Black Monday: Ancient History Or Imminent Future?

By Nico Isaac

The following article includes analysis from Robert Prechter’s Elliott Wave Theorist. For more insights from Robert Prechter, download the 75-page eBook Independent Investor eBook. It’s a compilation of some of the New York Times bestselling author’s writings that challenge conventional financial market assumptions. Visit Elliott Wave International to download the eBook, free.

Once upon a time, the term “Black Monday” was to Wall Street what the name “Lord Voldemort” was to Hogwarts. It turned the air freezing cold and sent traders flinching around every corner in fear of a repeat of the October 19, 1987 or October 28, 1929 meltdown.

Case in point: The 2008 “Black Monday” anniversary. At the time, the U.S. stock market was locked in a ferocious downtrend that included regular, triple-digit daily declines of 400 points and more. Needless to say, when the final two Mondays of October arrived, the least superstitious investors surrounded their portfolios with more good-luck talismans than a Bingo player. See October 19, 2008 AP headline below:

“Black Monday: Stocks Sink As Gloom Seizes Wall Street. Prolonged Economic Turmoil” is seen.

That was then. Today, the usual dread surrounding the back-to-back string of “Black Mondays” is nowhere to be found. In its place, media reports abound of a new, global bull market “shrugging off,” “ignoring,” and “making a distant memory” of the event.

For one, “gloom” hasn’t “seized” the U.S. stock market in quite a while; from its March 2009 low, the Dow has risen more than 50% to above the psychologically important 10,000 level. For another, the mainstream experts insist that today’s financial animal is unrecognizable to that of 1987, and especially 1929. In their eyes, it’s a completely different — i.e. safer, smarter, and sounder system.

We beg to differ.

See, while the usual experts want to put as much mental distance between today’s market and those that facilitated the 1987 recession and 1929-1932 Great Depression — the physical similarities are impossible to ignore; more so, in fact, to the latter scenario.

Here, the October 2009 Elliott Wave Financial Forecast presents the following news clip from the October 25, 1929 New York Daily Investment News.

Now, take a look at these headlines from the week of October 12-17, 2009:

“The Great Recession Is Over.” (Reuters) — “80% of Economists Say The Worst Is Behind Us.” (CNN Money) — “The Bull Is Back” (AP) — “The Economic Recovery Is Well Underway” (Wall Street Journal)

They’re interchangeable — Eighty years later.

Along with a similar extreme in bullish sentiment, the performance of stocks between now and the 1929 situation is cut from the same cloth. After an initial plunge from August 1929 through late October 1929, the US stock market enjoyed a powerful rally well into the following year. NOW: After a steep freefall from its October 2007 peak, the US stock market is once again enjoying the fruits of a powerful rally back to new highs for the year.
Also, on closer examination, the October 19 Elliott Wave Theorist (EWT, for short) uncovers an even deeper parallel between the 2009 rally and the 1929-30 one. Here,EWT presents the following snapshot of the Dow during the Depression-era advance:

As Bob Prechter points out — in 1930, stocks rallied to the level of the preceding year’s gap. Bob then reveals that the same level has been reached now.
So, we all know how the 1930 rally ended. The question is whether the 2009 advance will experience the same fate. As Bob explains in the Theorist, the only way to know for certain is to “look at the reality of the situation.”

For more information, download Robert Prechter’s free Independent Investor eBook. The 75-page resource teaches investors to think independently by challenging conventional financial market assumptions.

Gold: What’s REALLY Behind the Record Rise, Bull or Bubble?

By Nico Isaac

When prices in a financial market go from Sea Level to Outer Space in a relatively brief time, two scenarios are at work — and they both start with the letters “B-U.”

When a precious metal goes from being a popular long-term investment of buy-and-holders to the quick, get-away “vehicle” of day-traders, two scenarios are at work — and they both start with letters “B-U.”

And when the majority of mainstream pundits see a “new paradigm” in which prices continue to rise indefinitely, two scenarios are at work – and, you guessed it, they both start with the letters “B-U.”

Enter: the recent Gold Rush of 2009, when ALL of the above conditions apply. Everyone from hedge funds to housewives now hustle to hitch their asset wagon to the rising gold star. Which begs this question: Which of the possible two scenarios are at work: B-U-ll
— Or B-U-bble?

Here’s the difference: A genuine bull market is driven by a self-sustaining internal dynamic that’s reflected by a host of technical indicators. A Bubble, on the other hand, is the result of untenable psychology that could shift at any moment and bring prices plummeting down.

It goes without saying into which category the mainstream experts put Gold: namely, a new bull market that has years, if not decades more to soar. “Gold Will Hit $2,000 an ounce,” reads an October 8 Market Watch. And — “Gold Has More Upside… The metal’s bull run is just getting started,” adds a same day Barron’s.

I found hundreds of news items which agree about the long-term potential for gold’s uptrend. But not a single one could tell me why the rally would continue, other than because the experts say so.
To know whether a diamond is real, it must cut glass. And, to know whether the bull market in gold is real, it must encompass at least one of these FOUR traits:

A surge in demand that outpaces supply
A falling stock market, which raises the “safe haven” appeal of precious metals.
A real (not imagined) threat of inflation
An increase in value relative to major foreign currencies
Right now, the Gold market can NOT check off a single one of these items. Case in point:

Supply: Demand for gold from jewelry makers – which comprises 60%-70% of the market – has plummeted to its lowest level in 20 years.

“Safe haven” appeal: From its March 2009 bottom, the U.S. stock market has soared 50% right alongside rallying gold prices.

Inflation: As the October 2009 Elliott Wave Financial Forecast (EWFF) notes: An increase in money supply is only inflationary if it is used to RAISE the total amount of credit. This is NOT happening, as both bank credit and consumer credit levels are contracting for the first time since World War II.

A gold rally in other currencies: Again, the October 2009 EWFF presents the following close-up of Spot Gold prices VERSUS Gold denominated in foreign currencies such as the Canadian dollar, the Australian dollar, the euro, franc, pound, and yen since 2007.

The major non-confirmation between these two markets is clear, as is the overlying message: IF demand for gold truly outweighed supply, then its value as measured in other currencies would increase.

The rise in gold is primarily the result of speculation and a falling U.S. dollar. These are exactly the “untenable” forces that contribute to a Bubble, not a genuine Bull market. The difference is only a matter of time.

For long-term forecasts and more in-depth, historical analysis for precious metals, download Prechter’s FREE 40-page eBook on Gold and Silver.