bottom will stand awhile. European markets are rally-ing in fourth waves, counter to the primary trend, which remains down. Most Asian-Pacific indexes have completed declining waves since their 2007/2008 highs. They should now rally for at least several months, al-though prices may pull back in the short-term.

Interest RatesAs stocks were declining into their March low, credit spreads failed to con-firm the market decline, remaining narrower than their previous December extreme. This non-confirmation along with March’s bullish reversal, strongly supports the ongoing bear-market rally view. The United States is now committed to the policy of printing money in order to purchase debt issued by the Treasury. Debate about the efficacy of this program has passed as this is now official Federal Reserve policy. The European Central Bank has, to date, resisted calls to do the same, but leaves this open as a policy option. The relative outperformance of European paper has much to with this ECB policy stance. The Federal Reserve has made a massive commitment to agency paper, and this debt should outperform treasuries. We continue to weight short duration regardless of the asset class. We anticipate new contract highs on the JGB and the Aussie bond, but there is significant risk evident in Australian debt by the end of Q2.

CurrenciesThe dollar setback during March has run its course. The dollar is bottom-ing and should resume its advance from current levels.

Metals & EnergyDespite gold bugs’ insistence that an imminent surge is at hand, gold’s countertrend rally high remains $1007.20 on February 20. The target for the current decline is below $680. Silver too made a countertrend rally high at $14.68 (Feb. 23). The current decline from this extreme should eventually draw prices beneath $8.39. Crude Oil’s early March price action negated our wave count, but not the idea that the larger downtrend has yet to run its course. In the short-run, Crude should continue to advance before it turns down to finish the move. Natural Gas should continue to subdivide lower, but a period of upward consolidation should lie ahead.

MARKETS AT A GLANCE




CONTENTS

World Stock Markets .....................................................................7 Asia ............................................................................................35 Australia .....................................................................................51 Britain ........................................................................................31 China ..........................................................................................46 Europe ........................................................................................22 France .........................................................................................31 Germany .....................................................................................28 Hong Kong .................................................................................48 India ...........................................................................................38 Japan .....................................................................................43,50 Korea ..........................................................................................42 Singapore ...................................................................................48 Taiwan ........................................................................................40 United States ..............................................................................10 World Stock Index .......................................................................9

Global Interest Rates ...................................................................53 Australia .....................................................................................67 Europe ........................................................................................59 Japan ..........................................................................................68 United States ..............................................................................58

International Currency Relationships .......................................69 Canadian Dollars per U.S. Dollar ..............................................78 The Dollar ..................................................................................72 Euro Rates ..................................................................................80 Japanese Yen per U.S. Dollar .....................................................79 Swiss Francs per U.S. Dollar .....................................................74 U.S. Dollars per Australian Dollar .............................................77 U.S. Dollars per British Pound ..................................................76 U.S. Dollars per euro .................................................................73

Metals & Energy ..........................................................................8300 Crude oil .....................................................................................87 Gold & Silver .............................................................................85 Natural Gas ................................................................................88

Social Trends and Observations ..................................................91 United States ..............................................................................92 Europe ........................................................................................98 Asia-Pacific ..............................................................................104

A Capsule Summary of the Wave Principle.............................107

Glossary of Terms ......................................................................113




Global Market Perspective provides a “snapshot” of EWI’s long-term market opinions on Thursday before publication day. The pictures pre-sented here are updated as needed throughout the month in EWI’s on-line Specialty Services products for professional and individual investors, which includes intermediate and long-term market analysis. To access this timely information for the market(s) you follow, please visit our Spe-cialty Services selection tool (www.elliottwave.com/wave/SS_GMP) or call customer service at either 1-800-336-1618 (U.S.), or 770-536-0309 (international).

This report utilizes data through April 2, 2009.

EDITOR’S NOTE

Both private and institutional investors need analysis based upon ideas that work, analysis that provides a high percentage of useful observations and accurate conclusions. Projecting today’s conditions, trends and relationships into the future will result in errors of judgment at the worst possible times. “Diversification” for its own sake can provide some protection, but the more it is practiced, the closer one’s performance comes to achieving mediocrity.

In contrast, analysis of market behavior delivers what it prom-ises: a sensible basis upon which to make sound investment decisions, reduce dangerous exposure and protect against risk. Such an approach provides for fewer errors, more successes, and overall, an edge over the competition. Thank you for adding Global Market Perspective to your decision-making process.

Sincerely,

Robert R. Prechter, Jr.




6 Global Market PersPective—April 3, 2009

ANNOUNCEMENTS

Global Market Perspective subscribers are invited to take part in two free, live webinars. On Wednesday, April 15, Senior Currency Analyst Jim Martens will walk you through his actual intraday analysis of a recent trading day and show you how to apply the Wave Principle to your markets in real time. Asian-Pacific Financial Forecast editor Mark Galasiewski is putting together his webinar, which he will present on Wednesday, May 6. You’re invited to par-ticipate in both of these webinars for free as a perk of your GMP subscription. Instructions for participating will be posted on your subscribers page the day before each event takes place.

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EWI’s “How to Trade in a Fast-Moving Bear Market” tutorial is in Miami on May 1-2, San Francisco on June 5-6. Read glowing remarks from attendees and reserve your seat now: http://www.elliottwave.com/wave/BearMarketTutorial.

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WORLD STOCK MARKETS





STOCK MARKETS

AROUND ThE WORLD

Most of this Stock Market section presents the same long-term analyses that we include and continuously update as part of our daily and intraday on-line Spe-cialty Services. Be advised that these opinions can change intramonth, in which case we make them instantly in Specialty Services.

Subscribers who desire constant monitoring of the outlook for stocks for all time horizons, including daily and intraday, should visit our Specialty Services se-lection tool (www.elliottwave.com/wave/SS_GMP) or call customer service at either 1-800-336-1618 (U.S.), or 770-536-0309 (international).

A Primary-degree bear-market rally in U.S. stocks is underway and should last months. By the time it ends, prices will not be near new highs, but optimism may rival the readings registered near the October 2007 peak. Though the European bear market has far more downside potential long-term, the strength of the rally and a com-pleted five-wave pattern argue that the March 9 bottom will stand awhile. European markets are rallying in fourth waves, counter to the primary trend, which remains down. Most Asian-Pacific indexes have completed declining waves since their 2007/2008 highs. They should now rally for at least several months, although prices may pull back in the short-term.




9Stock Markets—April 3, 2009

WORLD STOCK INDEX

The World Stock Index has a completed five-wave decline from the 2007 top into its March low, so a significant countertrend rally should be underway. We saw many of the usual signs that occur at important bottoms including oversold and diverging intermediate-term indicators, extreme bearish sentiment readings plus a number of Asian markets that did not fall to new lows in March. With the impulsive recovery that has ensued, we can be fairly confident that this corrective rally phase will take prices higher at least for the next few months. We don’t have enough history on the WSI to know if the decline of the last year+ was Primary wave A or Primary wave 1, but both counts call for a three-wave advance and then another large wave down. Further rally toward the initial resistance zone in the 188-203 area is a fairly conservative expectation, but odds are that prices will eventually retrace a larger portion of the prior decline and work closer to the 50% or 61.8% retracements at 225 and 248 later this year.





ThE UNITED STATESAs this long-term Dow Jones Industrial Average chart shows, stocks are still inside the Grand Supercycle peaking process that started in the late 1990s. One day they will leave the historic price extremes achieved during the mania era far behind. Primary wave 2 up is now unfolding, as the March 25 Interim Report communicated. Be prepared: In its final weeks, the advance will re-ignite some of the zaniness of 1999 and 2007, although the speculation may feature some decidedly depressionistic undertones. We can envision, for instance, public offerings comprising disabled banks’ “toxic assets.”





By the end of wave 2, many market followers and economists will proclaim that the bear market is dead and the boom is back. For those who felt trapped in stocks during Primary wave 1, wave 2 will offer a respectable place to exit. But we know from past experience (and the chart on page 11 of the March 2008 issue) that many will hold out for even higher prices, hoping to “break even.”

Elliott Wave AnalysisThe initial leg of wave 2 is a broad-based rally with nearly all indexes rising more or less in unison. Wave 1 lasted nearly 17 months, so wave 2 will probably last at least several months. The extreme of the previous fourth wave surrounds the 1000 level in the S&P and is 9000-9655 in the DJIA, two areas that should attract prices. The final high will be determined by the wave structure and attendant technical measures.

Near term, the (2)-(4) line, the upper line of the previous parallel channel, crosses 700-757 in the S&P through April (chart next page). Prices may test this line again, but as long as there is not a significant drop back into the channel, our near-term forecast will remain intact.

The chart showing the long-term channel formed by the Dow Jones Industrial Average from its 1932 low is similar to Figure 5 from the March issue of The Elliott Wave Theorist, which discusses how prices behave as stocks move through well-defined Elliott Wave channels. We did not draw this channel: the Dow did, and its recent behavior suggests that it remains relevant. After the throw-over (see text, p.73) that led to the Supercycle wave (V) peak in January 2000, Cycle wave a bottomed slightly below the upper channel line at both the October 2002 and March 2003 lows. The rally from the tests of the top line was Cycle wave b. Once wave c broke beneath the upper channel in October of last year, prices crashed, finding a temporary low at the midline of the channel, which we label as Primary 1 of Cycle wave c. When the midline is meaningfully breached, prices will probably be crashing again, this time in wave 3. The decline should draw the Dow beneath the lower line, which crosses the 3800-4000 area this year.





MomentumAn inter-market divergence sometimes occurs at significant market turns whereby one or more indexes make a new extreme while others do not. The wave 1 decline to the March low was led by the DJIA, which was the weakest of the indexes shown on the next chart. The broader S&P 500 was slightly stronger, bouncing off its midline, while the higher-beta NASDAQ 100 and the EWI





Hedge Fund Enablers Index, which includes five banks with the greatest exposure to hedge funds (see page 10 of October 15, 2008 Special Report), both failed to confirm the March low in the blue chips by remaining above their respective November lows. This bullish portent was confirmed when all three major stock indexes exceeded their respective two-four trendlines. In addition, March





saw the S&P 500 make a new monthly low and then close above February’s monthly close, creating a bullish reversal month. It was the first bullish monthly reversal since the start of Cycle c. This chart pattern often occurs at significant market lows.

Investor PsychologyAs stocks bottomed in March, the Daily Sentiment Index (trade-futures.com) hit a record low of 2% S&P bulls (bottom line of the chart on page 16). The percentage of bears registered in the American Association of Individual Investors’ survey hit 70.27%, also a record. Both polls have been around since 1987. The Investors Intelligence survey of investment advisors (InvestorsIntelligence.com) failed to approach its most negative weekly extremes, but the recent readings are appropriate for the end of wave 1. Look for across-the-board bearish records during the upcoming Primary wave 3.

Here’s a March 30 Bloomberg headline about the stance of a major Wall Street broker that captures the current sentiment nicely:

Sell Best S&P 500 Rally Since ‘38

On a short-term basis, this brokerage firm skepticism confirms that the rally has greater upside potential. But the brokerage sentiment also betrays a longer-term shift in psychology, one that will play a prominent role as the bear market eventually re-appears and drags on. Suddenly, Wall Street is using the “s-word.” This illustrates a big shift from the buy-and-hold mentality that was so firmly entrenched at the peak and all the way down until February 2009. In the wake of wave 1, the word “sell” is also entering academic vocabularies, which reflects the high degree of the turn. Here’s a New York Times headline that heralds a new assault on buy and hold:

Now The Long Run Looks Riskier, Too

According to professors Lubos Pastor, at the University of Chi-cago, and Robert F. Stambaugh, at the University of Pennsylvania, stocks may not be the preferred asset class for the long run after





all. Stambaugh is from Wharton, the business school behind the author of Stocks for the Long Run, the bull market best seller that concluded, “when long-term purchasing power is considered, stocks are actually safer than bank deposits!” The message of the latest study is that stocks are not as reliably positive as previously believed. Considering the thumping that stocks have taken over the last 18 months, we should not be surprised. “Other things being equal, Professor Stambaugh says, you would probably lower your portfolio allocation to stocks.” Socionomically, this translates to: it’s a bear market, so the investment manifesto must change to reflect the pessimism that is taking hold.

A Bloody Fine SignalBack in August 2007, when stocks were still rising and only a few bankers sensed the abyss that the economy was heading for, GMP issued the following forecast:

Where the rising mood conceals darker emotions, the decline draws them out. As anger grows, they become a common preoccupation. Thus occurs the epic “fall from grace” for many high flyers.

