July 2020

Contents
World Stock Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Global Stock Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Asian-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Global Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

The Bond Universe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
European and Asian-Pacific. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

International Currency Relationships. . . . . . . . . . . . . . . . . . . . 24

Dollar Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Other Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Cryptocurrencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Metals & Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Gold & Silver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Crude Oil. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Natural Gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Economic, Monetary and Cultural Trends . . . . . . . . . . . . . . . . 31

Economy & Deflation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

A Capsule Summary of the Wave Principle . . . . . . . . . . . . . . . . . . . . 36

Glossary of Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
© July 03, 2020
(data through July 02)

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WORLD STOCK MARKETS up counts as a three-wave structure. That forms a

U.S. Markets - Bottom Line completed wave (2) or (B) up and sets the stage for a
The Dow Jones Industrial Average and the S&P 500 sizable decline from current levels. An overlap of the
completed countertrend rallies on June 8. The NASDAQ
rallied to new highs this week, unconfirmed by every other
wave A peak at 377.22 would go a long way toward
major U.S. stock index. The nearly five-month-long non- affirming the bearish outlook. Such a move would
confirmation relative to the February peaks in the Dow and clear the way for a plunge well below the March low
S&P is a bearish sign. In the blue-chip indexes, the next major at 288.49. In the less likely event there is a move
wave of decline is underway, and the NASDAQ should not be above the June peak at 417.26 it would mark five
far behind. waves up
European Markets - Bottom Line and indicate
An upward correction in the DAX, the FTSE 100, the that the
CAC 40 and the Euro Stoxx 50 started in mid-March larger trend
and carried prices higher through early June. The is up per
rally has been inconsistent, with Europe’s peripheral the alternate
indexes lagging noticeably. Breadth and momentum count. The
have waned throughout the advance, while several completion
measures of investor complacency have soared. The of five
behavior is compatible with the latter stages of a bear- waves
market rally. up soon
thereafter,
Asian-Pacific Markets - Bottom Line though,
Asian-Pacific markets have diverged: Negative would set
sentiment extremes support significant lows in Hong the stage
Kong and Singapore while positive sentiment extremes for a sizable
support potential headwinds in Japan and several corrective
other markets. decline.
Global Stock Index
By Robert Kelley, Stocks Pro Service
The rebound from the March low represents a deep
retracement of the preceding decline, but the move

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customercare@elliottwave.com • 770-536-0309 • 800-336-1618
 The Global Market Perspective — July 3, 2020

Special Section
THE GREAT MANIA’S LAST STAND
Second wave retracements engender strong belief in favor of a continuation of the preceding trend. The Elliott Wave
Theorist has noted, for instance, that the end of Cycle wave II down in 1942 brought the lowest stock market volume
of the century and the lowest stock market valuation relative to annual GDP on record, indicating that investors were
convinced the decline would continue. But second waves, like B waves, fool the majority of investors. Instead of
stocks continuing the bear market that started in March 1937, the Cycle wave II low in 1942 led to a bull market that
did not end until February 1966 at the top of Cycle wave III.
In a new bear market, the expectation is reversed. So, it makes perfect sense that investors are now clamoring to get
in on rising stock prices. The collage shown later in the Investor Psychology section documents the post-peak entry of
“punters,” “newbies” and “fervid retail buying.” Call options can be particularly sensitive to the bullish psychology of
a second wave retracement, because they only pay off if the market complies with the bullish expectations of holders
in very short order, otherwise the decaying time premium will erode their value. That’s why GMP noted last month
that call options are a textbook attraction at the end of a second-wave rally (see text, p.79). The chart below depicts
another historic second-wave retracement in 2000. When investors jumped into call options in April 2000, here’s how
GMP used the post-peak speculation to identify the second-best selling point in the new bear market:
Second waves are often deep. Conditions at the second wave high often seem as good if not better [emphasis
added] than they were at the bull-market peak (see text p. 79). This is certainly how investors feel now, as the
sentiment figures attest. Surveys show nearly as many bulls as they did at the January 14 high. Option buyers are
even more bullish. These and other indications of investor psychology reveal extremes that unquestionably reflect
a top. The chart shows that the 30-day put-call ratio is now .45, its lowest level since at least January 1, 1987.

The chart at right shows the record sentiment extreme and the decline
that followed. At recent stock market peaks, a heightened enthusiasm
for call options has proven to be a valuable indicator. On February
7, GMP showed a chart of small trader call buying, those trading 10
contracts or less, and said, “Investor bullishness is at full boil.” As
shown on the updated chart on the left below, the S&P 500 and the DJIA
started Primary wave 1 of a new bear market just days later. The Dow
declined over 38% to March 23, the fastest decline from an all-time high
on record. The week of June 12, small trader call buying surged even
higher. At 52% of volume, the percentage of small trader call buying
equaled the record of April 2000, which was the forefront of a 2½-year
bear market. In dollar terms, the speculation this year is far higher than
it was in 2000. The chart on the right below shows that the total number
of small trader purchases of opening call options surged to 14.6 million
contracts the week of June 12, more than nine times that of March 2000.
If the message of small option traders was “unquestionably” bearish in April 2000, it is even more portentous now.

