Yesterday (December 28), I started a three-part "year-in-review" series inspired by the movie "It's a Wonderful Life." The basic gist: What if the early 2011 mainstream financial forecasts never existed? Would those who listened have been better -- or worse off -- today?
Part one looked back at how the usual market players foresaw a stock market rally to new highs before 2011's end. But instead, stocks turned down from their May 2 high in a 19% decline into early October -- and remains well below their 2007 peak.
The early 2011 bullish stock forecasts were based on "improving fundamentals." That was their main flaw, as events outside the markets do not drive broad financial market trends. Stocks are not the only market where this is true. Today, let's look at crude oil -- and see how that same "fundamentals"-first approach misled mainstream forecasters.
What some in the mainstream said about crude in early 2011:
- March 7, 2011: "The price of oil is going up whether you like it to or don't." (March 7 Bloomberg)
- March 9: "Escalating violence in Libya risks widespread disruption to global oil supplies that could send crude prices to record highs above $200." (Channel News Asia)
- April 4: "Increased tensions in the Middle East, growing global demand, falling production, AND the devastating tsunami-led nuclear power plant crisis in Japan all have one energy analyst 'bracing for an oil 'super spike' -- a price surge that will soon drive crude oil to $220 a barrel." (New York Times)
What we at Elliott Wave International said around the same time:
- April 2011 Global Market Perspective: "The oil market remains a prime focus of media attention. Supply fears are begin driven by the violence and chaos spreading in the Middle East... barring a lasting shift in the global supply/demand balance for oil, any influence extended by new revelations will be short-lived."
- April 2011 Elliott Wave Theorist: "Oil is back to $103, and a strong bullish consensus has returned. Trade futures.com reported 97% bulls on February 22 and 23, an incredible imbalance of opinion... A bear on oil today is once again regarded simply as a sad fool who doesn't understand fundamentals. This attitude is once again bearish for oil."
What crude oil actually did in 2011:
Well, oil's much-anticipated "super-spike" above $200 never came. Instead, it was replaced by a "super sell-off" in late April, from where crude oil prices plummeted 34% to a one-year low before turning up in early October. That was the largest quarterly loss for crude oil since the 2008 financial crisis.
We at EWI don't claim to be always right. But rather than looking at the subjective "fundamental" factors that are supposed to shape market trends (i.e., political unrest, mid-East tension, etc.) -- we look at the objective, internal measures of market health: Elliott wave structure, sentiment, momentum and more.
Perhaps that's a new way for you to view the markets. But you've already seen the alternative.