Since last June when “buying and selling things strictly for profit” suddenly become an “evil act,” (see “The Devil Wears Pinstripes,” on page 19 of June 2008), GMP has documented a swelling ire against the financial world. In August 2008, The Elliott Wave Theorist added:

Somewhere between six and eight years from now, we should be at the bottom of the bear market. By that time, you are go-ing to see a lot of anger expressed in different ways in society when we get to that unbelievable low.

This is not that low, but it appears to be a low of some importance, as a burst of outrage and negative attacks around the world coin-cided perfectly with the March bottom and thereby confirmed that this low should hold for more than just a few weeks. The bracketed items on the chart show some of the events, as anger finally boiled over in various ways.





One outlet that we mentioned here last month was the call for a second Boston Tea Party. The prediction was for one to happen by the summer. Instead, early March brought a “tea party movement” to scores of U.S. cities. A tumultuous month of civil unrest in London actually started on March 6, the day wave 1 ended, when Lord Peter Mandelson, Britain’s Secretary of State for Business, took a custard pie in the face. Note that as the public outrage began, it carried a comedic edge. The humorous approach was on display a day later when Saturday Night Live opened with a parody of U.S. Treasury Secretary Timothy Geithner offering $420 million to the “individual who comes up with a workable plan to solve the bank-ing crisis.”

On March 12, Comedy Central’s Jon Stewart joked and grinned as he interviewed media maven Jim Cramer, but anger clearly fueled The Daily Show’s agenda. “Jon Stewart eviscerated Jim Cramer for not doing a better job of warning Americans about the looming financial crisis,” said one analysis. “Assuming the role of stern and angry prosecutor,” Stewart went on to attack CNBC “for all the bad advice and unreliable information the cable channel had given view-ers since the economy went into meltdown in September.” Here’s the March 14 headline from the Washington Post:

Stewart’s Time to Channel Our AngerSatirist Accuses CNBC of Failing Its Audience

The interview clearly touched a nerve, as it went viral over the Internet and quickly became one of the most viewed clips in the history of Comedy Central. The satirical quality of Stewart’s man-behind-the-curtain moment is probably a subtle signal that the March lows by no means mark an end for the bear market. GMP has demonstrated that satire is a common post-bubble trait. By the end of the bear market, the storm of anger will be too gruesome for comedy TV. In the early going, society seems to broach the harsh reality of the decline by laughing it off as best it can. One reviewer said that CNBC deserved the pasting, as it had “totally abrogated its journalistic responsibility in favor of entertainment and pattycake interviews.” Maybe so, but the channel actually offers more of a balance between buying and selling than it did at the high in 2007





and far more than it did in 2000, when it was monolithically bullish. Of course nobody complained then; social mood was ascending. In November 1999, when the Dow was just two months from one of the greatest selling opportunities in decades, GMP observed that being bearish was a form of professional suicide (and we can certainly attest to being emotionally drained by it).

The decline may have temporarily ended March 6, but the economic and social consequences of a 50+% stock market selloff will not stop with the upward reversal of the bear market rally. In fact, the fundamental and cultural repercussion of a major decline can roll on for weeks, despite a rising market. This is clearly happening, as the snowballing backlash of the bear grew serious the week of March 15-22. Revelations of a $165 million bonus to AIG execu-tives set off a “steaming, off-with-their-heads fury. ” Here’s how the Washington Post put it:

History will record the third week of March 2009 as Outrage Week in Washington. Like a spring fever, outrage spread across party lines and 86 House Republicans joined the Democratic majority in passing a punitive 90% tax on bonuses. At the core of all this populist outrage is a mystery: Why now, exactly?

This is a great question. The answer is that society is at a Primary-degree negative extreme in mood. In January, Merrill Lynch execu-tives were granted bonuses of $3.6 billion, more than 20 times the size of those at AIG, and the outrage was modest by comparison. But now the man on the street is livid and the president says he has a right to his anger. In fact, he wants to “channel” it. Even the ever unflappable Federal Reserve Board chairman said that the payment of bonuses to AIG executives is the one thing over the last 18 months “that makes me the angriest, that gives me the most angst,” before adding, “It makes me angry” and “I understand why the American people are angry.”

In late March, the homes of AIG executives were picketed and a Senator urged them to “resign or go commit suicide.” In London, financial types now dress casually as a matter of safety; vandals smashed up the home of a well known financier. The new thing in France is “bossnapping.” So far, four company managers have





been taken hostage by work-ers. A capitulation to violent emotions is clearly in place; Newsweek tacitly endorsed the anger on its March 30 cover, “The Thinking Person’s Guide to Populist Rage.” On April 1, blood flowed for the first time as a “Financial Fools Day” rally converged on the Bank of England. (The Cultural Trends section explains that protests and demonstrations are a common bear market result). Seven people were injured, one died and pictures of angry riot squads and bloodied protestor streamed out over the Internet. The violence is still mild compared to what is likely later in the bear market. But it is clearly the kind of societal release Baron von Rothschild was referring to with his famous entreaty: “Buy when blood is running in the streets.” Here’s the socionomic interpretation offered in The Wave Principle of Hu-man Social Behavior: “In other words, when things look darkest, it must be a low in mood and therefore a low in stock prices.”

GMP has noted that in bear markets, negative feelings tend to at-tach themselves to former bull market heroes. This tendency was demonstrated by Stewart’s focus on Cramer: even as he berated Cramer’s forecasting record, Stewart noted several times that the it was “not about” him, but his network, CNBC. Bull markets need human faces to reflect the bullish aura of the public and to receive its contempt as the transformation to a negative mood grabs hold. The capitulation to bearish emotions is also visible in the image of Warren Buffett. For the duration of wave 1, the granddaddy of all the financial heroes seemed to float above the fray. The harder that stocks fell, the more earnestly the media touted Buffett’s bullish calls and actions. Through the last six months, Elliott Wave Inter-national repeatedly warned of a “Buffett retrenchment.” The first





attacks hit right after stocks bottomed. On March 12, Fitch lowered Berkshire Hathaway’s “pristine” AAA rating. “Enough of Buffett,” says the headline over a USA Today letter to the editor. “I have had enough of Warren Buffett commenting on the economy and making predictions. This is not because he has been wrong just like everyone else. He is a market manipulator. His opinions should be viewed as disingenuous and potentially corrupt.” “Warren Buffett suddenly seems a lot less godlike,” says Newsweek.

The Newsweek mention is actually just an aside in a broadside against another group of bull market wonders—economists. “The current meltdown is the demise of the economic expert, if ex-perts they truly ever were.” Newsweek adds that most economic practitioners were “asleep at the wheel.” It goes on to list various perpetrators by name, including Lawrence Summers, now the president’s chief economic advisor. This is probably just the start of what promises to be a tumultuous period for the profession. But it may not be all bad. A few economists may actually search out tools that actually help forecast. Who knows, some may even be open to socionomic subtleties, such as the way in which a sudden attack against economic thinkers and their methods can signal a rally in stock prices.

Within the last few days, there’s been another critical development that fits right in with our forecast: The fury is breaking out beyond Wall Street. Last month GMP noted that the attack on “financial types” was just the “front edge of the hero bashing:” “As the bear market path of destruction broadens, the backlash will spread out.” Here’s a headline from Tuesday that shows the blame game moving on to the manufacturing realm.

TODAY’S TARGET: DETROIT March 30, 2009—The White House is playing seri-ous hardball for the first time with its recovery cash. The Obama administration auto task force today rejected the turnaround plans of General Motors and Chrysler and warned both could be put through bankruptcy to slash debts.





Obama Fires GM BossThe announcement marked a stunning reversal for management at both automakers and for GM inves-tors and creditors who had bet on a softer line. GM CEO Rick Waggoner was forced out yesterday.

More heads will roll outside the financial sector now. The stun-ning capitulation to the idea of a U.S. Big Three auto bankruptcy, originally forecast in the May 2005 GMP, is another sign that the stock market advance has some upside potential. Over the next few weeks, a continued stock push will probably lead people to believe that entrenched bear market forces have been beaten back or contained. But the spread into the heart of the U.S. manufacturing sector illustrates that this is definitely not the case. The financial carnage is still just a window into what will be going on society wide in the months and years ahead.

If you would like thrice-weekly coverage of U.S. stock indexes, U.S. bonds, the U.S. Dollar Index, gold, silver and strong, low-risk opportunities in individual stocks and indexes, we recommend you add the Financial Forecast Short-Term Update to your subscription. It is published each Monday, Wednesday and Friday evening via fax and the Internet. You can add the Update to your GMP subscription for an additional $20 per month (a savings of $228 per year). Call 800-336-1618 or 770-536-0309 to subscribe.





EuropE

Special SectionA rEArVIEW MIrror or A WINDSHIELD?

Unlike many mainstream forecasters, Elliott Wave International remained staunchly skeptical of the grand experiments that were hatched near the top of the Grand Supercycle-degree bull market. Chief on that list was the culmination of a political and monetary union among countries that, just a short time before, were openly warring with each other. The many milestones along the European Union’s path not only helped us to substantiate the colossal mag-nitude of the bull market – and forecast its requisite bust – but also helped us to pinpoint many turning points in the market’s wave structure along the way. This chart, updated from a version we published in December 2006, tracks some of the landmarks along with the Dow Jones Euro Stoxx 50 index.

Here’s a sampling of EWI’s forecasts over the years regarding the EU’s likely fate during a large-degree bear market:





“[The] European union was consummated following 1,500 •years of repeated conflict in the region....This multi-year pag-eant of apology, concession and agreement and the concurrent wonderful atmosphere of international peace and cooperation are consistent with my Elliott wave case that an uptrend of Grand Supercycle degree is ending.” (emphasis added)

—The Wave Principle of Human Social Behavior, 1999, by Robert Prechter

“The euro is a currency managed by a group of trading partners •who have been historically distinct if not involved in warring with each other.”

—Global Market Perspective, May 2005, commenting on why the Euro was not included

in EWI’s Stable Currency Benchmark

“During the bear market, the independent nations of Europe •will rediscover their borders and rekindle the animosities that kept them apart for centuries.”

—GMP, May 2005

“Germany and Russia in the 1930s and early 1940s are ex-•amples of the extreme forms these impulses [to shut others out] can ultimately take in extended bear market periods. The EU expresses the opposite, inclusionary force, one that has apparently run its course.” (emphasis added)

—SocioTimes blog by Pete Kendall, October 2007, one week from the wave b top in the FTSE 100

But perhaps our most poignant call came in December 2006 as Romania and Bulgaria entered the EU. Under the title, “New EU Entrants: The Straw That Breaks Its Back,” GMP editor Pete Ken-dall flatly stated:

“...much of what’s come together in Europe will come apart in coming years.”

—SocioTimes, December 2006





Well, the “coming years” are here, and the “coming apart” is on cue. Details of a complete crackup will have to wait for a future issue of Global Market Perspective, but the 60% nosedive in European equities has clearly betrayed the early rifts in Euro-union fellowship. What French finance minister Christine Lagarde lauded as a “zone of security and stability” as recently as last December is now “about to fall apart,” according to more sources than we can cite.

The reversal of Europe’s fortune is so stark that even economists see it. In The Economist cover shown here, a butler unveils a full-length menu of the EU’s pressing problem areas to cari-catures of western European leaders. Among the delicacies: Hungarian Ghoulash, Bulgaria Pickled, and Baltic Bomb Sur-prise.

That these problems are just now coming into focus high-lights the disparity between the forward-looking science of socionomics and the backward-facing ‘dismal science’ of econom-ics. Socionomics postulates that, in any society, trends in the stock market, economy and culture change due to fluctuations in the mass (or social) mood of the citizens. Positive social trends – such as unity, peace, and tolerance – are prevalent in bull markets, while negative social expressions, like xenophobia, anger and divisive-ness, dominate in bear markets. The stock market, says socionom-ics, is the leading indicator of social change and is governed by the Wave Principle. In other words, economics is a rearview mirror; socionomics is a windshield.

Socionomics shows that bull markets lean toward inclusive be-havior, while bear markets lean toward division. That explains the thirst to expand EU membership during the run-up in the bull





market, despite concerns about the financial stability of prospective entrants. In May 2004, as the wave b rally in Euro Stoxx became fully established, no fewer than 10 countries joined the union. A full seven were former eastern-bloc nations. While this constituted the “single largest enlargement of the EU in terms of people and landmass,” according to the Institute of Cultural Diplomacy, it was the “smallest in terms of GDP” (wealth). Now, these new members are labeled “Europe’s subprime.” Their fiscal problems were well known at the time, but those who questioned their financial health were ignored. The bull market’s appetite for togetherness, and the debt bubble’s escalating need for new borrowers, guaranteed their entry.