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 The Global Market Perspective — July 3, 2020

In its treatise on the subject of manias in 1997, The Elliott Wave Theorist
stated that the last players to be ensnared by exponentially rising prices
would be “the plungers who fancy themselves clever investors and pour
most of their funds into the market in its final run.” This month’s Investor
Psychology section offers abundant evidence of such plungers in today’s
market. Recent issues have also discussed the new trading accounts
through which retail investors swarmed the markets in the wake of the
Dow’s February peak. Instead of using stimulus checks to pay down loans,
many people used the funds to speculate. The graphic at right from a New
York Post story on June 10 about a “growing day-trading obsession.” “Joe
Sixpack is taking over the stock market,” says the Post. “The recent rally is
being driven in good part by mom-and-pop investors high on stimulus checks.”
Robinhood is one of several online trading brokers enjoying a boom in new
accounts. The nextchart shows Robinhood users’ major ETF holdings, which
continued to rise straight through the end of the second quarter. Robinhood
offers free commissions and an app that is “fun and easy to use.” The app
throws digital confetti when a user makes a trade. Tragically, the app was no
fun for one University of Nebraska student. After discovering what he thought
was a “$730,000 negative balance” in his options account, he threw himself
in front of a train. In fact, he had misread his accounting statement. Someday
soon, many such traders are going to find that the losses reported on their
statements are real.
Some characterize the trading environment as the “’get-rich-quick crowd’ vs. Wall Street pros,” but big investors are
also very much involved on the long side. The middle graph on this chart shows that Large Traders, those trading
more than 50 contracts at a time, surpassed their February extreme coincident with the June countertrend high in the
Dow. At just over 40%, the percentage of large trader call buying is the highest since March 2000. In the week of June
12, the bottom graph on the chart shows that all traders purchased 22 million more calls than puts. Here again, that’s
the most since March 2000, which marked the exact climax of the first mania phase within the Great Peak. As the
chart below shows, when the fever finally broke in 2000 and then again in 2007, a sizable portion of the global market
for equities went with it. European blue-chip stocks never returned to the price extremes of 2000 while emerging
market and Chinese shares washed out with a bubble in home values and financial stocks in the mid-2000s. The public
views the second wave rally in the Dow and S&P as its last chance to get in on low stock prices, but the frenzy for call
options speaks volumes: It’s the last chance to get out of a wildly overpriced market for global equities.

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 The Global Market Perspective — July 3, 2020

U.S. Stock Markets

By Steven Hochberg and Peter Kendall, Elliott Wave
Financial Forecast (GMP)
The Dow Jones Industrial Average completed Primary
wave 2 at 27,580.20 on Monday, June 8, tracing out
a zigzag pattern (see text, p.42), labeled (A)-(B)-(C),
from March 23. The day before the high, on Friday,
June 5, the Short Term Update said, “the second-
wave rally in the DJIA and S&P 500 has fulfilled its
mission in nearly every respect.” On June 9, an Interim
Bulletin of The Elliott Wave Theorist pointed out that
the Dow just made the exact same retracement for
wave 2 in 2020 as it did for wave (2) in 1937, 82.5%,
a period with similar patterns that EWT had referenced
previously. After the second-wave high in 1937, “the
market went straight down for three months and
didn’t bottom until the following year.” The weekly
log chart shows that wave 2 met the underside of the
Dow’s Elliott wave channel from March 2009, an ideal
stopping point. On June 11, the stock market gapped
down at the open, creating a rare island reversal
pattern, as discussed in the STU and in the June 2020
EWT. The decline that drew the S&P to the June 15
low was wave 1. Wave 2 up seems to have ended
today (July 2). EWI readers have been kept abreast of
the entire countertrend topping process, and stocks are
now angling for a decline that will be stronger than the
wave 1 decline covered above.

The NASDAQ Composite formed a channel since

2010, connecting the outer boundaries of the index.
Every wave of rally adheres to the channel’s top
trendline. The highs in January, March and August
2018 all met the top line, as shown by the arrows.
After the third instance in August 2018, the NASDAQ
declined 24% to December 2018. Prices then rallied
back to the meet the top trendline in January and
February of this year. The Composite declined 33%
thereafter to a low on March 23. The rally since then
has carried the Composite to meet the top line again
and in the process, the index made a new all-time
The June issue of EWT is titled, “Cool Charts, Vital
high again today. This high is not confirmed by any
Message,” and this chart of the weekly NASDAQ
other major stock index, creating a large bearish non-
Composite fits well with those published in that issue.

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 The Global Market Perspective — July 3, 2020

confirmation. The June 19 STU showed the explosion He said he has $5,000 ready to deploy in the sector
in NASDAQ volume relative to NYSE volume, which if markets tumble again. “Those are the things of the
has shattered records as investors speculate on high- future,” he says. That may be, but investors felt much
tech and bio-tech shares. On June 10, the NASDAQ the same way toward RCA in 1929, even though it
10-day DSI (trade-futures.com) pushed to 91.2%, its had yet to produce its first television set at that point.
highest extreme since January 23, 2018 (92.2%), the Despite much success for the company thereafter, the
top of Intermediate wave (3) of Primary wave 5. stock fell 90% in the bear market and did not return
Very few investors are positioned for a significant to its 1929 high until the mid-1960s. Here again, we
NASDAQ decline, which, ironically, is the time when expect the market to price out the future of technology
one should be most alert for one to develop. even faster than it priced it in.
Investor Psychology An All-American Bubble
Last month’s issue discussed the sentiment As in 2000, the excitement for stocks extends beyond
surrounding technology issues and its striking technology and the option pits. The bullish percentage
similarity to the sector’s prominence in 2000. We also reported in the Investors Intelligence Advisors’ Survey
noted that the sector only becomes a public obsession rose to 57.3% in the week ended June 19, which was
at the most important market peaks. This chart shows a higher percentage than at the February 12-19 stock
that the preference for big-cap technology shares market top for the blue-chip stock indexes. It was
relative to the broad market has officially surpassed also slightly higher than at the top of Primary wave
the dot.com mania in 2000. On July 1, the NASDAQ 2. Investors keep getting jazzed by every surge in
100/S&P 500 ratio carried to a new all-time high. prices, even when those prices are not exploring
Bloomberg offered this assessment from a typical new extremes. This is the essence of a second wave
33-year-old technology investor: “I lived through psychology. The chart of hedge funds’ net exposure to
the 2008 financial crisis. So, I understand stocks will equities clearly shows that more sophisticated players
rebound.” This Wall Street Journal story from June 7 joined in at the end of the rally. At 52%, hedge funds’
confirms that tech investors stand ready to pounce on June equity allocation was higher than at any time over
any decline: the past 13 years except for September 2018, which
preceded a 20% decline in the S&P. Investors have
never been more determined to dive in deeper at the
first hint of a fall in stock prices.

