Ftse 100 Trend Lines Analysis: Ftse found some support on the lower declining channel trend line, around 200 points down from the trend break signal at Fridays close.

Ftse 100 Trend Line Analysis

The psychology of the market may be teetering on the edge

By Elliott Wave International

The stock market: one week it acts like Dr. Jekyll, the next week it’s Mr. Hyde.

That shift can even occur in the course of a single session.

These dramatic fluctuations appear to be impulsive; and we know that impulse does not flow from cold reason. Even so, the Efficient Market Hypothesis would have us believe that investors are constantly applying reason and logic to reach some objective market pricing, via the latest news or measure of stock market valuation.

The February 2010 Elliott Wave Theorist provides insight:

The Efficient Market Hypothesis (EMH) and its variants in academic financial modeling…rely at least implicitly but usually quite explicitly upon the bedrock ideas of exogenous cause and rational reaction. Stunningly, as far as I can determine, no evidence supports these premises…

EMH argues that as new information enters the marketplace, investors revalue stocks accordingly. If this were true, then the stock market averages would look something like the illustration shown [below].

We know that the market does not unfold in the way illustrated above. But we do know that the market has unfolded like this:

So in 2000, did a sudden burst of logic lead investors to realize that the NASDAQ was over-valued?

No. Technology stocks had absurd price/earnings ratios long before the NASDAQ top.

The NASDAQ’s abrupt switch from Hyde to Jekyll stemmed from investors’ collective unconscious. Consider the gazelle that runs in panic because others are: it does not pause to rationally survey the landscape. It explodes in a burst of speed that reaches 90 km/hr within seconds.

Decades ago, multimillionaire stock market operator Bernard Baruch said

…the stock market is people. It is people trying to read the future. And it is this intensely human quality that makes the stock market so dramatic an arena, in which men and women pit their conflicting judgments, their hopes and fears, strengths and weaknesses, greeds and ideals.

This psychology of the marketplace unfolds in waves. That is what we study.

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1402 it is   …..Now lets see if we can do the long term target on the short side now…..S&P500 Elliott Wave Analysis Update

EWI’s Global Market Perspective foresaw the shift in European banks from lenders to savers via one remarkable chart 

By Elliott Wave International

It’s been over two years since the European Central Bank began its open-heart surgery of the eurozone’s anemic economy. So far, the procedure has included an unprecedented $3 trillion-plus in bailouts, monetary transfusions, AND toxic debt transplants.

Yet, according to a recent slew of discomforting news reports, the economies across the pond would still flatline in seconds without constant life support. Here, an April 18, 2012, Wall Street Journal writes:

“Europe Hemorrhages through Refinancing Operation Band-Aid” and reveals that Europe’s banking sector has wolfed down three years of Long Term Refinancing Operations (LTROs) in under four months.

The question is — what went wrong?

Well, to answer this, we have to go back to the drawing board to mid-2010. It was then that the European Central Bank and company released the rescue-package Kraken via a $1 trillion bailout of Greece and a full-fledged initiation of its LTRO.

And, as the following May 10, 2010, news items make plain, this credit-reflating beast was set to tear Europe’s economic bear to shreds:

• “This is shock-and-awe, part II, in 3D, with a much bigger budget and more impressive array of special effects. The EU package eliminates the danger that Greece’s debt woes will ricochet through Europe’s banks.” (USA Today)
• “This is a truly overwhelming force and should be more than sufficient to stabilize markets, prevent panic and contain the risk of contagion.” (Bloomberg Businessweek)

In the July 2010 Global Market Perspective, however, our analysts foresaw a fatal flaw in the plan. The first part was fine: The European Central Bank (ECB) bought packages of debt and resold them to smaller banks at a historically low interest rate.