With the final additions of Romania and Bulgaria in January 2007, the near total disregard for risk enabled EWI to forecast the zenith of wave b optimism. As optimism faded, the market immediately registered the decline. Stocks plunged. And along with market value went the once-welcoming attitude toward the eastern-bloc. The contrast is shown here on a chart of Romania’s BET and Bul-garia’s SOFFIX index.

With all due respect to both countries, contending that either was welcomed to “pursue the reunification of our European family,” as European Commission president, Jose Barroso, claimed at the time, is akin to U.S. mortgage lender Fannie Mae alleging that its loan programs helped “families reach the American dream of homeownership.” Both declarations are political rhetoric worthy of only the most optimistic Pollyanna. Here’s the more compelling reason: there was profit in it. Surprisingly, Mr. Barroso admitted as much. His quote at the top of the chart, “The European Union enlargement process … enriched both Romania and the EU itself,” was made during a speech before the Romanian parliament in September 2007. The statement is largely accurate but omits one crucially important fact: the “enrichment” he speaks of was just an illusion fostered by debt.

Now, with optimism gone, markets down and profits from the east-ern bloc nowhere to be found, attitudes have changed. We’re All One is replaced with You’re On Your Own. At a speech in London, former Bundesbank President Karl Otto Pohl warned that a “bailout of a debtor country from a surplus country like Germany would be like opening the box of Pandora.” Chancellor Merkel echoed Pohl’s sentiment at an early March summit when Hungarian Prime Min-ister Ferenc Gyurcsany (since ousted by parliamentary vote) pled for $225 billion in loans. “A resounding ‘nein,’” was her response, reported Bloomberg figuratively. And almost every paper we read picked up on Gyurcsany’s use of the term “New Iron Curtain,” to describe western Europe’s abandonment of eastern Europe.

Of course, the story is clear as day—after the fact. To return to our analogy, a rearview mirror makes an oracle out of everyone; it’s the





windshield that separates forecasters from historians. Up ahead in the high beams, we can see the EU’s car wreck getting even worse. The rally in stocks (social mood) might lessen tensions a bit, but, by our count, the strongest part of the decline remains ahead. When it arrives, expect the bear market to make today’s multi-car pileup look like a mere fender-bender.

You Are HerePerspective matters. The FTSE All-Share Index traced five waves up from its 1974 low and culminated in the speculative mania that surrounded the 2000 top. This entire decade since is unfold-ing as an a-b-c correction of the wave (III) advance. The cavalier credit-induced speculation in 2007 perfectly fit the Elliott Wave Principle’s b wave description of “orgies of odd-lotter mentality...”





as the market peaked. Presently, stocks are finishing Primary wave 1 of Cycle wave c down, which itself should display a five-wave structure. To the right of the “You Are Here” marker is a sketch of the Elliott wave pattern that we expect to see. This speaks to the form that the indexes should follow as they move lower. Once wave 1 down is complete, wave 2 will retrace a good portion of the decline, and waves 3 through 5 will carry the index lower in what should be the strongest part of the bear market.

Each of the primary markets we cover are at similar points in this structure. The important point is that the bear market is just be-ginning. If the current rally turns into a multi-month affair, many pundits will argue that stocks are safe again. Don’t believe them; the market’s wave pattern says otherwise.

The DAX: A Quick Lesson For Wave Students:For anyone who uses Elliott wave analysis, the DAX has been near textbook-perfect since the 2007 peak. The violent descent into October 2008 (4014 intraday) marked a fitting end to wave 8, and the index has since traced out a near-perfect contracting triangle to complete wave 9. Last month, we identified a break of that triangle’s lower support line and forecast the wave 0 drop that ended on March 9 at 3588 intraday. Wave 4 is in progress.

Although the record-breaking collapse during October 2008 clearly indicated third waves in some of the other European indexes, the back-and-forth action from October through February hasn’t been ideal Elliott. For students of the Wave Principle, however, the de-viating action offers a great teachable moment. Bob Prechter wrote this in July 2005:

From a theoretical standpoint, we must be careful not to confuse Elliott waves with their measures, which are as a thermometer is to heat. A thermometer is not designed to gauge rapid short-term fluctuations in air temperature and neither is an index of 30 stocks constructed so as to be able to record every short-term fluctuation in social mood. While we fully believe that the listed rules govern Elliott waves as a





collective mental phenomenon, recordings of actions that El-liott waves induce — such as buying and selling certain lists of stocks — may not perfectly reflect those waves. Therefore recordings of such actions could deviate from a perfect ex-pression of the rules simply because of the imperfection of the chosen gauge.

That is precisely the case in the Euro Stoxx 50 and the FTSE 100, both of which have slight imperfections in their fourth-wave tri-angles. Taking everything into consideration, though, we are com-fortable that the labels shown are the best fit for the data at hand.





Elliott Wave AnalysisEuro Stoxx 50The Euro Stoxx 50 fell hard in early March as anticipated. In-termediate wave (3) has likely bottomed with wave (4) now in progress. The parallel channel shown in the chart is built from the lows reached during waves (1) and (3). This construction provides an estimated upside target near 2500. A 0.382 retracement of the five waves down would allow the index to advance above 2750. For now, we’ll let the index get closer to these targets before assessing the structure and deciding on a likely top.





FTSE 100 and CAC 40The patterns in the FTSE 100 and CAC 40 are nearly identical to the Euro Stoxx 50. Both are rallying in a fourth wave of Intermediate degree. Minimum upside targets are 4400 and 3100, respectively.





Market psychologyG20 Anger and the Market’s BottomAn important question to answer is just what was the magnitude of the market low on March 9? In the U.S., both the structure of the decline and the market’s psychology indicate that it was a Primary degree bottom. In Europe, only one of those pieces fit: Psychology is gloomy enough to support an important bottom. However, the wave structure says that more downside is needed to mark it.

To be sure, we always defer to the wave structure. And though sentiment is dismal, it could certainly get worse. Remember, it was the intense fear surrounding the run-up to the Iraq war that marked the end of Cycle wave a lower. But, the angry scene at the G20 summit in London as we go to press would also place a nice





exclamation point on the market’s decline thus far. So, it’s possible that the March 9 low may be even more significant to European markets than we currently give it credit. As we approach our upside targets, the structure of the advance and attending psychology will tell us if the markets can go higher.





As to the G20, these pictures describe the scene better than any narrative could. The primary thing to note is where the anger is directed – at the very bankers, both public and private, upon whom the bull market bestowed iconic status during its heyday. Elliott Wave International has long argued that bear markets return bull-market heroes to zeroes. If a longer-lasting bottom was indeed made last month, the targeted anger we’re seeing at the G20 would fit the pattern well.

To complement your monthly coverage of the European markets, we recommend you add three-times-weekly analysis with The European Short Term Update. It pub-lishes every Monday, Wednesday and Friday evening via fax and the Internet. You can add ESTU to your GMP subscription for just $30/month. Call 800.336.1618 or 770.536.0309 to subscribe risk-free.





AsiAn-PAcific OVERViEWHere are some of the reasons why we believe that Asian markets have formed an important low:

Last month, we showed how pattern, price, time and senti-•ment considerations were pointing to the end of multi-month, five-wave declines in most major Asian-Pacific indexes by late March. The March 23 Interim Report reported that those lows have likely been achieved.

The daily bar chart of a regional index, the MSCI AC Asia-•Pacific Index, shows how a five-wave decline ended at the point where wave (5) would equal wave (1) on a percentage basis (log scale), which is a common relationship.

Momentum in wave (5) slowed compared with that in wave •(3), which fulfills a guideline of wave personality described in Elliott Wave Principle: “Fifth waves...usually display a slower maximum speed of price change” (see p. 80).

The MSCI AC Asia-Pacific Index bottomed on March 10, just •eight trading days ahead of the March equinox, our time target for a possible end to the correction.



http://www.elliottwave.com/ereader/ewp/Default.aspx?page=80



On that day, the 21-day moving average of our regional senti-•ment measure, the Nikkei 225 Daily Sentiment Index, also reached 7.62% bulls, by far an all-time low.

In short, all the pieces are in place to support a multi-month rally.

The rally in the MSCI Asia Index has since broken above the upper line of the trend channel that contained the decline of the past year. Such a breakout helped to identify the start of a bull market in China back in December (see Shanghai Composite chart on p. 6). Prices in the rest of the region should now advance in a similar fashion, with wave 1 of the advance ending soon, if it has not already. In some cases, prices may then pull back to the upper channel line in a second wave retracement, as happened in China in November.

From a pattern perspective, the minimum likely target is the end of the previous fourth wave of one degree smaller (i.e., the Janu-ary wave (4) high). From a Fibonacci price perspective, the likely minimum is the 38.2% retracement of the entire decline, which lays several percent above the end of wave (4), near 100 in the MSCI AC Asia-Pacific Index. [Due to the size of the bear market decline, we have calculated the minimum 38.2% retracement tar-get on a percentage basis (log scale).] Above that, other possible targets are 50% and 62.8% retracements near 110 and 122.

Momentum, viewed as RSI, reached the high end of its recent range but that is not as much of a concern as it was near the 2007 high and the ends of waves (2) and (4) of the decline. Here’s why, as explained on Disc 5 of the Elliott Wave Educational Series:

Sometimes wave one [of a nascent rally] will show you the best overbought condition that you’ve seen in quite some time relative to the previous correction.

For example, following the 2003 low in the MSCI Asia-Pacific Index, the RSI breached the 75 level after only seven trading days, and prices continued to advance for almost a year before an Intermediate-degree correction. But since the rally in the MSCI Index is countertrend, we do not expect prices to repeat that per-formance this time. (For more information about the 10-disc Elliott





Wave Educational Series, see http://www.elliottwave.com/wave/EWEduSeries.)

Separating the Bulls From the BearsNow that Asian-Pacific markets have hit important lows, we believe that a few markets are candidates for long-term investment oppor-tunities. In this issue we identify four of them. Current subscrib-ers already know about our bullish long-term forecast for India’s SENSEX from reading last week’s Interim Report. Longer-term readers may already know a few of the others.

A few trading days after the end of the 2008 crash, we wrote:October’s selloff divided Asian-Pacific stock markets into two clear groups: those now clearly in long-term bear markets and those that investors should consider for long-term investment. The bears are Japan, Singapore, Hong Kong, China, and Aus-tralia. The potential baby bulls are India, Taiwan, New Zealand and, possibly, Korea.

Conservatively, in recent months we assumed that all markets would complete five-waves down. New Zealand fell below its 2001 low, thereby joining the long-term bear camp, but our original assessment of the other eight indexes has so far been correct: The “bears” have now all completed five waves down since their 2007 highs, while the “potential baby bulls” completed only three waves down from their respective highs, which makes them strong candidates to rally back to at least near their all-time highs—if not beyond.

Let’s now outline the case for new bull markets in India, Taiwan, Korea—and a fourth special situation: Small Cap Japan.



http://www.elliottwave.com/wave/EWEduSeries

http://www.elliottwave.com/wave/EWEduSeries



inDiA

The SENSEX declined in three waves to the October low, where it retraced approximately 50% of its 2003-2008 rally on a percentage basis (log scale). The index has also just broken out of its downward trend channel on arithmetic scale. Those pattern and price relation-ships, in combination with the fractal analogy to the 2003-2004 period that we reviewed in March’s Interim Report, are the best argument for a resumption of the bull market in Indian stocks.

In addition, the wave counts for markets surrounding India also sup-port the bullish case. The weekly chart shows how three other Asian markets connected to the Indian Ocean—which together with India represent almost one-quarter of the world’s population—show the same short-term and long-term relative strength as India’s market. In contrast to most global markets, all four have so far declined in only three waves from their all-time highs. All four also trade well





above their highs of the 1990s or early 2000s. The long bear market that they experienced until the early 2000s—10 years in Pakistan (1991-2001), 11 years in India (1992-2003), 9 years in Sri Lanka (1992-2001), and 12 years in Indonesia (1990-2002)—may also argue for a bull market lasting longer than the run to their most recent all-time highs. The bull markets of the 1980s and 1990s in the United States and many European countries may have lasted as long as they did precisely because they endured long bear markets during the 1960s and 1970s.





We are bullish not only on India, but also on this Indian Ocean regional group. Even if the declines from their all-time highs later turn out to be only the first legs of a larger correction, the three-wave corrections at present—should they hold—imply significant rallies in the intermediate term. We should then be able to reassess the long-term wave count from higher levels.