Investors’ Love of Tech A Nobel economist explains that V-shaped recoveries

Drives Booming Market Rally have come to “dominate the memories of most
Big and small investors are snapping up tech stocks
investors. ‘We were saved by our central banks—
It quotes a cybersecurity analyst who is convinced that’s the narrative right now.’ March of this year is
tech stocks will continue to rally “for years to come.” considered similar to 2009 when the stock market

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 The Global Market Perspective — July 3, 2020

Vroom, an online seller of used vehicles, raised $495

million in early June even though it lost $41 million
in the first quarter of 2020, up from $27.1 million in
the first quarter of 2018. Last month, GMP argued that
“investors’ tolerance for losses will retreat.” The return
of money-losing IPOs with snappy names simply
confirms that the same resolution lies directly ahead.

bottomed out.” The 2009 low? At these valuations?

The idea is absurd. Yet it’s popular.
The collage above illustrates how an aggressive
optimism clearly accompanied the June 8 countertrend
rally high in the Dow. Notice how the pluck of the
“little guy” is an object of much celebration. “Small
Investors Win,” said one June market recap. Market
history suggests the victory will be short and pyrrhic.
As in 2000, IPOs Refuse to Yield
The chart below
shows another This chart shows two critically important historic
indicator of precedents. The top graph shows what happened in
speculation that 1969, following the Dow’s peak in December 1968.
continues to run even A record number of IPOs hit the stock market even
hotter than it did though it had begun a bear market that would cut
at the peak: initial its value by 36% by May 1970. Even though the
public offerings. year 2000 was a down year for the DJIA, it brought
It shows that the a record for total gross proceeds of IPOs. The third
Renaissance U.S. quarter of 2000 was particularly robust. Here’s what
IPO Index continued the September 2000 issue of GMP said about the IPO
to post new highs market at that time:
through June 23. “Now that the stock market has Within the U.S., the same unyielding faith
largely shrugged off the coronavirus, start-ups are in ever-rising stock prices is signaled by a
scrambling to go public,” reports the June 17 New similar resiliency in the market for initial public
York Times. In a nod back to the rarified air of earlier offerings. Despite the NASDAQ’s spring
this year and in 2000, the Times adds, “Wall Street is decline, “The Deals Keep Coming and Coming.”
embracing them even though many of the companies For the year, money raised in IPOs is almost
are losing money.” In February, the Dow Industrials twice the total for any full year before 1999. And
were five days from their all-time high when GMP it’s speeding up.
noted that the percentage of IPOs with negative
earnings had jumped to 83% as of November 2019, September 1, 2000 was the peak of a second wave
surpassing the 12-month record of 81% in 2000. in the NASDAQ. After an initial decline and an

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 The Global Market Perspective — July 3, 2020

even smaller second wave retracement that ended on chart of Hertz shares
October 20, 2000, an Interim Bulletin on October 23 reveals the never-say-die
made the following forecast: “Second waves are the enthusiasm of investors.
last waves of hope, and this bounce is the last second After declining more
wave above Minute degree. Wave 3 of (3), which than 98% from February
is typically a panic, is due next.” Over the next two 19 and filing for
years, investors had to endure the teeth of the bear bankruptcy on May 22,
market, as shown on the chart in the Special Section. Hertz shares rallied over
This time, with the faith of IPO investors at least as 1400%, from 40 cents
strong as it was then, the waves suggest an even more to $6.25 a share on June
unyielding bear. 8. Hertz is far from
alone. With corporations
The rush into the stocks of money-losing companies
issuing more than $1
is sometimes rationalized as a coronavirus-inspired
trillion in new debt so far in 2020, the number of
reliance on digital platforms. The word on the street
zombie firms in the U.S., those with debt-servicing
is that an accelerated adoption of technology “has
costs that are higher than their profits, hit 18.9% in
sidelined the question of profitability.” As one bullish
2020, according to Deutsche Bank. As this chart
professor of finance told CNBC, “The Shift Towards
shows, the number of zombie companies was close to
Digital Is ‘Permanent.’” An asset manager put it this
zero in 2000. The Federal Reserve’s starring role in the
way: “Covid pulled the world into 2030.” These are
latest explosion is discussed further in the Economy &
ridiculous rationalizations. We’ll stick with what we
Deflation section.
said at the beginning of the year—the 2020s will
be packed full of surprising disappointments, and The Return of the Obnoxious Wall Street Hero
technology will be a leader in this regard. Another way to judge the depth and breadth of a mania
for stocks is by the quality of its heroes. The Elliott
Another key to the future is that even non-technology
Wave Theorist originally addressed this attribute in
companies that are losing money are attracting plenty
a 1997 Special Report, “Bulls Bears and Manias.”
of interest on Wall Street. Hertz Global Holdings
It said, “A very human aspect of manias is that no
is among the most prominent. It attempted to file a
prudent professional is perceived to add value. Indeed,
secondary offering that would have raised up to $500
the professional with a knowledge of history and value
million even though the company declared bankruptcy.
is eventually judged as an impediment to success.”
The company was forced to pull the offering after one
attorney said, “It’s either fraud in plain sight, or an As the first of three bubbles within the Great Mania
admission that the company isn’t really solvent.” This approached its March 2000 climax, the September
1999 GMP introduced readers to “The New Bull
Market Heroes.” Noting a slippage in the admiration
for “value-minded billionaires like Warren Buffett,”
GMP stated, “As the bull market has gotten thinner
and thinner, so have the quality of its legends.” One
of the new breed was a New York City cab driver who
was reputedly “cashing in on the Wall Street boom
between the ticks of his fare box.” “Safety first,” the
cabbie explained in a Newsweek profile: “I stop the
cab at the side of the road if I have to make a trade.”
Movie star and music legend Barbra Streisand was
another of the new breed. “Honest, the media now
vies for the inside scoop on Babs’ ‘stock picking
prowess,’” observed GMP. But it was in May 2000, in
the aftermath of the market’s January-March top, that
the hero worship took on a downright arrogant edge.
That month, GMP observed an even more pronounced
diminishment of traditional Wall Street legends. “The
brightest lights of the investment kingdom, Warren