BUT the second part didn’t work out: Instead of rebundling those loans and passing them on to small businesses to stimulate investment, THOSE banks redeposited the funds with the ECB. Riffing off the famous “Jaws” quote (“We’re gonna need a bigger boat”), the July 2010 Global Market Perspective captured the great-white fear circling the lending sector via the following chart of commercial banks’ usage of the ECB’s Deposit Facility and wrote:

“The chart roughly indicates the degree to which banks fear for the insolvency of one another. Banks receive below-market interest rates on their ECB deposits, so they’re generally loathe to hold significant funds there. As anxiety grows, however, so do banks’ deposits in the Facility, mainly because their desire for adequate interest gives way to their more essential need to safeguard principal … Because the [economic downturn] is still young, deposits at the ECB will likely keep rising. Like stocks, the casual approach to banking that existed up until now is in for a massive shift.”

Flash two years ahead. The April 2012 Global Market Perspective’s updated chart below shows that usage of the ECB’s Deposit Facility has indeed risen, nay doubled, since the original forecast.

The question now is not whether monetary policy will save Europe’s economy, but whether the one precondition for recovery — confidence — will return to lenders.

What the European Debt Crisis Could Mean for YOUR Investments The European Debt Crisis is affecting investments across the globe. Gain a valuable perspective on the European debt crisis and get ahead of what is yet to come in this FREE club resource from Elliott Wave International. Read Your Free Report Now: The European Debt Crisis and Your Investments.

Cash went to a low of 1358.79 yesterday so 1357 remained intact as expected.

Fridays close on cash was 1378.53 so still has a lot to do to confirm a low is in place.

…..read more in the Traders Day Trading Forums

Does Social Mood Influence Accusations of Presidential Ineligibility?

By Euan Wilson, originally published in the Nov 2011 Socionomist | Download the Complete Issue (1.48 KB)

The socionomic model has often noted the dramatic effect social mood has on the public’s attitude toward sitting leaders. For example, the November 1999 Elliott Wave Theorist featured a short story on elections in a report titled “Socionomics In a Nutshell.” It showed that rising public mood tends to lead to presidential reelections while falling public mood leads to oustings. Robert Prechter, Peter Kendall and others have proposed other aspects of the mood/election relationship, such as the observation that rising mood favors traditional candidates while falling mood tends to smile upon perceived agents of change.

The charges that Obama was born outside the United States and therefore is ineligible to hold the presidency fit right in. The same charge was leveled at the Republican presidential candidate during the same election: John McCain was born in the Panama Canal Zone when his father served there as a Navy officer. The public always looks for justification to support its feelings; during extreme mood phases, voters embrace increasingly farfetched rationales.

Figure 1

Barack Obama’s presidency has so far endured two major social mood phases: the strong bear phase that he inherited and a powerful bull phase (see Figure 1). The “Birther” charges dogged him during his candidacy and early presidency, as stocks plunged. But during the subsequent two-year rally, those same charges faded–and then melted away.

It turns out that Obama is not the first sitting president to face charges of ineligibility. James Fallows of The Atlantic noted that such an expression has happened once before: to President Hoover, another big-bear-market president (see Figure 2). In 1931, John Hamill released his book, The Strange Career of Mr. Hoover Under Two Flags. Among other accusations, Hamill asserted that Hoover had given up his U.S. citizenship as early as 1900 in order to gain an edge in an overseas business deal.

Figure 2

Hoover’s eligibility question did not get legs, despite the continued plunge in public mood. But mood did do a number on Hoover’s reelection bid (and legacy). First, he was the people’s overwhelming choice for president: He entered the office with a 58% landslide victory in the popular vote as the Roaring Twenties came to a head. Then he was tossed from office just four years later in a near-mirror-image landslide defeat of 57%. The reason for this emphatic dismissal? Social mood had plunged, as displayed by the Dow, which had shed 89% of its value.

Having dodged the Birther charges, presumably for good, the question now is how President Obama will fare from here. What are his chances for reelection? The direction of public mood, as reflected by the stock market, will set the odds.

This article is syndicated by The Socionomist, a publication of the Socionomics Institute, and was originally published under the headline Does Social Mood Influence Accusations of Presidential Ineligibility?. The Socionomist is designed to help readers understand and anticipate waves of social mood. Copyright © 2012 Socionomics Institute.