TAiWAnTaiwan’s Cycle Wave V has begun. The monthly chart shows how the 1989-2008 correction is a textbook fourth wave, as it mirrors the idealized contracting triangle form shown in Figure 1-42 of Frost & Prechter’s 1979 Elliott Wave Principle (another example of which unfolded during 1973-1977 in an Intermediate wave (4) correction).

The daily chart shows how volume has increased in wave 3 com-pared to that in wave 1. China’s Shanghai Composite recently demonstrated how such an increase is typical of third waves (see





page 46). As happened recently in China, we’ll look for a pullback in a fourth wave and then a fifth wave advance on lower volume sometime in April or May.





KOREA

The KOSPI declined in three waves to its October low, where prices retraced almost 61.8% of the 2003-2008 advance. In December, we observed how the inverted Korean won-U.S. dollar cross rate failed to confirm new lows in the KOSPI at three major lows in the past. At the March low, the won and the KOPSI again diverged, but this time the KRW/USD made new lows while the KOSPI did not. That pattern characterized the April 2001 low in the KOSPI, which turned out to be only an intermediate-term low. So that makes us bullish Korea, but cautiously bullish. It could be that five waves down from the 2007 high are just taking a longer time to unfold than in the rest of the region.





SMALL CAP JAPAn

While the large-cap Nikkei 225 and broad-market TOPIX in-dexes have recently been plumbing multi-decade lows, Japan’s small capitalization indexes are still well above their 1998 lows. That relative strength may put them in position to outperform the large-cap indexes. For instance, the Nikkei JASDAQ index made its lows in 1998, after which it rocketed up during the tech boom of late 1999 and 2000. Since then, it has corrected in three waves. Because the index began only in 1983, we can only speculate about its wave count above Primary degree. But given the impulsive look of the 1998-2000 advance, it is possible that the small cap indexes are now beginning a third-wave advance that will take them to new all-time highs.





THERE’s ALWAYs A PHOEniX sOMEWHERESeveral subscribers have inquired as to how the SENSEX (or any other Asian market) could begin a bull market while the U.S. markets are still in a long-term bear market. This table and monthly chart should an-swer that question. During the U.S. bear market from January 1966 to July 1982, the Dow Jones Industrial Average suffered several major de-clines and ultimately lost 14%. Over the same period, Japan’s Nikkei 225 gained 389% and India’s stock mar-ket gained 233%. Smaller markets such as Hong Kong and Singapore achieved even bigger gains. The following table summarizes the performance of several Asian-Pacifi c markets during the U.S. bear market from 1966 to 1982.

The only factors you need to consider when forecasting the direction of an index are its own long-term and short-term wave patterns. Ralph Nelson Elliott came to that conclusion after observing the divergent behavior of several different sectors and asset classes within the United States during the 1920s and 1930s. Consider, for example, how stock markets in Taiwan and Japan stayed mired in bear markets for almost 20 years from 1989 (see charts on pp. 41 and 43) while that of the United States—their main export market—boomed. Or how Australia’s stock market recovered to new all-time highs in 1934, just fi ve years after the 1929 top. Or even how the SENSEX now trades 68% above its year 2000 high while the S&P 500 trades 45% below its own.

Individual indexes follow their own wave paths because each society generates its own mood internally. Or, as Bob Prechter puts it in the Socionomics Institute’s new DVD:





[The major world indexes] tend to ebb and fl ow together, but that doesn’t mean that their structures are exactly the same. One structure may be beginning, say, a Degree One [for example, Supercycle Degree] bear market period and another is going to have a Degree Three [Primary Degree] pullback and then go up during the rallies in the bear-market period.

Although spoken in 2004, those words aptly describe the pres-ent relationship of Asian-Pacifi c markets compared with those in other parts of the world, including the United States. (For more information, see Toward a New Science of Social Predic-tion: Robert Prechter at the London School of Economics at http://www.socionomics.net/fi lms/london/moreinfo.aspx).




http://www.socionomics.net/films/london/moreinfo.aspx


Now that we have discussed the prospects for the baby bulls in the Asia-Pacific region, let’s turn to the long-term bears: China, Hong Kong, Singapore, Japan, and Australia.

cHinA

Last month we said that the explosive volume during China’s ad-vance in February indicated a third wave. Volume can again help us to confirm the wave count. Volume during the March and April advance has so far been less than February’s advance. Elliott Wave Principle observes that “in a normal fifth wave below Primary degree, volume tends to be less than in the third wave” (see p. 76). The 2005-2007 rally in the Shanghai Composite displays at least a few examples of this phenomenon. Notice how volume trailed off at the end of wave (1), wave 1 of (3), and at the end of wave 5 itself. Since that pattern is occurring again, the impulse up from the November lows in China is likely to be in its terminal stage. New volume highs in the rally would suggest that wave 5 is extending, as p.76 of Elliott Wave Principle also states, “If volume in an advanc-ing fifth wave of less than Primary degree is equal to or greater than that in the third wave, an extension of the fifth is in force.”



http://www.elliottwave.com/ereader/ewp/Default.aspx?page=76



Another indication that China’s mood may be nearing a point of temporary excess was the news on March 6 that the nation’s stock market regulators “may soon end a moratorium on initial public offerings after the Shanghai Composite Index rallied 20 percent this year to become the world’s best-performing stock benchmark.” The authorities had imposed the ban in September after the index had fallen more than 60% to become the world’s then worst-performing stock benchmark. Elliott Wave Interna-tional has long demonstrated how government is “the ultimate trend-follower,” because it reacts to trends only after they are mostly over. If the regulators give their signal soon, it could be a short-term sell for Chinese stocks.

In labeling the advance an impulse, we ignore the slight intraday overlaps of the bottom of wave 4 with the top of wave 1 in the Shanghai Composite. We feel comfortable doing that because many other Chinese general indexes, including the CSI 300, the Shenzhen Composite, and the Shenzhen Small & Medium Enterprise (SME) Index, all show no overlap and have advanced in clearly impulsive patterns. Wave 5 may hit our long-standing minimum target at 2700, near the top of the trend channel. If it doesn’t do so now, it should do so later in wave B. The SME Index’s advance may end near the 61.8% retracement of the 2007-2008 decline.

The small-cap growth index’s rapid rebound is encouraging for the long-term in China. Following the 1973-1974 bear market, the Nasdaq Index may have foretold the next growth cycle by recover-ing to new all-time highs in 1979, three years before the Dow Jones Industrial Average. For the long-term, economic health of the region, it is encouraging that small company growth indexes in the region’s two largest economies (Japan and China) are outperforming their large-cap peers.





sinGAPORE & HOnG KOnG

The daily chart of Singapore’s Straits Times Index shows the breakout from the declining trend channel that is typical of many indexes in the region. The Hang Seng Index failed to fall to new bear market lows in March. But most other Hong Kong indexes did, such as the Hang Seng Hong Kong Composite, Large Cap, Mid Cap, and the MSCI Hong Kong indexes. So, although it’s not a perfect fit, we are going to consider the decline to the March low in the Hang Seng Index to be a truncated fifth wave. On log scale, the minimum target for the rally is the 38.2% retracement of wave A near 16,900.

Hong Kong’s First Criminal Trial for Insider TradingThe daily chart shows another indication of the severe sentiment surrounding the end of wave A down. On March 12, two days after the low in the Hang Seng, Hong Kong convicted a former BNP Paribas Peregrine Capital Ltd. banker in the territory’s first crimi-nal trial for insider trading. The banker’s transgression occurred in 2006, during the bull market. This development fits nicely with





how Charles Kindleberger described swindling in his 1978 book, Manias, Panics and Crashes:

In a boom, fortunes are made, individuals wax greedy and swindlers come forward to exploit that greed.... Swindling grows with prosperity.

The break of the scandal during the bear market also fits with the socionomic hypothesis that changes in behavior follow changes in mood: Only after the stock market started falling did a whistle-blower dare to expose the crime. The eagerness of the Hong Kong authorities to penalize rule-breakers heavily at this time is also likely related to the decline in the stock market. Interestingly, it was following the 2003 low in the Hang Seng that Hong Kong upgraded insider trading to a criminal offense. As The Elliott Wave Theorist observed of financial scandals during the bear market of 1998, “these stories can ‘now be told’ because people are disposed to listen to them.”





JAPAnJapan’s Nikkei 225 has broken above its declining arithmetic trend channel before, only to roll over soon thereafter. So perhaps the current breakout means nothing. But we will give the rally view the benefit of the doubt now, considering our bullish outlook for the region.

Yet Another Scandal Revealed By a Bear MarketJapan’s ruling Liberal Democratic Party has taken a mauling during the bear market, having turned over the prime ministership twice in a little more than 18 months. But on March 3, just days from the low, the opposition Democratic Party of Japan proved that the stock market axiom that “there is nowhere to hide in a bear market” also applies to politics, as an aide to party chief Ichiro Ozawa was arrested on suspicion of taking illegal political donations from a construction company.





AUsTRALiA

The final subdivisions of wave (5) down in Australia’s ASX All Ordinaries were imperfect, but we are going to overlook those imperfections in deference to the larger regional trend, which is up. The index has just broken out of its trend channel on arithmetic scale. The 38.2% retracement of wave A on log scale is 4166.

(Be sure to read our commentary about the Reserve Bank of Aus-tralia in the Interest Rate section on page 55.)




GLOBAL INTEREST RATES





INTEREST RATES

AROUND THE WORLD

This Interest Rates section presents the same long-term analyses that we include and continuously update as part of our daily and intraday on-line Specialty Services. Be advised that these opinions can change intramonth, in which case we make them instantly in Specialty Services.

Subscribers who desire constant monitoring of the outlook for interest rates for all time horizons, including daily and intraday, should subscribe to Specialty Services Interest Rates. To choose the Specialty Services Interest Rates coverage that is right for you, visit our Specialty Services selection tool (www.elliottwave.com/wave/SS_GMP) or call customer service at either 1-800-336-1618 (U.S.), or 770-536-0309 (international).

As stocks were declining into their March low, credit spreads failed to confirm the market decline, remaining narrower than their previ-ous December extreme. This non-confirmation along with March’s bullish reversal, strongly supports the ongoing bear-market rally view. The United States is now committed to the policy of printing money in order to purchase debt issued by the Treasury. Debate about the efficacy of this program has passed as this is now official Federal Reserve policy. The European Central Bank has, to date, resisted calls to do the same, but leaves this open as a policy option. The relative outperformance of European paper has much to with this ECB policy stance. The Federal Reserve has made a massive commitment to agency paper, and this debt should outperform treasuries. We continue to weight short duration regardless of the asset class. We anticipate new contract highs on the JGB and the Aussie bond, but there is significant risk evident in Australian debt by the end of Q2.




55Interest Rates—April 3, 2009

Special SectionTHINk THAT CENTRAL BANkS MOvE THE

MARkETS? THINk AgAIN

Conventional wisdom says that central banks can influence or even direct financial markets and the macroeconomy. The very existence of Elliott waves challenges such assumptions. For if markets re-sponded to every central bank directive, how could Elliott waves exist? Parallel trend channels, Fibonacci price relationships, the similarity of form between waves of different sizes and time peri-ods—none of that would be possible. Central bank decisions would have to coincide perfectly with turning points in Elliott waves, and we know that just doesn’t happen. (Bob Prechter makes a similar observation about news events in the Socionomics DVD; see page 45). But even without using waves, we can expose the conventional wisdom for the fallacy that it is.

Take, for example, this assertion in a recent article in a U.K. eco-nomic weekly: “Part of the aim of central banks in driving down interest rates is to encourage a greater risk appetite among inves-tors.” Two key assumptions underlie that statement: a) central banks determine interest rates; and b) lower interest rates can increase society’s appetite for risk.





To see how the first assumption is false, let’s take a look at the daily chart of Australian interest rate data. It duplicates a study that El-liott Wave International has often done with U.S. interest rate data. It shows how movements in the cash target rate set by Australia’s central bank, the Reserve Bank of Australia (RBA), appear to follow those in 3-month Australian Treasury Bills. After decisive moves up in T-bills from 2006 to early 2008, for example, the RBA faithfully raised its target. T-bills have since led the RBA during the financial crisis of the past year. In fact, the record indicates that the RBA almost always follows T-bills over time.

The proper conclusion to draw is not that the RBA has orchestrated the decline in rates since the early 1980s—but that it’s been riding it. During good times, central bankers look like geniuses; during bad times, they get tarred and feathered. Closer to the truth is that their interest-rate decisions are not proactive, but reactive, and that they continually follow in the footsteps of the market for lack of any other useful guide.