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 The Global Market Perspective — July 3, 2020

Buffett, George Soros and Stanley Druckenmiller have Portnoy’s growing

all been humbled in recent weeks.” Time magazine popularity and the “Main
called it the ‘Fall of the Mighty.’ St.” graphic from the
New York Post on page
In June 2020, similar slights are being distributed to
3 show that the equity
some of the very same heroes:
culture is ascendant again.
Stan Druckenmiller Admits At this point, even the
He Was ‘Far Too Cautious’
—Fortune, June 8, 2020 dog in that graphic finds
stocks riveting! It will
Robinhood Traders Betting Against be interesting to see how
Veteran Investors Like Warren Buffett much larger the equity
—Business Insider, June 8, 2020
culture can get. In 2000, the
This time around there is an added twist: the extreme probably occurred in September, when Money
unseasoned upstarts actually issue open attacks against Magazine ran this infamous “Jocks Know Stocks”
the investment stalwarts. David Portnoy, founder of cover. Readers may remember it; we cited it in our
the sports and pop-culture blog Barstool Sports, claims February 2020 issue when Shaquille O’Neal, Money’s
flat out, “Warren Buffett is washed up. I’m the new cover-story athlete in 2000, turned up on CNBC
breed. There’s nobody who can argue that Warren offering stock tips. Here’s what we said:
Buffett is better at the stock market than I am right When athletic prowess became synonymous with
now. I’m better than he is. That’s a fact.” His followers stock-picking prowess back in 2000, the end of
agree whole-heartedly. A 29-year-old day trader from Primary wave 3 had already taken place. At the
Toronto says he’s a fan and that Buffett is missing end of Primary wave 5, it is happening again in
opportunities in technology and airline stocks. “I kind several voices, one of whom is the very same star.
of make fun of some of these investors,” he says of The analogy to 2000 is uncanny.
Buffett. “They just have a hard time understanding the
new normal, the new business models.” In case you Almost five months later, the Dow is still below its
didn’t hear, it’s a new era, just as it was in 1929 and peak level of February, but the analogy only gets more
2000. Here’s another fan endorsement from a 20-year- conspicuous. At this point, the sports world’s stock
old business student who tends the greens and fairways expert is not even an athlete; it’s a sports observer
on a Prince Edward Island golf course: “I think who is also a regular guest on financial television.
[Portnoy is] an absolute genius. I’m a little bit up [in The screen shot below from CNBC shows Portnoy
my investments]. I cut grass at a golf course. I’m on in a recent appearance; he’s the one in the middle of
a lawnmower refreshing the app every few seconds— the bottom row. In March 2000, just one appearance
it’s great.” Like 2000, the working classes are pulling by a professional wrestler drew the following
over to trade stocks. According to Bloomberg, the comment from that month’s GMP: “The presence of
mantra for “Portnoy and his ilk” is, “stocks only go a professional wrestler in the guru-of-the-day seat
up!” The bestowal of stock market guru status on on Squawk Box probably marks a new record high
a sports-related figure is yet another similarity to in the public disdain for market experience.” The
2000, when many made the apparent crossover from NASDAQ’s 78% decline to October 2002 started a
athletic to stock market expertise. It was all part of the few days later.
equity culture, which also continued to swell after the
major averages peaked back then. Here’s how GMP
described the phenomenon in June 2000, six months
after the Dow’s January 2000 top:
The Equity Culture Expands
The routine use of stock market terms and images
as a marketing gimmick shows how deeply
the equity culture has permeated mainstream
thought. In recent weeks, stock market optimism
has produced some of the most flagrant
manifestations of the equity culture to date.

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 The Global Market Perspective — July 3, 2020

Look for the howling bullishness to intensify as stocks topped after retracing about 50% of their respective
resume their descent in Primary wave 3. After the declines.
Dow’s gap lower and 1800-point decline on June 11,
A healthy bull market tips its hand by firing on all
Portnoy posted the following blast on twitter: “Get
cylinders, typically pushing stock indexes uniformly
on board. Buy, everyone makes money. Everyone
higher. Europe’s rally, in contrast, sputtered the whole
makes money, buy, buy buy. Why are you shorting the
way up and stalled out completely last month. The
market? Because you’re wrong and outdated? Because
ragged look of the advance confirms that the chance of
I’ve proven you to be a fool?” As the song says,
new highs in any major index is small.
everybody plays the fool sometimes; but when people
do it with such relish in a game that is inherently Elliott Wave Analysis
uncertain, it has special meaning. Keep in mind that the only ironclad rule for a second-
wave rally is that it can never move beyond the start of
European Stock Markets wave 1. When combined with R.N. Elliott’s two other
By Brian Whitmer, European Financial Forecast (EFF)
rules—that wave 3 is never the shortest wave and that
To someobservers wave 4 never ends in the price territory of wave 1—the
European stock five-wave form of an impulse is guaranteed to make
markets mayappear progress in the direction of the one-larger degree trend.
to be on To some In fact, deep second waves are actually quite common,
observers, European according to Elliott Wave Principle (p. 79):
stock markets may
appear to be on Second waves often retrace so much of wave one
course for a full that most of the profits gained up to that time are
recovery. But in our eroded away by the time it ends…. At this point,
view, the markets’ investors are thoroughly convinced that the [bull]
behavior remains market is back to stay. Second waves often end
entirely consistent on very low volume and volatility, indicating a
with a high-degree drying up of [buying] pressure.
countertrend rally
within a larger, Europe’s retracement has checked all of the boxes for
broader and soon- a second wave. At its June 8 intraday high of 12,913,
to-be-deeper bear the DAX, for instance, retraced nearly 84% of its
market. The series February-March
of graphs at right sell-off, while
illustrate the sell- volume, which
off from February expanded on
to March, as well the way down,
as the subsequent contracted on
rallies in six the way back up.
European indexes. Meanwhile, the
The brackets on the VDAX Implied
right side of each Volatility Index,
graph show the which peaked
range of Fibonacci above 80 at the
levels that represent DAX’s March
typical second-wave 16 low, fell back
retracements. Only the DAX and the Swiss Market below 40 last
Index (SMI) appreciably exceeded their ideal ranges, month. While
while the Euro Stoxx 50 and CAC 40 barely squeaked there are no
past a Fibonacci 61.8% retracement before reversing guarantees in
last month. The FTSE 100 reversed just shy of the market analysis,
61.8% level, while southern Europe has lagged. Both what we see here
the Italian MIB index and the Spanish IBEX index is a deep second
wave up that

