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Why This Stock Market Indicator is Important to Watch NOW

"No crowd buys stocks of other countries intelligently"

by Bob Stokes
Updated: November 01, 2018

Let's get some insights from our Elliott Wave Financial Forecast, starting with the September 2000 issue.

It showed a chart of extreme foreign purchases of U.S. stocks a month before the NASDAQ top that year. That issue went on to convey that this indicator applies to global stock indexes as well:

Foreigners make their biggest commitments when major trends are about to reverse. As Bob Prechter explained in Prechter's Perspective, “No crowd buys stocks of other countries intelligently." ... For instance, after years of disinterest, foreigners became net buyers of Japanese stocks, and The Elliott Wave Theorist used the inflow of foreign money to identify the termination phase of one of the biggest bull markets in history.

Jumping ahead to another pivotal stock market year, the August 2007 Elliott Wave Financial Forecast showed this chart and said:

ForeignersFlockUSShares

Foreigners jumped into the U.S. market like never before in May. The new record was a full third higher than the old one, which was set in February 2000... The first five months of the year produced what was easily the biggest gusher of net foreign buying in history. The record suggests that falling prices lie directly ahead for the U.S. market.

Just two months later, the DJIA topped and went on to lose more than half of its value through March 2009.

And what about now? Well, by December 2017, foreign purchases of U.S. equities finally exceeded the August 2007 record, and climbed even higher in January with net U.S. equity holdings by foreigners reaching nearly $1.5 trillion.

As we know, around that time, U.S. stocks entered a new period of volatility.

As a Feb. 2 Marketwatch headline noted:

Dow industrial marks biggest weekly point setback in 9 years, weekly drop of 1,100

Of course, stocks largely rallied from April through September, but October has brought more wild swings in the stock market.

The question is: Is another big rally on the way, or should investors prepare for even more volatility?

Keep an eye on foreign purchases of U.S. stocks. The data can give you a strong hint about what's ahead for the prices of the main indexes.

And, know that besides foreign purchases, our analysts are also watching an array of other time-tested indicators. Our just-published November Elliott Wave Financial Forecast is telling subscribers what story those indicators are telling right now.


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