Global Stock and Commodities Market Crash 2009
Stock-Markets / Financial Crash Jan 11, 2009 - 11:17 AMBy: Eric_Chevrette
Into the Eye of the 2009 Crash: Did we Already Hit Week #1? - Amidst a lavish avalanche of bad fundamental news (Satyam scandal in India, a one trillion plus $ deficit for years in USA, 693,000 jobs disappearing from the private non farm payrolls in December in USA, ALCOA announcing that 13% of its global workforce should be cut), the last 3 days of the week were clearly down for global stocks ( ADR -3.24%, NYSE -3.61%, DJIA -4.82% ) as well as for raw materials ( GOLD -2.79%, OIL -11.89%, XAU -7.21% ) .
So far the question at stake does really seem to be first and foremost whether we did already hit or not week #1 within the previously assumed 8 week bear slide with global stocks and commodities (refer to “the great stocks and commodities deleveraging crash of 2009” on Dec 21). All in all, the factors dealt with in this paper should point towards a positive answer.
As a matter of fact, other factors are here more relevant: while the US $ was UP for the 2nd week in a row (+1.04%), VIX (market volatility) was sharply UP (+9.26%) for the 1 st time in weeks; besides, the YEN/EURO cross-rate (please refer to chart #1 ), which didn't join the US $ in its renewed bull 2 weeks ago , was also sharply UP last week (+5.14%); well, it does look like global markets (stocks and commodities) waited to resume their crashing pattern until each member of the ENTIRE currency pack would join into its respective “wave 5”…
Chart #1
What other factors could we now gather, which would support that the renewed strength in VIX, YEN/EURO and US $ is a common push into the expected new wave of deleveraging affecting global stocks and commodities?............
When I first started to devote some attention to the waves some 20 years ago, I found out that I would always got frustrated if not annoyed that the method did imply that you should always keep an eye on several alternate counts. As I have already mentioned in some previous articles, this permanent annoyance brought me to conceive the idea of EW_MS (Elliott Wave Market Synchronicity): indeed, if there is a true rhythm in the market, then the rhythm should apply to ALL markets at the same time; this is implying that you would find the same waves though they may slightly differ in their respective shapes.
After most people refer to the waves as the Elliott Wave Principle (often short named as EWP ), I have decided that the aforementioned concept would be best understood under the name of Elliott Wave Synchronicity ( EWS ). It is quite obvious that EWS is meant to be a strong UPGRADE of EWP : under the hood of EWS , EW shapes of various markets/indexes are supposed to fight and contradict each other, which is automatically leading non compatible EW shapes to the dustbin. In the end, there has to be none but just ONE EW shape that will occur in various markets with only marginal variations.
Of course, the best place where to use EWS is lying with stock market indexes: stock market indexes reflect ALL of the collective behaviour (because people react to any kind of news about companies, interest rates, bonds, currencies and raw materials when they “decide” to buy stocks); on the contrary, the application of EWS to raw materials is likely to be subject to more flaws and less efficiency, because there is less of the collective mind involved. When we deal with stocks, EWS is to be conceived as a global tool, which means that the answer about US stock market indexes may derive from outer countries………
Meanwhile, standard EW practice, where you track one index (like the world famous DJIA ) or several US indexes, has a much lower efficiency and may even fail to “get it right”. That's what the current situation is likely to reveal.
Chart #2
Chart #2 is a reminder of “Financial assets forced redemption liquidation wave trend” published on Dec 15 where I mentioned for the 1 st time the full mechanism of currency deleveraging and its final destination under EW terms. As Hong Kong should register an upward pointing green wave 4 , it should be worth devoting some time to its latest EW assessment. That's what you can find below in chart #3 where HK is matched with the ADR index (as of Jan 6).
Chart #3
Chart #4
The first thing to note with HK in chart #3 is that the rally from the peak of green wave 3 in late November was a blue i/ii/iii/iv/v counter wave; as we know for certain that this 5 wave rally can never be any kind of “wave one”, we're left with only one possibility where blue i/ii/iii/iv/v is red wave a within a red abc as a 5-3-5 move. After you have grasped that red wave a , it is not too difficult to figure out how the ensuing market development in HK is fitting perfectly into red wave b then red wave c extending as green i/ii/iii/iv/v (please refer to the upper part in chart #3 ).