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 The Global Market Perspective — July 3, 2020

recently reversed on low volume and little volatility. Another symptom of pervasive complacency is
Wave (3) down should kick off with a bang. Before it’s that investors are snapping up junk bonds despite
over, both volume and volatility should be setting new a widespread understanding that default rates will
records. skyrocket. According to estimates by S&P Global, the
default rate for European speculative-grade corporates
Investor Psychology
will hit 8.5% by March 2021, a three-fold increase
It should be crystal clear by now: The market crash
from today’s rate. In the United States, Moody’s
in March failed to dent investor optimism with any
Investors Service expects the trailing 12-month default
kind of permanence. Over the past two months, in
rate to hit 11.1% by March 2021. Goldman Sachs
fact, investors have steadily slipped back into the
puts the percentage higher still — at 13% before the
same pool of risky assets they have been swimming
end of 2020. More important, default rates are rising
in for years. In April, for example, we illustrated an
despite the concerted attempt by worldwide central
index of Europe’s riskiest leveraged loans, which had
banks to backstop the market. In April, the U.S. Fed
recovered 50% of its prior decline. We also showed a
began to purchase the debt of so-called fallen angels,
high-beta capital bond ETF, which had jumped 60%
which are companies that lost their investment-grade
off its March low. By May, Britain’s high-beta stock
rating during the pandemic. The European Central
indexes were back on the menu, with the FTSE AIM
Bank is about to follow suit. In June, ECB official Olli
100 — an index of early stage, venture capital–backed
Rehn told reporters that he was keeping an open mind
companies — jumping 66% off its March low. The
about implementing the same policy. It’s probably too
sentiment turnaround has also registered among DAX
late. Investor complacency argues that the junk bond
futures traders, as the DSI (trade-futures.com) reversed
market sits at the precipice of another historic sell-
from 6% bulls at the March 16 low to more than 93%
off. The Markit iTraxx European Crossover Index —
bulls on June 8.
which follows the movement of insurance contracts on
Last month, junk bond investors rejoined the bullish 45 junk-rated corporations in Europe — is moving in
partygoers. “Europe’s riskiest corporate debt has lockstep with stocks.
rallied to pre-crisis levels,” reports the Wall Street
Alongside the Euro Stoxx 50’s 41% stock market
Journal. (6/9/20). Shown here, the Bloomberg-
crash from February to March, default fears swelled
Barclays Pan-Europe High Yield Total Return
and the crossover index spiked three-fold (note the
Index has retraced nearly 80% of its prior drop.
inverted scale). In other words, bondholders loaded
Accordingly, the spread between European junk bonds
up on insurance to protect their investments against
and government debt narrowed to its lowest level
default. Complacency returned with the countertrend
since March 6, 2020. “When deals have come in the
high-yield market in Europe, they have been well
received,” notes one credit strategist with JP Morgan
Chase. In fact, demand for junk is so high that analysts
are lamenting a “shortage of high-yield assets for
funds to buy.”

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 The Global Market Perspective — July 3, 2020

rally, sending insurance prices plunging. Today, with funds and insurance companies looking for ultra-long
few investors seeing the need to protect their bond assets to match their future liabilities.” (Bloomberg,
investments against default, it’s a perfect time for the 6/24/20)
bottom to fall out.
That Bloomberg quote speaks to the essence of the
Here’s another chart that illustrates a stunning level of problem: Virtually no one can envision a financial
entrenched long-term complacency: future that looks any different from the present. Due to
the sheer speed with which waves (1) down and (2) up
transpired this year, even the overall economy appears
to be mending. You have probably heard the news by
now that economic activity staged a massive rebound
in June. The UK services purchasing managers’ index
jumped from 29 in May to 47 in June, the largest
monthly rise since records began in January 1998.
Germany’s composite PMI spiked to 45.8, while
the French PMI broke the 50 mark, meaning that a
majority of French businesses reported expanding
activity from May to June. The vast majority of
pundits claim that resurging economies will bolster
stock markets and effectively put a floor under prices.
“This is just a beginning,” one supply chain director
told the Financial Times. Added another economist:
In March, the yield on a century-long bond issued by “Today’s PMI numbers provide further evidence of …
the government of Austria dipped below 0.5%. Here’s a textbook V-shaped recovery.” (FT, 6/24/20) In our
how Bloomberg explained the rationale of betting on view, however, the economic bounce is just another
a bond that returns next to nothing and pays out over lagging byproduct of wave (2) up in stocks. In fact, at
100 years: least one gauge of investor sentiment that previously
The attraction of ultra-long bonds with very
low coupons is that their prices rise more
sharply when yields fall…. This means the price
outperforms when interest rates drop (as they’re
doing now), which is overall good news for
investors.
—Bloomberg, 6/24/20

In other words, credit “investors” are loading up on

the most highly leveraged bonds, betting that current
market trends will continue and interest rates will
keep falling. The dangerous flipside will come as no
surprise to subscribers. As we have discussed before,
bonds with longer maturities and lower coupons pay
back more gradually than shorter-term debt, increasing
what is known as “duration risk.” For century bonds,
the duration risk is so high that even a tiny upward
blip in interest rates can send the bond price tumbling.
So far, investors have ignored the mounting risk.
Last month, when the Austrian government borrowed
another €2 billion in century bonds, demand was 8
times the available supply. The bond pays only 0.88%
in interest. Even professional financial managers took
little notice of the dangers. According to Bloomberg,
the bond saw especially strong demand from “pension