Now let’s look at the second assumption: that lower interest rates increase society’s appetite for risk. A simple glance at the weekly chart shows this assumption to be false. After the 1987 crash, the ASX All Ordinaries actually rallied for two years on rising rates and then sold off through 1990 on falling rates. Stocks then rose in





1991 on continued falling rates and sold off in 1992 on even lower rates. Continue following the chart to the right and you will see that there is no consistent correlation between the direction of interest rates and that of the stock market.

The myth of central bank potency is so pervasive that conventional analysts can’t even imagine a better explanation for price trends: that the market is the dog wagging its central bank tail, not the other way around.





U.S. TREASURIES

Since 2005, GMP has used the spread between the Moody’s Corporate BAA bond yield and the 30-year U.S. Treasury yield to successfully assess credit market seizures. It’s been a handy guide to helping us forecast stock trends too, as a widening spread between the two credit instruments oftentimes accompanies or precedes stock market downturns. In line with its past form, the spread deteriorated with the wave (5) decline to the March lows in stocks. Note, however, that the spread did not make a new low with stocks, creating a bullish non-confirmation. This type of behavior is consistent with a temporary stock market low. We can anticipate that as wave 2 in stocks progresses, the Moody’s-Treasury spread should firm up. A break below the December extreme will be the first hint that the next round of credit blow-ups is starting and that the rally in stocks is probably ending.





The Bund

German exports have decined drastically through March; unem-ployment is now over 8%. This number is rather benign when compared to the double-digit unemployment data across the rest of Europe. Heading into the G20 meeting, the German chancellor Angela Merkel is resisting the call for aggressive stimulus spend-ing. Of all things, she said she is worried about taking on too much debt! Japanese prime minister, Taro Aso, is offering advice to Ms. Merkel about stimulus spending; ironically, his country undertook and failed at the great stimulus spending experiment in the 1990s. Japan propped up failing banks and buried itself under a mountain of infrastructure cement, only to see the recession drag on. Japan





now carries the highest burden of national debt relative to GDP (170%) than any other developed country.

Following the new high bunds saw last month, price has con-solidated in what is likely to be a contracting triangle. Basis June, this count projects a thrust higher in wave 5 of (c) within the 126.01/127.03 area over the coming weeks. The 122.73 level is important support for this count; the pattern is invalid below 121.71.





The Bobl

Wave structure off the early March peak is decidedly corrective, and the rally off the 115.340 low has enough impetus to carry to a new. We are confident in a new high for the Bobl against 115.800 basis June.





The Long gilt

Substantial volatility has marked Gilt wave action of late, follow-ing the Bank of England’s announcement that it was to purchase government debt. Under the guise of quantitative easing, the failure of debt auctions led to this monetization of the debt. There has been little political appetite in the UK for this policy outside the bond desk.





Our wave (5) target is the 126.93/128.12 area. Basis June, we should not again test 121.92 support under this count.





Short Sterling

The corrective decline off the January peak ended at the early March low of 98.000 basis June. The current wave v rally should persist over the balance of April; the 98.895 level is the minimal target for the advance with confidence against 98.475. The 98.315 mark is critical support.





TNOTE-BUND SPREAD

We still believe that a lasting shift in trend is at hand. Following the decade-long, three-wave decline, the spread should return to levels last seen in 1999. The US Treasury is announcing debt sales at the clip of $100 billion a month, and the Bund has begun to outperform. The spread has rapidly approached the 0.400 Fibonacci resistance target basis June futures, and we look for this trend to continue with high confidence against -0.049 support.





BOBL-BUND SPREAD

We maintain that wave 5 of (a) is complete on the weekly chart at the -0.832 February low, however, wave structure is not compel-ling from that mark. If the spread fails to narrow appreciably this month above firm, Fibonacci resistance at -0.580, then the -0.832 low will likely give way to a new low at -0.866. The 0.757 level remains important support.





ASIA

Australia

Corrective wave structure off the January high keeps our focus higher. If the correction is complete, as we favor, then the Aussie bond should see strength over the coming weeks above 95.880 Fi-bonacci resistance. The 95.425 level basis June is critical support this month in order to maintain this outlook. The 96.335/615 area remains the wave (5) of a target.





Japan

The JGB continues to trudge higher, and we expect the advance to continue through mid-Q2 to at least 141.17. The second half of 2009 could see a reversal of this trend. Basis June, the 137.00 Fibonacci support level is still important.




INTERNATIONALCURRENCY RELATIONSHIPS





CURRENCIES

AROUND THE WORLD

This Currencies section presents the same long-term analyses that we include and continuously update as part of our daily and intraday on-line Specialty Services. Be advised that these opinions can change intramonth, in which case we make them instantly in Specialty Services.

Subscribers who desire constant monitoring of the outlook for currencies for all time horizons, including daily and intraday, should subscribe to Specialty Services Currencies. To choose the Specialty Services Currencies coverage that is right for you, visit our Specialty Services selection tool (www.elliottwave.com/wave/SS_GMP) or call customer service at either 1-800-336-1618 (U.S.), or 770-536-0309 (international).

The dollar setback during March has run its course. The dollar is bottoming and should resume its advance from current levels.




71Currencies—April 3, 2009

INTRODUCTIONAfter advancing for two months, the buck retreated. The Dollar Index was down by as much as 7.8% from high to low. The euro benefited greatly, gaining as much as 10.5%, followed by sterling (+8.2%) and the franc (+6.7%). Does this rally signal a change in trend, or is it simply a correction of the dollar’s run during the second half of 2008?

The individual pairs argue that it’s merely a pause in the dollar’s rally. As we’ll show, the gains registered still fit within the confines of a normal correction. Sterling failed to even exceed its early February high. There is not enough evidence to proclaim the dol-lar’s rally over.

The question, then, is whether the dollar’s setback is over. The wave structure says that is possible; let’s look at some anecdotal evidence to help answer the question.

The Chinese government’s comments in regard to a replacement for the U.S. dollar as the world’s reserve currency may not have come as a surprise as we’ve heard this type of talk before. When the dollar was falling last year, there was talk by unfriendly oil-producing countries that they’d like to be paid in something other than dollars. What is new this time is that the U.S. initially expressed a willingness to discuss the idea. Treasury Secretary Geithner quickly corrected himself, but the interim market action was interesting. The dollar fell on the initial comment, but did not reach a new low. It has since staged the largest recovery in a month — this suggests that downside pressure has been exhausted.





The Dollar

The sharp decline in March has led some to question whether it represents an end to the rally from last year. Instead, we see the move as the end of a flat correction that began at the mid-February peak. The decline falls within the confines of a typical correction, having fallen a bit below support in the area of the prior fourth wave but not below the 61.8% retracement of the rally off the December low.

A push above 87.00 would favor that the buck is about to make new highs on the year. A rally similar to the December-to-February move would target 93.00. This would represent the loftiest level for the dollar since November 2003.





EUR$ Dollar per EURO

EUR$ is the Dollar Index, inverted. The flat correction from mid-February is also visible here and it retraced a bit more than half the prior decline. The break in the euro that followed the comments from Secretary Geithner is the largest in a month and that may be a signal that it is more than a correction.

Unless EUR$ manages to break out above the March 19 high of 1.3736 look for the market to fall.





$CHF SWISS FRANCs per Dollar

$CHF also pulled back in a flat. The correction in the Dollar Index and EUR$ followed the completion of a terminal thrust from a triangle. In $CHF, the peak followed a diagonal triangle. Just as that made the “call” for a top fairly easy, subsequent price action also supports the idea that the setback is a correction.





The initial three-wave setback in early March could have been all of the correction but it was shallow. The clue that a larger correc-tion was due was the subsequent run to a new high above 1.1884. It unfolded in three waves and ended on news that the Swiss National Bank was willing to step in to stem further gains by the franc. None of the other pairs followed suit. The lack of a coordinated move suggests that the rally was a trap — wave (b) of a flat correction. The subsequent dive that followed completed the pattern. This too supports our strong US dollar opinion.





GBP$ Dollar per BRITISH POUND

There is nothing bullish about the chart of cable. The three-wave recovery from January into February was enough to signal that the dominant trend was still toward lower levels. Since then, moves in both directions have been corrective. Whether cable consolidates at lower levels before thrusting to a new low or pushes to the 1.5135 area first, we expect a new low beneath 1.3505.





AUD$ Dollar per AUSTRALIAN DOLLAR

AUD$ traced out a flat correction from October-to-January, but that may just be part of a larger combination. A few weeks from now, after additional consolidation below 72.67 or from the 75.00 area, the bear trend will resume and AUD$ will fall well below .6000.





$CAD CANADIAN DOLLARs per Dollar

Prices moved to new highs in early March as anticipated, and while the recent peak could be the important top that was forecast, we don’t yet see solid evidence that the trend has turned down. It’s possible to count a completed five-wave advance from the 2007 low, but what so far looks like a three-wave decline raises an alter-native scenario that calls for one more push to new highs before a top forms. If so, a modest new high above 1.3063 could complete wave 5. Under the more immediately bearish count, prices are cor-recting the advance from the 2007 low and should decline toward 1.1500 or lower. Prices will have to quickly drop below the 1.2400 area to put this interpretation back on firm footing. Until then the immediate trend can be considered up.





$JPY JAPANESE YEN per Dollar

$JPY did pull back during March as anticipated, but the structure of the setback to 93.55 is corrective. Allowing for a push above 99.69, upside potential may prove limited. If a flat is unfolding from December, as the double bottom in mid-January suggests, the push to a new high should represent wave 0 of C, the end of the recovery.

Our alternate count reflects the potential for an increased appetite for dollars. A leg higher similar to the January-to-March rally would target the 106.10 area.





EURO RATES

EURCHF SWISS FRANCs per EURO

The euro easily outperformed the franc in March as EURCHF rallied from under 1.4600 to as high as 1.5447. The subsequent setback looks corrective, far different than the nearly vertical rally, and has retraced just about 38.2% of those gains. Expect a test of the high established in December at 1.5882.





EURJPY JAPANESE YEN per EURO

The euro continued to outperform the yen throughout March, but that is about to change as a large flat correction spanning October to March may have just ended. The net recovery has retraced just about 38.2% of the impulsive decline from 169.97, the July 2008 high. Look for the yen to reverse its weakness and for EURJPY to head lower.





EURGBP BRITISH POUND per EURO

In February, we pointed to .9520 and .8638 as the key levels to watch. The lower level held and EURGBP has risen sharply to the middle of those levels. Barring a decline below .8638, the euro is likely to continue to outperform.

As stated in the March Global Market Perspective, a rally above .9520 would bolster the “three waves down” scenario and the bull-ish case. A new high above .9803 would likely follow, as would the once widely-held outlook for a return to parity.




METALS & ENERGY





Despite gold bugs’ insistence that an imminent surge is at hand, gold’s countertrend rally high remains $1007.20 on February 20. The target for the current decline is below $680. Silver too made a countertrend rally high at $14.68 (Feb. 23). The current decline from this extreme should eventually draw prices beneath $8.39.

Crude Oil’s early March price action negated our wave count, but not the idea that the larger downtrend has yet to run its course. In the short-run, Crude should continue to advance before it turns down to finish the move. Natural Gas should continue to subdivide lower, but a period of upward consolidation should lie ahead.

METALS & ENERGY

AROUND THE WORLD

This section presents the same long-term analyses that we include and continuously update as part of our daily and intraday on-line Specialty Services. Be advised that these opinions can change intramonth, in which case we make them instantly in Specialty Services.

Subscribers who desire constant monitoring of the outlook for metals, energy or commodities for all time horizons, including daily and intraday, should subscribe to Specialty Services Metals, Specialty Services Energy and Specialty Services Commodities. To choose the Specialty Services coverage that is right for you, visit our Specialty Services selection tool (www.elliottwave.com/wave/SS_GMP) or call customer service at either 1-800-336-1618 (U.S.), or 770-536-0309 (international).




85Metals & Energy—April 3, 2009

GOLD & SILVER The single most inflationary event of the past 50 years, and the largest in the history of the country, by far, occurred last week when the U.S. Federal Reserve created $300 billion out of thin air, which it will use to make several purchases of U.S. Treasury bonds over the next six months. A similar pump-priming effort was attempted in the early 1960s. According to the Fed’s own study, the scheme known as Operation Twist, which attempted to drive down long-term rates with up to $500 million in longer-dated Treasury purchases, was considered a failure.