EWS is then coming into play: because of the 5-3-5 EW shape in HK and because of the principles of EWS , it is impossible to regard the new low achieved in late December by ADR or a US index like the NYSE Composite index as any kind of “wave 5” ; in other words, HK is helping you to understand that global stocks (as reflected by ADR ) are going thru green wave 4 with an irregular red abc pattern . Chart #3 is an in depth view of that irregular abc pattern which was already mentioned in “Financial assets forced redemption liquidation wave trend” published on Dec 15 (refer to charts #2 to 4 in this previous article). Henceforth, after chart #3 was established on January 6, it should be interesting to view what did occur over the last 3 days of the week; that is shown in chart #4 .
As you can see, HK broke out of the wedge while ADR has kept on being further submitted to a failing H&S pattern; besides, BKX is definitely confirming its continuation H&S pattern (please refer to chart #4 in “The unwelcome Xmas guests” published on Dec 24) immediately after a breakout failure has materialized. All in all, with the renewed backing of a rising US $, a rising YEN/EURO cross rate and a rising VIX , BKX is giving you a strong warning that global stock markets should have entered green wave 5 just 3 days ago on January 7 with “loads of heavy stones in their pockets” ……….
Chart #6
Would you use the basic EWP and track only US indexes with no reference to market synchronicity, you wouldn't have the sextuple EWS backing of BKX, HK, ADR, VIX, XJY2XEU and USD to guard you off and it's a possibility that you would envision a consolidation pattern for green wave 4 that would not be over yet. On the contrary, EWS is strongly hinting that green wave 4 is well over now as it is featured with charts #6&7 .
Chart #7
After we used EWS to establish that Jan 7 should be best considered as the kick off into global green wave 5 for 7 more weeks , chart #8 is featuring the most likely outcome in the weeks ahead, where a red i/ii/iii/iv/v downleg should build as green wave 5 . Of course, the fact that we do get a renewed strength of VIX in full synchronicity with the materialization of an expected blue 5 th top right at the end of green wave c for ADR should NEVER be discarded with a wink. It rather looks like normal synchronization.
It should neither be discarded that the common VIX-YEN/EURO-US $ push is falling on the head of global stocks exactly when GOLD is bouncing off a falling slope (see blue slope in chart #9 ): though EWS (here stocks and commodities) is already in a position to give an accurate answer about the long term EW scope for GOLD , we shall limit the comments of the day to the very near future; we already know that the current further unwinding of currency “carry trade” positions is very much likely to affect both stocks and commodities; as a consequence, as you can see with chart #9 , it is safer to assume a continuous weakness for GOLD and OIL in the coming weeks…..
Chart #8
How low OIL may ultimately crash is so far hard to guess, but OIL has obviously NOTHING to display except extreme weakness, therefore final peak prices around $ 20 may not be out of reach.
Chart #9
As a final word about OIL , it should be the right time to remember the various remarks and estimates presented last year in “the great stocks and commodities deleveraging crash of 2009” on Dec 21 with some special attention meant for chart #6 in this previous article.
As to US bonds, chart #10 is showing how they behaved exactly as expected (please refer to chart #7 in ““The unwelcome Xmas guests), and they should now be entering their final green wave 5 that is bound to end the “bond bubble” initiated by the FED …..
Chart #10
As a conclusion for the day, it should be said that the innovative EWS is offering a big advantage over the basic EWP : with EWP , you will most likely be faced with more turns than you wish and you will accordingly be forced several times to adapt your count; meanwhile, EWS is helping you to keep and sit quiet until the head-on confrontation between various markets is ultimately giving you the “none but one” count fitting into ALL markets. Though I am nothing of an AI expert, I strongly suspect here that EWS would be a major step towards more efficient EW based trading programs; it MUST nevertheless be highly questioned whether such programs would bring more good than bad; knowing the deep flaws of human nature, it is very much likely if not certain that such programs would be used for “immediate profit” rather than for long term views; as the developments since October 2007 have clearly proven, constantly keeping the short term as a main focus is ultimately resulting in a wild destabilization of the entire system with the induced risk that no recovery could possibly be worked out for much longer than you wish………..
A last remark coming just right now to the surface of my mind: when looking at chart #9 , do think of goldmines; goldmines are extremely volatile and they should suffer most thru the coming multi week gold slide (last week, we had GOLD down -2.79% BUT XAU lost 7.21%)……..
By Eric F.M. Chevrette
France
eric_chevrette@yahoo.fr
Fone: 00.237.9.660.53.59
© 2009 Eric F.M. Chevrette
Eric Chevrette translated Bob Prechter's “Elliott Wave Principle” in 1989 after graduating in 1984 from the ESCP (Ecole Supérieure de Commerce de Paris, see http://www.escp-eap.net ) which has been ranked 6 best business school in Europe by the Financial Times in 2006. He since has become interested in “market forecasting” and “global economical analysis” since 1987 and is currently helping people to protect and grow their assets while anticipating the big trends.
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