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 The Global Market Perspective — July 3, 2020

marked major tops in the stock market has barely So many mania symptoms plague the [fintech]
registered the pandemic at all. Back on April 3, we sector that the sell-off could be catastrophic.
illustrated the Bloomberg UK Financial Conditions Wirecard, a 19-year-old German payments
Index, which tracks overall conditions in UK financial processor, just surpassed Deutsche Bank in terms
and credit markets. As this updated chart shows, the of market capitalization. Despite bringing in
index actually rallied last month, indicating that the the equivalent of only 5% of Deutsche Bank’s
pandemic had almost no impact on the functioning of revenue, investors pushed Wirecard’s share price
Britain’s financial and credit markets. north of 194 on Monday, giving the company a
market value of more than €21 billion.
The next wave lower will change this dynamic —GMP, August 31, 2018
unalterably. Today’s nascent bear market is a c wave
that is one full degree higher than the sell-off from The catastrophic sell-off began almost immediately.
2007 to 2009. As such, the financial conditions Wirecard’s stock price peaked four days later and
index will soon be registering market dysfunction dropped 37% in 10 weeks. In March 2019, we
that greatly exceeds what happened during the 2008 published the left-hand chart below, illustrating the
financial crisis. wave structure that led to the top and forecasting a
The Blame Game Sets a New Standard then-unthinkable crash to the previous fourth-wave
Recent events at German payments processor Wirecard low at 29.
illustrate the speed with which mania-era financial As it turns out, our forecast for another 80% crash
conditions can deteriorate. As a reminder, GMP in the stock price proved to be too optimistic. As
profiled the former financial technology darling way the updated chart shows, Wirecard shares collapsed
back in August 2018, one month before officials added below €2 per share, and the company declared
the company to the venerable DAX index. Here’s what bankruptcy last week. More important than forecasting
we said at the time (emphasis added): the company’s downfall, the March 2019 GMP

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 The Global Market Perspective — July 3, 2020

reminded company executives about the reputational 10. German retail investor association SdK filed
implications of a bursting financial bubble. Here’s a criminal complaint against a top accounting
what we said at the time: executive at Deutsche Bank “because of the
events around Wirecard.”
The financial technology bubble has popped,
Only a social mood reversal of historic proportions
but as former executives at Bear Stearns,
can account for the evaporation of a company that
Enron, Lehman Brothers, Northern Rock
employed 6,000 people and earned €2 billion in
and WorldCom previously learned, a far more
revenue as recently as 2018. The collapse blindsided
treacherous phase of the bear market awaits….
the conventional experts as well. Last year, an asset
As negative social mood sets in, the financial
manager at Deutsche Bank effectively went all in on
misdeeds that went unreported during the
Wirecard, allocating 9.2% of the €5.1 billion fund
preceding bull market get uncovered, and the
to the company. (Regulations put a 10% cap on any
inevitable fiscal chaos begins.
—GMP, March 2019 single holding.) Likewise, the collapse “wiped out
hundreds of millions of dollars of paper profits”
The early hints of the coming chaos for Wirecard’s at Softbank Investment Advisors, a Tokyo-based
execs began that same month, when the Financial multinational holding company. (FT, 6/25/20) The
Times uncovered evidence of book-padding, forgery, government is worried that the scandal will threaten
falsified accounts, and questionable accounting Germany’s reputation as a world financial center, and
practices. The full-blown scandal, however, did not this Bloomberg headline suggests that it already has:
appear until last week. Here’s a partial list of the ripple Wirecard, Once Germany’s Pride, Turns
effects that are now spreading: National Embarrassment
1. Wirecard’s share price crashed from more than —Bloomberg, 6/20/20
€100 per share on June 17 to less than €2 per
share on June 26, a stunning 98% collapse in On that note, however, we are reminded of British
just six trading days. economist John Maynard Keynes’ famous quip about
2. Wirecard filed for bankruptcy with more than €4 a sound banker who is “not one who foresees danger
billion in outstanding loans. and avoids it, but one who, when he is ruined, is
3. The company’s CEO Markus Braun resigned ruined in a conventional and orthodox way along with
after company auditors reported that about one his fellows, so that no one can really blame him.”
quarter of the company’s balance sheet, nearly The spotlight is on Germany for now, but give it time.
€2 billion is cash, was missing. The Wirecard debacle will actually get overshadowed
4. The Munich prosecutor’s office arrested Braun by far larger accounting scandals in the months and
on suspicion of false accounting and market years ahead.
manipulation. Braun stated that the missing
money “probably does not exist.” (FT, 6/25/20) Asian-Pacific Overview
5. German authorities opened wider investigations By Mark Galasiewski, Asian-Pacific Financial Forecast
(APFF)
into members of Wirecard’s former management
board. While the world was locked down under the common
6. The German government terminated its contract scourge of Covid-19, global conflicts tended to
with FREP, the country’s accounting watchdog subside. But as economies have begun to re-open,
that oversees financial reporting. the world’s antagonists are again coming to blows.
7. Germany’s opposition party called for a Consider these headline news events from June:
parliamentary inquiry into Wirecard’s collapse. • China passed a National Security Law for Hong
8. The European Union announced that it is Kong, effectively silencing dissidents and pro-
preparing an investigating into BaFin, Germany’s democracy supporters throughout the territory
financial regulator which had direct oversight of (see Hong Kong section).
Wirecard’s banking unit.
• Separatist gunmen attacked Pakistan’s Karachi
9. Netherlands-based shareholder rights group
Stock Exchange (see Pakistan).
VEB called for an investigation of Ernst &
Young, the accounting firm that signed off on • North Korea blew up an $8 million inter-Korean
Wirecard’s financial statements beginning in liaison office (see South Korea).
2009.

