How To Use Fibonacci Ratios in the Real World

How To Use Fibonacci Ratios in the Real World
A free Club EWI report teaches the basics of Fibonacci analysis of commodities and other markets
April 27, 2011

By Elliott Wave International

What tools help you with the difficult task of identifying the market trend, riding it, and getting out before it reverses?

Consider Fibonacci ratios: Mathematical proportions by which moves on a market chart relate to each other. Fibonacci mathematics is an integral part of Elliott wave analysis; Frost & Prechter's classic "Elliott Wave Principle -- Key to Market Behavior" has an entire chapter on it.
And here's an excerpt from a free Club EWI report on the subject. Enjoy -- and for details on how to read the entire report free, look below.

How To Apply Fibonacci Math to Real-World Trading
(excerpt; full copy here)
By Jeffrey Kennedy
EWI Senior Tutorial Instructor
EWI Senior Commodity Analyst

It’s hard to imagine a wrong way to apply Fibonacci ratios or multiples to financial markets, and new ways are being tested every day. Let’s look at just some of the ways that I apply Fibonacci math in my own analysis. ...

Elliotticians often calculate Fibonacci extensions to project the length of Elliott waves. For example, third waves are most commonly a 1.618 Fibonacci multiple of wave one, and waves C and A of corrective wave patterns often reach equality (Figures 7-3 and 7-4).

Cotton - December Contract, Daily Data  

Soybeans - November Contract, 60 Minute Data

One approach I like and have used for a number of years is a “reverse Fibonacci” application... (Continue reading this free report now with a free Club EWI password.)

Happy Trading!!

Understanding the Fed

Understanding the Fed
EWI's free eBook explains the common and misleading myths about the U.S. Federal Reserve Bank
April 20, 2011

By Elliott Wave International

What exactly is the function of the Fed? If it's to help the U.S. economy grow steadily, then how come in 2007-2009 we had the biggest stock market crash in decades followed by "the Great Recession" and a worldwide financial crisis?
For answers, let's turn to someone who has spent a considerable amount of time studying the Fed and its functions: EWI's president Robert Prechter.
This is an excerpt from a free Club EWI eBook, "Understanding the Fed." Enjoy -- and for details on how to read this important 32-page eBook in full, free, look below.

The Fed’s Presumed Inflation Since 2008 Is Mostly a Mirage
Excerpted from Prechter's December 2009 Elliott Wave Theorist
... We all know that the Fed created $1.4 trillion new dollars in 2008. It has told the world that it will inflate to save the monetary system. So that is the news that most people hear.
But the Fed’s dramatic money creation in 2008 only seems to force inflation because people focus on only one side of the Fed’s action. Even though the Fed created a lot of new money, it did not affect the total amount of money-plus-credit one bit... When the Fed buys a Treasury bond, net inflation occurs, because it simply monetizes the government’s brand-new IOU. But in 2008, in order for the Fed to add $1.4 trillion new dollars to the monetary system, it removed exactly the same value of IOU-dollars from the market. It has since retired some of this money, leaving a net of about $1.3 trillion.
So investors, who previously held $1.3t. worth of IOUs for dollars, now hold $1.3t. worth of dollars. They are no longer debt investors but money holders. The net change in the money-plus-credit supply is zero. The Fed simply retired (temporarily, it hopes) a certain amount of debt and replaced it with money.
Evidence for this case is in Figure 4. Even though the Fed has swapped over a trillion dollars of new money for old debt, the banks aren’t lending it. The money multiplier is back in negative territory, which means that there is more debt being retired than there is new money being created. In other words, deflation is winning.
The Fed's new money is simply replacing old debt, not creating new debt 
The bottom line is that the Fed hasn’t created much inflation over the past two years. The only reason that markets have been rallying recently is that the Elliott wave form required a rally. In other words, in March 2009 pessimism had reached a Primary-degree extreme, and it was time for a Primary-degree respite. The change in attitude from that time forward has, for a time, allowed credit to expand again.
But the Fed and the government didn’t force the change. They merely accommodated it, as they always have. They offered unlimited credit through the first quarter of 2009, and no one wanted it. In March, the social mood changed enough so that some people once again became willing to take these lenders up on their offer.
When credit collapses again during the wave 3 downtrend, we at Elliott Wave International will no longer have to keep “making the case” that the Fed is impotent. It will be clear once again, just as it was in 2008. (...continued)

Read the rest of this important 32-page eBook online now, free! All you need is to create a free Club EWI profile. Here's what it covers: Chapter 1: Money, Credit and the Federal Reserve Banking System
Chapter 2: What Makes Deflation Likely Today?
Chapter 3: Can the Fed Stop Deflation?
Chapter 4: Jaguar Inflation
Chapter 5: Can’t Buy Enough...of That Junky Stuff, or, Why the Fed Will Not Stop Deflation
Chapter 6: The Fed’s “Uncle” Point Is In View
Chapter 7: Government Thrashing
Chapter 8: The Coming Deflationary Pressure on the Government
Keep reading this free report now.

