Several years ago, Bob Prechter developed an analytical insight called “All the Same Market.” Barron's, the financial weekly, published an article about it written by Bob and EWI’s Pete Kendall. The premise is that in a deflationary environment, all financial markets are ultimately driven by liquidity or a lack thereof, and that the extreme psychology that drove the credit bubble generated an unusually high correlation between markets as disparate as stocks, gold, and wheat.
It’s counter-intuitive to think of stocks, rates, gold, oil, real estate, and commodities, all trending together over time, but that is exactly what these markets have done in recent years. Skeptical? In this month’s Elliott Wave Theorist, Bob publishes an updated chart of EWI’s proprietary ASMI (All-the-Same-Market Composite Index).
Composed of the S&P, NASDAQ, gold, oil, the CRB, real estate, 10-year notes, and the U.S. dollar (inverted), the index goes back to 1997. Each one of these markets is then analyzed separately. The conclusions may surprise you.
A rise in the availability of credit is a direct result of the social mood turning towards optimism. Green shoots, mustard seeds, Kudlow and Cramer. But will it continue, and if so, for how long?
Whether you are an active trader or a long-term investor, knowing these trends and their probable turning points can be the key to your financial survival, and it could even make you “comfortable” on many levels. It’s the socionomic insight at work in Wave Theory and the markets. Want to learn more?
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