In total, the Fed announced that it will increase its balance sheet by $1.15 trillion, much of which will undoubtedly go to purchasing lower-quality debt instruments. The unprecedented attempt to inflate away the credit crisis did not go unnoticed by gold lovers. “Cash in a Mattress? No, Gold in The Closet,” headlined a multi-page Newsweek article on the benefits of owning gold. No one seems very impressed by EWI’s study showing a long-standing relation-ship between falling gold prices and a slumping economy. It seems





that the worse that the economy becomes, the deeper is the com-mitment to gold. A story on “How to Play the Coming Gold Jump” explains that gold is “about wealth preservation—it does well in time of crisis. In good times there are better ways to make money than buying gold. However equities are volatile, house prices are falling and current interest rates make savings unattractive.” One newspaper describes the “new” gold rush emerging in California, as “unemployed people are heading for the hills to prospect for gold.” The Wall Street Journal says, “Bearish Big Investors Catch Gold Bug.”

You’ve heard us say many times, contrary to what most economists believe, news does not create the trend. The gold market appears to be constructing one of the all-time great illustrations of just how detrimental this false belief can be. Almost no single piece of news could possibly be more bullish for gold prices than the Fed signaling that it will print money and do whatever it needs to get the economy rolling again. In the face of these announcements, however, gold made a near-term high at $967.95 (March 20) that was lower than the high of February 20 ($1007.20), which itself was lower than the high of March 2008 ($1033.00). This came as no surprise to Short Term Update subscribers, as the March 18 STU placed gold near the end of an upward flat correction and said, “The wave structure, if we have interpreted it correctly, suggests that gold will not make a new high and in fact may be ending the rise right now.” Gold’s behavior is indicating that deflationary forces remain stronger than the Fed’s printing press. The February 20 high likely marks the top of a (B) wave rise from October. Prices should decline to beneath $680. Once they get there, we will assess the overall structure and sentiment to determine the next significant move.

Last month GMP cited a “very clear” wave structure in silver, along with a break of a rising exponential curve and stated that its countertrend rally was over. Since the February 23 high ($14.68), prices have traced out subwaves one and two of a still-developing impulse pattern lower. The next significant move should be a third-wave decline that draws prices well toward the October low ($8.39). Only a push past the February highs in both gold and silver would indicate that the upward correction was extending prior to turning lower again.





CRUDE OILLast month’s immediately bearish wave count was quickly negated, but it’s hard for us to adopt a longer-term bullish stance given the lack of a clean ending pattern. The advance from the February low fits best as the final leg of an ongoing corrective retracement.





Wave Count Analysis

The double zigzag Primary wave 2 retracement is still our favored interpretation, but the early March price action has forced a revi-sion. WTI’s minimum upside target for wave C of (B) is the prompt month’s wave A peak (58.31 basis May). Common objectives are 62.79 and 67.02 where wave C equals 1.618 times wave A from a continuation and May contract perspective. Brent’s comparable levels are 58.50 (basis May) and 65.25 and 66.02 (basis May). Once wave (B) is complete, we’ll be looking for wave (C) to terminate below the December continuation low.

NATURAL GASNatural Gas stuck to last month’s script and should work its way on down to finish the move. In the interim though, the market looks in need of further consolidation to finish a proportional countertrend correction.

Wave Count AnalysisWe see the market in Intermediate wave (C) of the flat Primary wave A decline. Within wave (C), we suspect that we’ll get a





more proportional wave 4 retracement. Barring a triangle, the minimum upside objective is the prompt month’s wave a peak (4.754 basis May).




SOCIAL TRENDS& OBSERVATIONS





THE U.S. ECONOMY & DEFLATIONThe stock market is bouncing, but the economy may not follow—at least not right away. If economic figures do revive somewhat, it probably won’t happen until the countertrend rally is peaking or possibly over. Within days of the start of the stock rally on March 6, slight upticks in durable goods orders and consumer spending were hailed as signs that the global economy was out of the woods. Inventories usually fall as economies emerge from recession; so a “collapse” in U.S. inventories, or more precisely a 0.9% February decline in stockpiles of factory goods, caused one chief economist to say, “There is hope.” The decline produced the first decrease in the inventories-to-sales ratio in seven months. The chairman of the Federal Reserve, Ben Bernanke, says that the recession will be over by the end of the year. According to an Intrade.com contract, which trades on the prospects of an economic depression (defined as a 10% decline from a peak 2009 GDP reading), the likelihood of such an occurrence declined from about 50% toward the end of February to 18% by the end of March. Never mind what gold and silver say, the U.S. Treasury and the Federal Reserve believe that if they buy up the best and worst that the bond market has to offer, demand will necessarily follow. As contorted and historically unsuccessful as this logic is, many are buying it. A New York Times columnist argues that it might just work: “I think it could put a real floor on the price of the bad assets and change the market psychology so that securitized assets can begin to trade again, which is important to get credit flowing.” We beg to differ.

Market psychology is something we know a little about, and one key aspect is that government doesn’t create psychological trends, it follows them. By that we mean that government is controlled by social mood, but the alternate meaning is true, too. Sometimes when a trend is over, government will take action that is consistent with the expired trend, which is almost always harmful to unsuspecting participants. At this point, for instance, it is doing everything in its power to get people to borrow when the right thing for them to do, and the thing that most smart people are doing, is getting out of debt and conserving buying power. This chart shows that in the fourth quarter of 2008, total household credit market debt declined for the first time in more than 50 years. The chart is a graphic representa-




93Social Trends & Observations—April 3, 2009

tion of the new conservatism that was predicted in Conquer the Crash. In a billion different ways, the trend is conspiring to thwart the government’s bid. Some acts of sabotage are even sponsored by government itself. Consider, for instance, new federal regulations to curb “egregious” credit card company practices. In December, rules that allow issuers to raise rates on existing balances “at any time, for any reason,” were changed. But the changes don’t take effect until July 2010. In the meantime, card issuers “are using the time to toss anchors to their flailing customers.” Issuers are hiking fees and slashing credit lines for creditworthy customers. As lenders’ “appetite for risk wanes,” credit scores are dropping, which reduces





credit lines by millions. Meanwhile, credit card defaults have risen to 20-year highs, which reduces the appetite for consumer loans even more. At least one card company is even paying customers to close their accounts.

A similar self-reinforcing spiral has finally been spotted in commer-cial real estate. Reports call the field a “new source of write-down and failures.” Prices are falling fast. Boston’s John Hancock Tower, the tallest building in New England, just sold for $661 million, about half of what its value was just three years ago.

The Fed gambit will not work because it tinkers with a symptom of the decline, rather than its cause, which CTC identified ahead of time as “the population’s mental state.” As a group, people simply are not interested in expansion. Just as CTC anticipated, a “desire to conserve” is taking over. Earth Hour, a global effort to turn out lights for one hour on March 28, is a simple but revealing manifestation of its presence. The second annual event included 400 cities around the world and was hailed as a great success by organizers. The symbol-ism takes us back to July 2007, when GMP first remarked on the “lightswitch”-fast start to the credit crisis. The switches are flashing across the breadth of the economy, where coupon clipping is “back in vogue”; companies are making “savage reductions in dividends”; barter is growing fast on Craigslist.com; “cheap chic” is the fashion rage; and the secret to publishing survival is to hawk “money sav-ing tips.” The protest photo shows that some members of society are just plain outraged about consumerism. This is another one of those be-careful-what-you-ask-for positions that tends to be adopted as a trend changes and then is deeply regretted when it actually oc-curs. The vociferous-ness with which it is now being demanded suggests that the ensu-ing consumer strike will be a whopper.





Newspapers are excellent leading economic indicators, probably because advertising is one of the first things to go in tough times. The news game is also extremely susceptible to the deflationary trend, as the Internet is eating away at the paper economy. Since 2000, Elliott Wave International has used newspapers’ fortunes to successfully anticipate the future status of the economy. In Febru-ary, The Elliott Wave Theorist counseled that instead of cutting staff and news coverage by 50%, news services should “cut salaries by 50% and retain full service.” The New York Times might be listen-ing, because it just slashed salaries across the board by 5%. Hearst Corporation, publisher of the Houston Chronicle and other papers, just announced cost cuts of 20% across the board. Of course, we said 50%. But the across-the-board nature of the cuts hints at an escalating series of jolts to the gathering forces of deflation. For further evidence, consider that in March, the Rocky Mountain News printed its last edition, and the Chicago Sun-Times filed for bankrup-tucy. Chicago’s other major daily was already in bankruptcy. Many papers such as the Detroit Free Press and Seattle Post-Intelligencer are scaling down their staffs and moving to Internet-only editions. The scope of the contraction is clearly enormous, as all five papers have been around since at least the Civil War.

The new cliché among business operators is, “Flat is the new up.” Many use this comment to indicate that they have adjusted their expectations and can make a go of it without substantial gains in sales and earnings. But everything suggests that flat is far too strong a word for what is happening. In many businesses, losses are already getting close to the 55% hit the stock indexes took from October 2007 to the March lows. In Detroit, for instance, the baseball teams’ season-ticket sales have plunged 44 percent from last year’s all-time high of 27,000. Chrysler car sales in the U.S. are down 50%. Revenue at the Roxy diner in lower Manhattan is off 40%. Since June, wholesale milk prices are down 47.5% while the retail price for a gallon of gas is off 47% from a year ago. Finnish customs authorities say that the value of exports to Russia went down in January by about 50% compared with January last year. Equipment maker John Deere expects unit sales to be down 50% (way more than the previously expected 5%). In Japan, when





January’s decline in industrial production “improved” from a re-cord 10.2% plunge to a 9.2% decline in February, it was reported that “output may have already hit bottom.” Anyone who believes this scenario needs to take another look at the chart of consumer debt. As everyone knows, consumers’ willingness to pile on debt carried the day in the mid-2000s, but the quarterly rate-of-change at the bottom of the chart shows a sharp dissipation in the quarter-to-quarter increases. It is now breaking lower, and the reversal of an exponential rise is seldom gentle. As banks face the weakness in consumer lending, and now commercial property markets, they’ll tighten further and deflation will seep into just about every previ-ously untouched sector of the economy.

U.S. CULTURAL TRENDSHere’s a quote from shortly after the start of Cycle wave a:

If a moderate sell-off yields this kind of negative emotional release after just a few weeks, imagine what a grinding decline over the course of a few years will yield. By the end of the bear market, protests will turn to violent confrontation.

—Global Market Perspective, May 2000

The comment refers to a relatively tame protest outside an International Monetary Fund meeting in Washington D.C. in April 2000. That response to the emergence of the new nega-tive mood after the first leg down from the NASDAQ’s all-time high was more of a three-ring circus than a protest. GMP ob-served that the demonstrators lacked a unified focus with anti-trust, anti-globalization and anti-genetic engineering factions making demands. Nine years later, the bear market continues to grind lower, as GMP predicted, and we don’t have to imagine the burgeoning conflict, we can watch it on TV. The pessimistic extreme reached in March brought civil unrest to France, Greece, the Czech Republic, London and the United States. In the U.S., the Tea Parties mentioned above were rather like, well, tea parties. In France, the demonstra-tions are large, but the tone is not yet violent. According to Time magazine, millions marched in that country but the disruption was a “comparatively modest nuisance.” In London, the “Financial Fools





Day” protest against the G-20 was much larger and more focused than the April 2000 demonstration against the IMF. And this time things turned ugly fast: “At first, jazz bands, jugglers and drummers lent a carnival atmosphere to the gathering, but within an hour, anger at the collapse of the financial system turned to violence.” But the protest is a long way from the violent bear market finale that GMP was referring to in 2000. At this point, the movement is just “a vague attack on consumerism, coupled with anti-capitalist rhetoric,” which Daniel Finkelstein of the London Times points out is “a total dead end,” revolution-wise. When the bottom is at hand or already in place, the rage will be greater and more widespread, and there will be no question what the rebellion is about.





THE EUROpEAN ECONOMY AND DEFLATIONA Macroscopic Flight to SafetyFor anyone holding out hope for a quick recovery in the UK’s banking sector, the following chart should put that notion to rest. Since the start of the decade, the external liabilities of UK banks (the total funds held in the UK on behalf of foreign investors) have fallen in only two quarters – Q2 of 2001 and Q3 of 2003. At $54.3 billion and $9.8 billion, respectively, both withdrawals were small, relatively speaking. In all the other quarters shown, foreign inves-tors viewed the UK as sufficiently safe to warrant increasing their London-based deposits.

But bear markets bring with them a tidal shift in depositors’ percep-tions of safety. According to the Bank of England, the fourth quarter 2008 witnessed a staggering $597 billion aggregate withdrawal from UK banks. Added to the record loss of $682 billion in the second quarter, London banks saw more than $1 trillion flee their coffers in the last nine months of the year. Often, it’s not change per se, but the velocity of change that’s the killer. Banks can adjust to slow change. They go bust during rapid change.

