Nature's way of progression in this world appears to be -- 3 steps forward followed by 2 steps back -- repeatedly.
As far as we can tell, humankind's progress has always proceeded in this series. In fact, at Elliott Wave International, we've based an entire approach to studying the market on this progression -- it's called the Wave Principle. In Frost & Prechter's classic Elliott Wave Principle -- Key To Market Behavior, EWI's president Robert Prechter writes:
"What the Wave Principle says is that mankind’s progress ... does not occur in a straight line, does not occur randomly, and does not occur cyclically. Rather, progress takes place in a 'three steps forward, two steps back' fashion, a form that nature prefers. The stock market is no exception, as mass behavior is undeniably linked to a law that can be studied and defined. Order in life? Yes. Order in the stock market? Apparently."
The stock market is a reflection of man's progress, or productive enterprise, so we believe the 3-2 concept is reflected in charts of stocks and other markets. In other words, it's wise to realize that regress -- the "2 steps back" -- is part of progress. That's nature's way of eliminating the excesses; the washing away of all that may impede future growth. Applied to an individual's life, it would be akin to "learning from one's mistakes." In the same way, a fresh start is made when whole societies or nations learn from past errors.
A prime example of where "regress" has taken hold is the U.S. real estate market. The "regress" is correcting the build-up of easy credit:
Have real estate prices "regressed" far enough? Probably not.
"... before the final long, drawn-out, exhausting bottom arrives, [investors in residential real estate] will be selling out for 10 cents or less on peak-value dollars."
These are Robert Prechter's comments on residential real estate in the September '09 Elliott Wave Theorist. If you've kept up with real estate trends, you know that in many areas of the country, you can already buy properties at drastic discounts -- 50% of the peak value or more; commercial real estate is also "catching up." And, in an April 6 article "Foreclosures Are Rising," CNBC writes:
"The new foreclosure wave is here... We won't get the numbers until next week, but sources tell me they will likely be a new monthly record. Tens of thousands of loans have been hitting the 'notice of trustee sale' bin, and that means they are coming to foreclosure." The sub-heading which follows reads, "And this is just the beginning."
Regress may begin at different times for different assets. But, make no mistake, if excesses have occurred, the beginning of the corrective process is just a matter of time. If excesses have been building for a matter of weeks, the regress to follow will match accordingly. If progress took decades or even centuries, regress will be substantial, too.
As we see it at Elliott Wave International, this period of economic regress happens to be of a very large, historic degree. So it has more to run... perhaps much more. We can help you navigate this process. Join us now -- risk-free, as always.