Does Deflation Remain a Threat?
A 90-Page "Deflation Survival Guide" Gives the Answer
April 19, 2011

By Elliott Wave International

"Every excess causes a defect; every defect an excess. Every sweet hath its sour...The waves of the sea do not more speedily seek a level from their loftiest tossing, than the varieties of condition tend to equalize themselves."
This quote comes from Ralph Waldo Emerson's essay, "Compensation." He opens the essay with a poem which includes these two lines:
"Mountain tall and ocean deep
Trembling balance duly keep."
Do Emerson's prose and poetry actually speak to the subject of deflation? Indeed they do.
Recent decades have seen the biggest credit inflation the world has ever known. So the question is: What will "duly keep" the "balance" of so great an "excess"? Well, a deflation of the same scale.
And the depth of deflation will be in proportion to the height of the credit build-up.
How high was the mountain of debt/credit? In 2008, it reached its zenith at $65 trillion. This chart from the January 2011 Elliott Wave Theorist shows what has happened since:
A Historical Reversal in the Debt/Credit Supply in 2008
In that same issue of the Theorist, EWI's Robert Prechter observes: "This decline in overall money and credit is the first on an annual basis since 1929-1933. It is a big deal."
And the $65 trillion is a conservative number. Prechter also states:
"It does not count derivatives, which are IOU-ifs representing an estimated risk of indebtedness of $600t., or the unfunded liabilities of the federal government, which by some estimates amount to $300t."
Does history shed light on vast excesses in debt/credit and deflation? Read the excerpt below from Conquer the Crash (2nd ed.), pp. 88-90:
"Deflation requires a precondition: a major societal buildup in the extension of credit (and its flip side, the assumption of debt)... Elliott wave expert Hamilton Bolton... summarized his observations this way:
'In reading a history of major depressions in the U.S. from 1830 on, I was impressed with the following:
(a) All were set off by a deflation of excess credit. This was the one factor in common.
(b) Sometimes the excess-of-credit situation seemed to last years before the bubble broke.
(c) Some outside event, such as a major failure, brought the thing to a head, but the signs were visible many months, and in some cases years, in advance.
(d) None was ever quite like the last, so that the public was always fooled thereby.
(e) Some panics occurred under great government surpluses of revenue (1837, for instance) and some under great government deficits.
(f) Credit is credit, whether non-self-liquidating or self-liquidating.
(g) Deflation of non-self-liquidating credit usually produces the greater slumps.'"
Note that we have had more than "a major societal buildup in the extension of credit." The chart above also shows that "a deflation of excess credit" has been underway since 2008. As Hamilton Bolton said, this is the one factor all major depressions have in common.
To help plan and prepare for your financial future, we suggest that you take a FREE look at our deflation survival guide titled, "The Guide to Understanding Deflation." It's an eBook of Robert Prechter's most important recent warnings and teachings about deflation, and it's free.
To start your free read, simply sign-up to become a Club EWI member (membership is also free). Becoming a member only takes moments after you click here.

Learn How to Use Bar Patterns to Spot Trade Setups

Learn How to Use Bar Patterns to Spot Trade Setups
Bar chart patterns often introduces sizable moves in price
April 14, 2011

By Elliott Wave International

To many novice investors, chart patterns might as well be tea leaves. Can they really tell you anything reliable? And even if they can, how in the world do you know what to look for?
Experienced traders know that the answer to the first question is a resounding "yes." As for the second one, we at EWI are all about recognizing chart patterns. To help you get started on this path, we've put together a free Club EWI resource called How to Use Bar Patterns to Spot Trade Setups.
It's a collection of lessons in trading and pattern recognition by one of EWI's top trading seminar instructors, Jeffrey Kennedy (who is also the firm's senior commodities analyst).
Enjoy this quick excerpt -- and for details on how to read this report in full, free, look below.
Chapter 1: How To Use Bar Patterns To Spot Trade Setups
Double Inside Bars
While many of my co-workers jog, bicycle or play in bands for a hobby, I amuse myself by looking through old price charts of stocks and commodities. Let’s look at a bar pattern that I call a “double inside day.”
Many of you who subscribe to my Daily Futures Junctures have seen me mention this bar pattern. I think everyone should be familiar with it. Why? Because it often introduces sizable moves in price -- always a good reason for a trader to pay attention.
So let’s begin with a basic definition: A double inside day, or bar, occurs when two inside bars appear in a row. An inside bar is simply a price bar with a high below the previous high and a low above the previous low.
Notice that the range of price bar number two encompasses price bar number one, and price bar number three encompasses price bar number two.
Figures 11-2 (Wheat) shows an example of double inside days and the price moves that followed. (Continued.)
Read the rest of this 15-page report online now, free! All you need is to create a free Club EWI profile. Here's what else you'll learn:
  • How To Use Bar Patterns To Spot Trade Setups
  • How To Make Bar Patterns Work For You
  • How To Use An Outside-Inside Reversal to Spot Trade Setups
Keep reading this free report now -- all you need to do is create a free Club EWI profile.