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 The Global Market Perspective — July 3, 2020

• Indian and Chinese soldiers clashed, leaving at

least 20 people dead (see India).
• Yemeni rebels fired ballistic missiles and
explosives-laden drones at three Saudi cities.

pattern of Infotech’s advance is less clear. We are still

waiting to see whether its March 2020 low represents
Showing that even normally cool and calm Singapore the end of wave (4) down in its entirety, or just wave
was not immune to the negative social mood trend, the A down of a wave (4) contracting triangle. The
Prime Minister’s brother joined an upstart opposition ensuing pattern and depth of the mid-year correction
party on the day that the government called for general should give us more information to try to answer that
elections to be held in July. He said that the ruling question.
party “has lost its way. …There are issues of income Living in the ethereal world
inequality, there are issues of poverty, there are issues In the real world of economics, conventional
of governance and transparency, there are issues analysts are still focused on fighting the war at hand.
around housing, there are many issues that are alive.” As Bloomberg Economics put it on June 19: “For
(Bloomberg, 6/24/20) His words echoed calls for emerging markets, the virus recession starts with a
change voiced by protesters in the United States and pandemic most are ill-equipped to deal with, then
around the world earlier in the month. layers on the worst elements of the 2008 global
We can see how explosive the zeitgeist has become in demand shock, the 2014 collapse in commodity
the chart of the Global Economic Policy Uncertainty prices, and the 2018 capital flight episode.… Looking
Index, which in May surged to yet another record high. forward, even in an optimistic scenario, the recovery
Notice the red arrows on the chart, which show that will be shallow.”
record highs in the index have tended to be longer- But that’s real-world economics talking. In the
term bullish for emerging Asia stocks; this most recent more ethereal world of financial markets, which are
signal should be as well. governed by waves of social mood, the patterns in the
In the intermediate term, though, several of the major indexes and leading sectors in Asian markets
region’s markets may face some headwinds. indicate that fundamental conditions will improve in
The weekly chart shows that the leading sectors, the future.
represented by the MSCI Emerging Markets Asia Let’s look now at China, which the International
Infotech Index and the MSCI Emerging Markets Monetary Fund now expects to grow about 1% in 2020
Asia Health Care Index, have enjoyed extraordiary even as the global economy contracts 4.9%.
rallies over the past three months. Health care’s
advance (lower graph) is clearly impulsive. The

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 The Global Market Perspective — July 3, 2020

China
March of the Consumers
China’s Consumer Confidence Index trended
sideways-to-down for 20 years before it broke out
of its channel in 2017, possibly beginning a secular
advance. Although confidence dropped amid the
coronavirus crisis this year, the apparent series of first
and second waves in the Solactive China Consumer
Index since 2008 and the index’s breakout to record
highs in June 2020 suggest that China’s consumer
boom will continue.

Investors who are interested in the China consumer

story may want to consider the U.S.-listed Global X
MSCI China Consumer ETF (NYSE: CHIQ). The
ETF, which tracks the Solactive China Consumer
Index, is leading the Shenzhen Composite and
Shanghai Composite higher. The ETF and its
underlying index are made up of a broad base of
Chinese companies listed in the United States, Hong
Kong and mainland China.
OneConnect Financial Technology serves all of China’s top lenders and 99% of the next
As China digitizes and internationalizes its currency, tier down. Its artificial intelligence (AI) systems also
a U.S.-listed Chinese midcap company, OneConnect power things like customer service, auto insurance
Financial Technology (NYSE: OCFT), is riding sales and liability assessment, and government tax
those trends. programs. The company runs a research lab in the
United States and is expanding internationally through
China has long sought to reduce its dependence an office in Singapore.
on the U.S. dollar and increase the use of its own
currency for international payments. OneConnect The stock is tracing out an initial wave up following a
is one of the companies developing the digital post-IPO low in April 2020.
network that is becoming the conduit for the yuan’s Hong Kong and Singapore
internationalization. A division of China’s largest The Hang Seng Index and the Straits Times
insurance company, PingAn Insurance, OneConnect Index continue to rally in the early stages of new

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 The Global Market Perspective — July 3, 2020

bull markets. On May 29, as the Hang Seng Index On June 27, it denied a permit for the annual July
bottomed in wave ii down, short sales as a percentage 1 march that has been organized by Civil Human
of value traded in Hong Kong spiked to a record Rights Front since Hong Kong’s 1997 handover to
20.62%, supporting a major low. China, further signaling that the Sinicization (or
Chinafication) of Hong Kong has begun in earnest.
Incredible as it may sound, that dramatic
transformation should do nothing to derail the long-
term uptrend in Hong Kong stocks as they are in the
early stages of a third wave within wave V up.
Bankruptcy petitions surge
Our April 2020 issue showed how the price-to-book
ratio for the Hang Seng Index had fallen to parity in
March 2020, as it did at the lows in 1998 and 2016.
Our June 2020 issue showed that three down quarters
in a row in GDP growth—a signal generated in the
first quarter of 2020—also supported a significant low
in the Hang Seng Index, based on past precedents.
Another dismal economic statistic, a surge in
bankruptcy petitions (or filings) in Hong Kong in
April 2020, may also support a significant low in the
Hang Seng from a contrarian perspective. Petitions
surged during the month to 2,079, slightly exceeding
a previous peak of 1,872 in February 2009 but still
below a record peak of 2,421 in October 2002.
Update on China’s National Security Law for
Hong Kong
More details have emerged regarding the National
Security Law that China announced for Hong Kong
just ahead of the May low in the Hang Seng Index. In
particular, mainland agents will be allowed to operate
freely in the territory outside any supervision by local
authorities and Beijing will have broad powers to hear
cases, handing down life imprisonment for the most
serious offenses. Authorities will also “strengthen
management” of news agencies and foreign NGOs.
Many activists are stunned. “It’s worse than I feared,”
pro-democracy lawmaker Claudia Mo told Bloomberg
on June 30. Others fear that the legislation may be
applied retroactively. “We could be arrested for what
we did yesterday,” the leader of a group that organized
some of the largest protests last year told Bloomberg
on June 22. Prominent pro-democracy activist Joshua
Wong tweeted on June 20, “Being one of the prime
Japan
targets, I will probably be subject to secret trial, black
The Nikkei 225 is near the end of an impulsive
jails, televised confession and tortures.”
advance from its March 2020 low. A Nikkei 225 DSI
Hong Kong’s police this year issued an unprecedented reading of 94% a few days ahead of the June highs in
ban on the annual June 4 candlelight vigil to the index may support a top. Since the 2009 low in the
commemorate China’s military crackdown on pro- Nikkei, the index has tended to either top immediately
democracy protesters in Tiananmen Square in 1989. or face limited upside over the intermediate term when