“One of the great ironies of banking,” says Bob Prechter in Conquer the Crash, “is that the more liquid a bank, the less likely it is that





depositors will conduct a run on it in the first place.” Of course, the opposite also holds: the more illiquid the bank – and therefore the more vulnerable it is to a run – the more likely it is that depositors will conduct one. During deflation, depositors’ paramount concern turns toward safety. As it does, they transfer capital out of institu-tions perceived to be fragile and into those seen to be strong. Weak banks are made weaker; strong banks are made stronger.

What these withdrawal figures show is the concept of a bank run on a macro scale – not across one bank or a few banks, but across countries. True or not, the UK’s economy is perceived to be weak. Now, Darwinian “survival of the fittest” finance virtually guarantees that British banks will become weaker still.

This month, the British government raised its stake in Lloyd’s Banking Group to 65%. Its stake in Royal Bank of Scotland now sits at 70%. Prior to this partial nationalization, only the bank’s bond and equity holders – those who purchased their stakes will-ingly – were on the hook for the losses. Now the entire British tax base is burdened by them. And we suspect that even this injustice is still not enough. Ultimately, a full 100% of the banks’ weight will be hoisted onto the backs of the British taxpayer. But this remedy, too, will fail – for the same reason that the September Elliott Wave Theorist (EWT) argued that it would fail in America:

[The financial system] is too soaked with bad debt for a gov-ernment bailout to work, and the market won’t let politicians get away with assuming all the bad debts. It may take some time for the market to figure out what to do about it, but as always, there is no such thing as a free lunch. The only ques-tion is who pays for it.

In Britain, what the market is “doing about it” is refusing to lend money to a drunken sailor. Last week, the first conventional gilt auction failure in 14 years made headlines. In essence, the Brit-ish government tried to borrow more money than investors were comfortable lending to them. The failure shows how the market, not government, dictates the course of an economy. And it argues against those who believe that central banks can simply inflate the money supply at will. Said EWT, “If investors begin to fear the





government’s ability to pay interest and principal, they will move out of Treasuries the way they moved out of mortgages.”

Gilt investors, it appears, do indeed “fear the government’s ability to pay.” This fear, together with the Bank of England’s data shown above, tell why the once unthinkable possibility of a British default is bandied about so casually today.

EUROpEAN CULTURAL TRENDSThe Blowoff Phase of Government GrowthIf an exchange-traded fund were created to track the price of red tape, we’d surely be tempted to champion a buy-and-hold strategy. Without a doubt, government growth remains the surest, most steady upward trend in existence today. Open Europe, an independent think tank set up by a group of British business people, recently published a report about the cost of government regulation in Europe. At 73 pages, “Out of Control” finds that the price tag has reached strato-spheric proportions. The statistics will nauseate those with even a weak attachment to liberty; but, for those with strong stomachs, we recommend the report (http://www.openeurope.org.uk/research/outofcontrol.pdf) and offer the following two charts.



http://www.openeurope.org.uk/research/outofcontrol.pdf

http://www.openeurope.org.uk/research/outofcontrol.pdf



From an Elliott wave perspective, what’s compelling about these charts is the near total lack of fluctuation in the data. Both graphs are typical of the report’s many others: they display almost no ups and downs. The Elliott Wave Principle states:

...mankind’s progress...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.

But according to “Out of Control,” 21st century government, vis-à-vis the European Union, displays no corrective patterns whatso-ever – no triangles; no flats; no zigzags of any kind; nothing but an exponentially rising trend with seemingly no end in sight. The key question is: Can it last?

For a possible answer, recall the research on heart attacks and epi-lepsy victims cited in The Wave Principle of Human Social Behavior (HSB). Studies show that “fractal irregularity” is the hallmark of a healthy heart. Said HSB, “a reduction in the fractal irregularity of the heartbeat is a signal of an impending heart attack.” So too does the brain require a large degree of irregularity. If not, you have epilepsy, say researchers.





Extrapolating to stocks, HSB offered this finding: As it happens, the life of a stock market uptrend also depends upon persistent fluctuation.... As with an unnaturally smooth stride, heartbeat or brainwave, an unusually smooth rise in stocks is a precursor to the death of a bull market from old age or to a market heart attack or epileptic fit in the form of a crash.

Government health, too, may depend on fluctuation. While far from certain, Open Europe’s data reminds us of the blowoff phase that we witnessed during the late-’90s stock mania. Then, the abrupt end of healthy reversals proved to be a sort of fiscal angina – a signal that told of the market’s approaching coronary. So, too, might today’s “smooth stride” of the EU and other states be a sort of federal tic – a signal telling of world government’s approaching grand mal seizure.

Indeed, smaller seizures across Europe are occurring with increasing regularity. Last week, a no-confidence vote in parliament ousted the center-right government of the Czech Republic. Similar col-lapses happened in Hungary and Latvia. In almost every major European city, protests (often violent) against ruling parties are now part of everyday life. This week, the Financial Times reported on an “unprecedented level of activity among anarchist groups” ahead of the G20 summit. And, according to recent Amazon.com data, sales of Ayn Rand’s novel Atlas Shrugged, a virtual bible for those distrustful of government, spike in concert with every new announcement of taxpayer-funded bailouts (see The Economist, Feb. 26). All of these cues affirm what the Elliott Wave Theorist reiterated back in September:

Social mood has entered wave c of a Supercycle-degree de-cline, and voters are likely to become far less complacent, and more belligerent, than they have been for the past 76 years.

Our expectation is that the current rally in European markets will run higher. If it does, anticipate these expressions of declining so-cial mood to decrease. Backlash against government may subside for a time, but our interpretation of the longer-term wave structure





argues that the strongest part of the decline is still to come. Wave 1 lower has begun the process of pillorying our potent directors. It has also bagged some smaller political game. Wave 3 lower, when it arrives, will set its sights on larger targets. Then, the ex-ponentially rising regulation as seen in Open Europe’s charts will likely reverse just as violently.





ASIAN-pACIFIC CULTURAL TRENDSOne question we get from subscribers: How can a bull market re-sume in South Asia when the mood there is so low and the violence so rampant? The answer is that fundamental conditions are usually dismal at major lows. Let’s look at what may be a current example of this phenomenon.

A Peak in Radical IslamIn early March, Newsweek’s cover proclaimed, “Radical Islam Is a Fact of Life. How to Live With It,” a headline that probably marks not only a major low in two key Islamic stock markets but also an exhaustion of the trend toward Islamic extremism of the past year. Here’s why.

Over the past year, Jordan’s Amman General Index and Pakistan’s Karachi Stock Exchange 100 (KSE-100) have been excellent prox-ies for the mood in Islamic Arabia and Islamic Central Asia—the two major centers of Islamic extremism. Major advances in these





markets have tended to temper extremist activities, while major declines have tended to excite them. (For more information, see our special report “The Waves of War” in the subscriber section of elliottwave.com).

The long-term wave patterns in both stock indexes suggest that they have recently reached major lows—if not the end of bear markets. The Amman General has completed wave (C) of its correction since 2005, having retraced on log scale approximately 38.2% of its 2000-2008 advance (or slightly less than 38.2% of its 2000-2005 advance), a typical retracement in a correction. The KSE-100 re-cently reversed near a round number (5000), near both the 38.2% retracement of its 1998-2008 rally and the end of a prior fourth wave of smaller degree, levels that often mark the end of corrections.

Violent events, which have tended to erupt near major lows in the indexes, have also fallen in place to fill out the picture of a com-pleted correction. The war between Hamas and Israel over Gaza in December and January occurred after declines of about 50% in the Amman General and 50% in Israel’s Tel Aviv 100. Following the wave (A) decline in the KSE-100, Pakistani terrorists attacked the Marriott Hotel in Islamabad and multiple centers in Mumbai. The high-profile attack on the Sri Lankan cricket team in Lahore in early March appears to have been a lagging effect of the low of wave (C). The same could be said of Pakistani Taliban leader Baitullah Mehsud’s promise this week to attack Washington D.C. “soon,” which—if carried out—would offer a good test of the bullish case.

Paul Montgomery of Universal Economics has long demonstrated the tendency of social trends to make the cover of popular news-magazines just as those trends are nearing their peaks. Most of his research focuses on financial trends, but the same principle applies to other areas of social activity: Editorial staffs are most likely to acknowledge a trend on their cover when their readership is already convinced of it. And, because of the dynamic nature of social trends, that’s usually just about the time that the trend is near its end.





By definition, dismal financial images are a sure lure near stock market lows. But so are covers about a national leader when his or her approval rating is near an all-time high. Newsweek’s capitula-tion to the reality of Islamic extremism fits into that “other social” category. Interestingly, it was dated March 2, 2009, one day before the low in the Amman General Index.

Middle Eastern and Central Asian extremists probably do have one or two big tricks up their sleeves yet, since the mood in the early stages of a bull market tends to stay negative for some time. The same may hold true for Southeast Asian extremists, if we use the Jakarta Composite as a measure. But from a pure wave pattern perspective, these provocateurs will now have to wage their battle uphill since societies tend to lose their tolerance for antisocial behavior during bull markets.

APRIL’S AIR STIRS INWILLOW-LEAVES... A BUTTERFLY

FLOATS AND BALANCES—BASHO




A CAPSULE SUMMARYOF THE WAVE PRINCIPLE




108 A Capsule Summary of the Wave Principle




109A Capsule Summary of the Wave Principle

A CAPSULE SUMMARY OF THE WAVE PRINCIPLE

The Wave Principle is Ralph Nelson Elliott’s discovery that social, or crowd, behavior trends and reverses in recognizable patterns. Using stock market data as his main research tool, Elliott isolated thirteen patterns of movement, or “waves,” that recur in market price data. He named, defined and illustrated those patterns. He then described how these structures link together to form larger versions of those same patterns, how those in turn link to form identical patterns of the next larger size, and so on. In a nutshell, then, the Wave Principle is a catalog of price patterns and an explanation of where these forms are likely to occur in the overall path of market development.

Pattern AnalysisUntil a few years ago, the idea that market movements are patterned was highly controversial, but recent scientific discoveries have estab-lished that pattern formation is a fundamental characteristic of com-plex systems, which include financial markets. Some such systems undergo “punctuated growth,” that is, periods of growth alternating with phases of non-growth or decline, building fractally into similar patterns of increasing size. This is precisely the type of pattern iden-tified in market movements by R.N. Elliott some sixty years ago.

The basic pattern Elliott described consists of impulsive waves (denoted by numbers) and corrective waves (denoted by letters). An impulsive wave is composed of five subwaves and moves in the same direction as the trend of the next larger size. A corrective wave is composed of three subwaves and moves against the trend of the next larger size. As Figure 1 shows, these basic patterns link to form five- and three-wave structures of increasingly larger size (larger “degree” in Elliott terminology).

In Figure 1, the first small sequence is an impulsive wave ending at the peak labeled 1. This pattern signals that the movement of one larger degree is also upward. It also signals the start of a three-wave corrective sequence, labeled wave 2.

Waves 3, 4 and 5 complete a larger impulsive sequence, labeled wave (1). Exactly as with wave 1, the impulsive structure of wave (1) tells us that the movement at the next larger degree is upward and signals the start of a three-wave corrective downtrend of the same degree as wave (1). This correction, wave (2), is followed by waves (3), (4) and (5) to complete an impulsive sequence of the next larger





degree, labeled wave 1. Once again, a three-wave correction of the same degree occurs, labeled wave 2. Note that at each “wave one” peak, the implications are the same regardless of the size of the wave. Waves come in degrees, the smaller being the building blocks of the larger. Here are the accepted notations for labeling Elliott Wave pat-terns at every degree of trend:

Within a corrective wave, waves A and C may be smaller-degree impulsive waves, consisting of five subwaves. This is because they move in the same direction as the next larger trend, i.e., waves (2)

Figure 1





and (4) in the illustration. Wave B, however, is always a corrective wave, consisting of three subwaves, because it moves against the larger downtrend. Within impulsive waves, one of the odd-numbered waves (usually wave three) is typically longer than the other two. Most impulsive waves unfold between parallel lines except for fifth waves, which occasionally unfold between converging lines in a form called a “diagonal triangle.” Variations in corrective patterns involve repeti-tions of the three-wave theme, creating more complex structures that are named with such terms as “zigzag,” “flat,” “triangle” and “double three.” Waves two and four typically “alternate” in that they take dif-ferent forms.

