STA Blog

In the mid-1980s I worked at a small London commodities trading house. Staff were an outgoing, noisy lot which included the now famous Nigel Farage. The head of financial derivatives invited Robert Prechter to give a technical analysis talk to staff and clients – a very select few, and I was included. It was all about Elliott Wave Theory, something I knew little about as did the bulk of the attendees. It was fascinating; such cool delivery; so many fabulous charts; totally AbFab!

Mr Prechter was just as good on Tuesday 14^th November 2023 in his virtual presentation from the United States. At the very heart of his methodology are the waves as described by R N Elliott, where ‘’form is in charge. Labelling the charts implies which way the Elliott analyst thinks things are going.’’ However, ‘’socionomics [see ‘The Socionomic Theory of Finance’, one of his twenty or so published books] makes the feelings of people so that they act in a certain way; news doesn’t change mood.’’

The talk kicked off with a series of charts explaining why late 2021 was an era of exceptional optimism – a ‘’watershed year’’. Rydex funds, bull/bear ratios, leverage, large traders’ positioning, volume, number of IPOs and SPACs, plus FOMO searches in Google all pointed to this being the culmination of the US stock market rally since 2009, where in January 2022 NFTs peaked in what Prechter describes as ‘’the bull market in nothing’’. He shows a brilliant ratio chart of NASDAQ stocks versus the Dow Jones Utilities index, representing the most risky versus least risky ends of the spectrum, which recently hit a new record high, ending with the hemline indicator, another gauge of social mood.

Therefore he has labelled this huge rally a primary wave 5. As to where he would currently look to invest, he suggests two-year floating rate notes (FRN) and US Treasury Bills, the US dollar (FX), maybe gold. His hunch is that interest rates are on their way up from some of their lowest levels in 3000 years. He feels that the value of things, like commodities (but not real estate), versus the value of shares will shift away from equities. ‘’I think the bear market [in US stocks] is going to be huge’’. He ends reminding us: ‘’don’t look at the so-called fundamentals. They will screw you at every time’’.