Michael Pento of Euro-Pacific Capital has a few thoughts about the Fed's view on inflation that I thought was interesting…
For years the Federal Reserve has told us that in order to detect inflation in the economy it is important to separate “signal from noise” by focusing on “core” inflation statistics, which exclude changes in food and energy prices. Because food and energy figure so prominently into consumer spending, this maneuver is not without controversy. But the Fed counters the criticism by pointing to the apparent volatility of the broader “headline” inflation figure, which includes food and energy. The Fed tells us that the danger lies in making a monetary policy mistake based on unreliable statistics.  Being more stable (they tell us), the core is their preferred guide. Sounds reasonable…but it isn’t.
If it were truly just a question of volatility the Fed may have a point. But for headline inflation to be considered truly volatile, it must be evenly volatile both above and below the core rate of inflation over time. If such were the case, throwing out the high and the low could be a good idea. However, we have found that for more than a decade headline inflation has been consistently higher than core inflation. Once you understand this, it becomes much more plausible to argue that the Fed excludes food and energy not because those prices are volatile, but because they are high.
If you talk about the grand sweep of Fed policy, it’s fairly easy to fix the onset of our current monetary period with the onset of the recession of 2000. To prevent the economy from going further into recession at that time, the Fed began cutting interest rates farther and faster than at any other time in our history. During the ensuing 11 years, interest rates have been held consistently below the rate of inflation. Even when the economy was seemingly robust in the mid years of the last decade, monetary policy was widely considered accommodative.
Over that time annual headline Consumer Price Index (CPI) data has been higher than the Core CPI 9 out of 11 years, or 81% of the time. Looking at the data another way, over that time frame, the U.S. dollar has lost 20% of its purchasing power if depreciated year by year using core inflation, and 24% if depreciated annually with headline inflation. The same pattern held during the inflationary period between 1977 thru 1980, when the Fed’s massive money printing sent the headline inflation rate well above the core reading. The empirical evidence is abundantly clear. When the Fed is debasing the dollar, headline inflation rises faster than core. The reason for this is clear. Food and energy prices are closely exposed to commodity prices which have a strong negative correlation to the falling dollar that is created by expansionary policies.
Data we have seen thus far in 2011 underscores the need to focus on headline inflation and to avoid the trap of relying on the relatively benign core. The difference between the core rate and headline rate of inflation was .6 percent in January and a full percentage point in February. If annualized those relatively small monthly disparities will become enormous.

It is shocking how few Americans, even those with economic degrees and press credentials, fully appreciate the Fed’s vested interest in reporting low inflation. With benign data in hand, Fed policy makers are given a free hand in adopting stimulative policies. Central bankers who shower liquidity on the economy earn the gratitude of their peers and the thanks of their political patrons. But once a central bank goes down the expansionary path to fight recession it is much easier to keep pumping money than to reverse course when inflation starts to bite into purchasing power.

The sad truth is that the Fed’s record low interest rates are once again causing food and energy prices to rise much faster than core items. Bernanke is focusing on the core just as we need him to focus on the headline. It’s time for the Fed to stop hiding behind flimsy statistical juggling and to start protecting the value of our dollar, which unfortunately is in free fall no matter what statistics one chooses to use.

Happy Trading!!

Everything You Ever Wanted to Know About the Elliott Wave Principle

Everything You Ever Wanted to Know About the Elliott Wave Principle, Free
Club EWI's free introductory tutorial on the Wave Principle is the key to unlocking the mystery of market behavior
March 31, 2011

By Elliott Wave International

Okay. There can be only two reasons why you are reading this article right now:
  1. You thought "Elliott wave" was a surfing term for a wicked breaker, dude.
-- OR --
  1. You're tired of fundamental analysis of financial markets leaving you behind the trend-moving curve, AND you're ready for an alternative.
If you answered the second choice, then you're in the right place. Fact is, you can probably count on all hands -- of a millipede -- the number of times the mainstream financial media has provided conflicting reports on how a certain news event "moves" a particular market. Case in point, the recent headlines below on the Dow Jones Industrial Average:
  • March 31 at 8:44 AM: "US Stocks Edge Lower After Jobless Claims Data" (International Business Times)
  • March 31 at 9:53 AM: "US Stocks Slightly Higher After Jobless Claims Data" (Wall Street Journal)
The Elliott Wave Principle resets the stage from an entirely different starting point. Wave analysis asserts that while certain news events can have a temporary, near-term effect on market prices, the larger trend is governed by one consistent force: social mood, or collective investor psychology.
This source of markets' trending power unfolds in calculable wave patterns visible on a market's price chart. Elliotticians know of 13 such patterns, each of which adheres to specific rules and guidelines. Ultimately, if you can identify one of these patterns, you can project what direction the pattern will move prices AND how far into that direction prices may go.
The best part is, Club EWI has recently re-released our most comprehensive Wave Principle tutorial ever, at no monetary cost. This 10-lesson course leaves no stone unturned and no question unanswered about the basic recognition of all Elliott patterns and their practical application in real-world markets.
In the end, the difference comes down to this simple reality: Before taking the Wave Principle tutorial, the price chart of a major financial market looked like this:
After taking the tutorial, that same chart comes into breathtaking being as the clearly labeled blue print to opportunity we see below: 
Join the rapidly expanding Club EWI community today and get the complete, free Wave Principle Tutorial.