Each type of market pattern has a name and a geometry that is specific and exclusive under certain rules and guidelines, yet variable enough in other aspects to allow for a limited diversity within patterns of the same type. If indeed markets are patterned, and if those pat-terns have a recognizable geometry, then regardless of the variations allowed, certain relationships in extent and duration are likely to recur. In fact, real world experience shows that they do. The most common and therefore reliable wave relationships are discussed in Elliott Wave Principle, by A.J. Frost and Robert Prechter.

Applying the Wave PrincipleThe practical goal of any analytical method is to identify market

lows suitable for buying (or covering shorts), and market highs suitable for selling (or selling short). The Elliott Wave Principle is especially well suited to these functions. Nevertheless, the Wave Principle does not provide certainty about any one market outcome; rather, it provides an objective means of assessing the relative probabilities of possible future paths for the market. At any time, two or more valid wave in-terpretations are usually acceptable by the rules of the Wave Principle. The rules are highly specific and keep the number of valid alternatives to a minimum. Among the valid alternatives, the analyst will generally regard as preferred the interpretation that satisfies the largest number of guidelines and will accord top alternate status to the interpretation satisfying the next largest number of guidelines, and so on.

Alternate interpretations are extremely important. They are not “bad” or rejected wave interpretations. Rather, they are valid interpre-tations that are accorded a lower probability than the preferred count. They are an essential aspect of investing with the Wave Principle, be-cause in the event that the market fails to follow the preferred scenario, the top alternate count becomes the investor’s backup plan.





Fibonacci RelationshipsOne of Elliott’s most significant discoveries is that because markets

unfold in sequences of five and three waves, the number of waves that exist in the stock market’s patterns reflects the Fibonacci sequence of numbers (1, 1, 2, 3, 5, 8, 13, 21, 34, etc.), an additive sequence that nature employs in many processes of growth and decay, expansion and contraction, progress and regress. Because this sequence is governed by the ratio, it appears throughout the price and time structure of the stock market, apparently governing its progress.

What the Wave Principle says, then, 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 oc-cur cyclically. Rather, progress takes place in a “three steps forward, two steps back” fashion, a form that nature prefers. As a corollary, the Wave Principle reveals that periods of setback in fact are a requisite for social (and perhaps even individual) progress.

ImplicationsA long-term forecast for the stock market provides insight into

the potential changes in social psychology and even the occurrence of resulting events. Since the Wave Principle reflects social mood change, it has not been surprising to discover, with preliminary data, that the trends of popular culture that also reflect mood change move in con-cert with the ebb and flow of aggregate stock prices. Popular tastes in entertainment, self-expression and political representation all reflect changing social moods and appear to be in harmony with the trends revealed more precisely by stock market data. At one-sided extremes of mood expression, changes in cultural trends can be anticipated.

On a philosophical level, the Wave Principle suggests that the nature of mankind has within it the seeds of social change. As an ex-ample simply stated, prosperity ultimately breeds reactionism, while adversity eventually breeds a desire to achieve and succeed. The social mood is always in flux at all degrees of trend, moving toward one of two polar opposites in every conceivable area, from a preference for heroic symbols to a preference for anti-heroes, from joy and love of life to cynicism, from a desire to build and produce to a desire to destroy. Most important to individuals, portfolio managers and investment corporations is that the Wave Principle indicates in advance the relative magnitude of the next period of social progress or regress.





Living in harmony with those trends can make the difference between success and failure in financial affairs. As the Easterners say, “Follow the Way.” As the Westerners say, “Don’t fight the tape.” In order to heed these nuggets of advice, however, it is necessary to know what is the Way, and which way the tape. There is no better method for answering that question than the Wave Principle.

To obtain a full understanding of the Wave Principle including the terms and patterns, please read Elliott Wave Principle by A.J. Frost and Robert Prechter, or take the free Comprehensive Course on the Wave Principle on the Elliott Wave International website at www.elliottwave.com.

GLOSSARY

Alternation (guideline of) - If wave two is a sharp correction, wave four will usually be a sideways correction, and vice versa.

Apex - Intersection of the two boundary lines of a contracting triangle.

Corrective Wave - A three-wave pattern, or combination of three wave pat-terns, that moves in the opposite direction of the trend of one larger degree.

Diagonal Triangle (Ending) - A wedge-shaped pattern containing overlap that occurs only in fifth or C waves. Subdivides 3-3-3-3-3.

Diagonal Triangle (Leading) - A wedge-shaped pattern containing overlap that occurs only in first or A waves. Subdivides 5-3-5-3-5.

Double Three - Combination of two simple sideways corrective patterns, labeled W and Y, separated by a corrective wave labeled X.

Double Zigzag - Combination of two zigzags, labeled W and Y, separated by a corrective wave labeled X.

Equality (guideline of) - In a five-wave sequence, when wave three is the longest, waves five and one tend to be equal in price length.

Expanded Flat - Flat correction in which wave B enters new price territory relative to the preceding impulse wave.

Failure - See Truncated Fifth.

Flat - Sideways correction labeled A-B-C. Subdivides 3-3-5.

Impulse Wave - A five-wave pattern that subdivides 5-3-5-3-5 and contains no overlap.

Impulsive Wave - A five-wave pattern that makes progress, i.e., any impulse or diagonal triangle.

Irregular Flat - See Expanded Flat.

One-two, one-two - The initial development in a five-wave pattern, just prior to acceleration at the center of wave three.





Overlap - The entrance by wave four into the price territory of wave one. Not permitted in impulse waves.

Previous Fourth Wave - The fourth wave within the preceding impulse wave of the same degree. Corrective patterns typically terminate in this area.

Sharp Correction - Any corrective pattern that does not contain a price extreme meeting or exceeding that of the ending level of the prior impulse wave; alternates with sideways correction.

Sideways Correction - Any corrective pattern that contains a price extreme meeting or exceeding that of the prior impulse wave; alternates with sharp correction.

Third of a Third - Powerful middle section within an impulse wave.

Thrust - Impulsive wave following completion of a triangle.

Triangle (contracting, barrier) - Corrective pattern, subdividing 3-3-3-3-3 and labeled A-B-C-D-E. Occurs as a fourth, B, X (in sharp correction only) or Y wave. Trendlines converge as pattern progresses.

Triangle (expanding) - Same as other triangles, but trendlines diverge as pattern progresses.

Triple Three - Combination of three simple sideways corrective patterns labeled W, Y and Z, each separated by a corrective wave labeled X.

Triple Zigzag - Combination of three zigzags, labeled W, Y and Z, each separated by a corrective wave labeled X.

Truncated Fifth - The fifth wave in an impulsive pattern that fails to exceed the price extreme of the third wave.

Zigzag - Sharp correction, labeled A-B-C. Subdivides 5-3-5.

A WORD ABOUT BOND NOTATION

GMP is directed toward an institutional bond audience. As such, some of the expressions used may seem counterintuitive at the outset, specifically the terms “support” and “resistance.” Every bond yield has an equivalent value on a cash or Futures chart and these levels are often expressed interchangeably. But the same level cannot be both support and resistance. In technical theory, a support level is where buying is expected to come into a market while a resistance level is where selling is to be expected. If bond buying takes place, a yield chart will go lower due to the inverse relationship between the price and yield. It would therefore be counterproductive to call the yield level from where the buying took place resistance since selling of bonds would actually take the yield chart higher. The same holds true with the use of the terms “bullish” and “bearish.” A decline on a yield chart is bond bullish since it implies that prices are going higher. On the opposite side, an upside move on a yield chart means bond prices are declining and this is therefore referred to as bond “bearish.”




Robert R. Prechter, Jr., CMT

The founder and president of Elliott Wave International, Robert R. Pre-chter, Jr., has been publishing Elliott Wave commentary since 1976. During the 1980s, Prechter won numerous awards for market timing as well as the United States Trading Championship, culminating in Financial News Network (now CNBC) granting him the title, “Guru of the Decade.” Bob served for ten years on the Board of Directors of the national Market Technicians As-sociation and in 1990 was elected its president. He also served on the Board of Directors of the Foundation for the Study of Cycles and is a member of Mensa and Intertel. Before starting out independently, Bob worked with the Merrill Lynch Market Analysis Department in New York as a Technical Market Specialist. He obtained his degree in psychology from Yale University in 1971. Bob serves as managing editor of Global Market Perspective.

Steven Hochberg

Steven Hochberg began his professional career with Merrill Lynch and joined Elliott Wave International in 1994, providing institutional commen-tary for global markets. He can be heard as a regular guest commentator each Thursday morning on www.webfn.com. Steven is a graduate of the University of Vermont and received his MBA degree from Northeastern University. For Global Market Perspective, Steven provides commentary on the U.S. stocks and precious metals markets. He also edits the Elliott Wave Short Term Update.

Robert Kelley

Robert Kelley began his career in 1987 as a futures broker. He joined EWI in 1990 and edited The Elliott Wave Short Term Update, the Currency and Commodity Hotline and the currency section of The Elliott Wave Currency and Commodity Forecast newsletter. In 1994, he left EWI for New York to become a Vice President of JP Morgan (Securities), where he was in charge of the technical market research department. He later served as a consultant for HSBC Securities and thereafter developed a proprietary options trading system. In May 2000, Robert rejoined EWI where he now provides analysis for the World Stock Index for Global Market Perspective and daily and intraday analysis for the on-line Specialty Service Stocks coverage.




Brian Whitmer

Brian Whitmer's analytical proficiency extends to two professions: He received a degree in civil engineering from the University of Maryland and has served as a designer, planner, and project manager for $100-million-plus civil and residential developments. Brian also is an Elliott-savvy technical analyst who is proficient in socionomics, the science of history and social prediction. He describes himself as self-educated in Austrian economics and thus well-versed in the misunderstandings of mainstream economics. Joining Elliott Wave International in 2009, Brian serves as editor of The European Financial Forecast and contributes the European stock section of Global Market Perspective.

William F. Fox

Bill Fox originally joined Elliott Wave International in 1994 after manag-ing assets for the institutional trust division of SunTrust Bank. He has also managed futures money for a diverse clientele. Bill has been involved in market analysis since graduating in 1988 from Vanderbilt University, where he received a Bachelor of Arts degree with a major in Communication. For Global Market Perspective, Bill provides commentary on the European fixed-income markets. He also provides full coverage of European fixed-income markets for EWI’s on-line Specialty Services Interest Rates coverage.

Mark Galasiewski

Mark Galasiewski (gala-SHEV-ski) began his analytical career in 2001, at an institutional brokerage in Stamford, Connecticut, researching company fundamentals for a broker who specialized in short-sell recommendations. After joining Elliott Wave International in 2005, Mark contributed to Robert Prechter’s Elliott Wave Theorist before joining EWI’s Global Market Perspective team covering Asian stock indexes. For six years during the 1990s he lived in Japan, where he observed that country’s extended bear market first-hand. Mark has traveled to many of the countries whose markets he analyzes. A graduate of Middlebury College in East Asian Studies, he is fluent in Japanese and conversant in Mandarin Chinese.




Peter M. Kendall

Peter Kendall served as a financial reporter and columnist from 1983 to 1992. He wrote the “On the Money,” a column for The Business Journal from 1991 to 1997. Pete joined Elliott Wave International as a researcher in 1992 and has been contributing to GMP since 1995. Pete is Director of EWI’s Center for Cultural Studies, where he focuses on popular culture and the new science of socionomics. Pete graduated from Miami University in Oxford, Ohio with a degree in Business Administration. For Global Market Perspective, Pete provides commentary on cultural trends, the economy and the U.S. stock market.

Steven Craig

Steve has been involved with the energy industry for well over a decade and joined EWI in January 2001 as senior energy analyst. His industry focus was on trading and risk management, and he is intimately familiar with the production and consumption side of the business. Steve’s most recent posi-tions were at Central and South West (now American Electric Power) and with Kerr-McGee. His extensive experience with the physical and financial aspects of crude oil, natural gas and electricity adds a valuable dimension to his analytical approach. He is responsible for EWI’s on-line Specialty Services Energy coverage, and his crude oil and natural gas views are featured each month in Global Market Perspective.

Jim Martens

Jim Martens began using the Elliott Wave Principle in 1985 and by 1989 was making insightful market calls for his metals trader colleagues on the Com-modity Exchange Center in New York. Jim joined Elliott Wave International in 1993 as a commodity specialist. He also oversaw EWI’s currency analysis before joining Nexus Capital Ltd., a Soros-affiliated hedge fund in 2001. He rejoined EWI in 2005. Jim received a degree in finance from Florida Atlantic University. He covers currency relationships for Global Market Perspective and provides full coverage of dollar rates and major cross rates in EWI’s on-line Specialty Services Currencies coverage.




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