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 The Global Market Perspective — July 3, 2020

the Nikkei DSI has reached 90% or

greater. However, two extremes above
90% occurred in the middle of the strong
2013 rally, which are marked with the
word fail.
India
The Nifty 50 continues to advance
in a series of first and second waves
within wave 5 up. The RBI Consumer
Confidence Survey Current Situation
Index plunged to a record low during
the second quarter, providing support
for our forecast for the Nifty from a
contrarian perspective. “India’s animal
spirits in deep slumber despite economy
reopening,” observed Bloomberg on
June 25 in regard to various Indian
economic indicators. That’s why it’s
important to follow the price patterns in
mood.” (Bloomberg, 6/17/20)
the most important leading economic indicator of all:
the stock market. From our perspective, though, the mood was already
stoked in the wake of the 2020 financial crisis, and
the outbreak of violence is a lagging expression of
that negative mood extreme. As we go to press, the
two sides remain locked in a standoff: China has
reportedly built new structures on both sides of the
contested border, while India has banned 59 Chinese
apps, including the massively popular TikTok, and is
considering raising tariffs on imports from China.
The BSE Auto Index veered off track ahead of the
wave 3 high in the Sensex. But the auto sector
has since gotten back in gear and is in fact leading
the market higher in wave 5 up, ranking just

Sino-Indian border conflict update

The hand-to-hand border clashes that Indian troops
engaged in with Chinese troops in May turned deadly
in June. The soldiers attacked each other in freezing
temperatures 15,000 feet above sea level with stones,
iron bars and even nail-studded bamboo poles wrapped
in barbed wire, leaving 20 Indian troops and an
unknown number of Chinese troops dead. The editor
of the Global Times, which often voices Chinese
Communist Party opinions, said that the decision not
to reveal the number of Chinese dead represented
“goodwill from Beijing” to “avoid stoking public

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 The Global Market Perspective — July 3, 2020

behind health care since the March 2020 lows. That

outperformance may seem odd, considering that no
cars were sold in India in April and that sales have
been tepid since re-opening in May. But we don’t
question the waves—we just forecast them.
Given the clear bounce off lower channel support to
end wave 4 down in the auto index, it’s natural that
some individual stocks in the sector would also show
ideal impulse patterns. Below are three:

Atul Auto
The founder of Atul Auto (NSE: ATULAUTO) claims
to have independently invented the now ubiquitous
auto rickshaw, or engine-powered three-wheeler. In
the 1970s, he thought to fit a golf cart engine to a
cycle rickshaw, thereby creating cheap and convenient
transport for India’s urbanizing masses. The small,
specialized company is still riding that trend today,
although it faces competition from larger competitors.
The stock probably ended wave (4) down near its
lower channel line.
Mahindra & Mahindra
One of the strongest stocks in the sector is one of
its largest. Mahindra & Mahindra (NSE: M&M)
did not even bother to touch its lower channel line
before reversing almost all its first-quarter losses to
kick off wave 5 up. Wave 4 overlapped with wave
1 briefly, but we are willing to overlook that defect
given the extraordinary events this year. Alternately,
the overlap may mean that the March low in the stock
may represent the end of wave (A) down of a wave
4 contracting triangle. EWI has observed that wave
A of a contracting triangle sometimes dips into the
price territory of wave 1 but that wave E always ends
above it.
Maruti Suzuki
A joint venture of the Indian government and Suzuki
Motors of Japan, Maruti Suzuki (NSE: MARUTI)
had a market share in 2018 of approximately 53% of
India’s passenger car market. Wave (4) of 3 up in the
stock dipped under the lower channel line, as fourth
waves often do, before recently rising back into the
channel in the early stages of wave (5) up.

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 The Global Market Perspective — July 3, 2020

with China has been one of the more unfortunate

examples. After Australia called for an investigation
into the origins of the coronavirus, an enraged China
imposed tariffs on Australian barley exports and it
banned beef from four Australian meatpackers. In
early June, Australia announced the biggest shake-up
of its foreign investment laws, including giving the
government the power to force the sale of a business
if it creates a national security risk—a measure widely
thought to be directed at Chinese investments. A
week later, China warned its citizens not to travel to
Australia due to the risk of discrimination and racist
attacks. On July 1, Australia announced an overhaul of
its defense strategy to focus on the Indo-Pacific region
in response to China’s increased military assertiveness
and cyberspace aggression in recent years. The tit-for-
tat exhanges may continue for a while until a new bull
The USD/INR is consolidating ahead of its next move
market is well underway in both markets.
up. The long-term trend remains upward.
Atlassian
Australia
A possible indication of extreme optimism near a
The ASX 200 InfoTech Index briefly hit a record
significant peak in the tech sector: Australia’s largest
high in June. It’s still not clear whether the March
software company, Atlassian (Nasdaq: TEAM), on
2020 low represents the end of wave A down of a
June 25 announced plans to build a new headquarters
wave (4) contracting triangle or wave (4) down in
in Sydney—a 40-floor hybrid-timber tower that would
its entirety. The ASX All Ordinaries has lagged the
become the centerpiece of the state government’s
infotech index considerably. The pattern and depth of
planned tech hub. The stock is tracing out the final
the retracements of the rallies from March 2020 should
subwaves within wave (5) up of an impulsive advance
give us more information about the intermediate-term
from its 2016 post-IPO low. In other words, the stock
and long-term trends.
may be getting ready to say Timber!

Gold mining stocks

Gold miners have been the best-performing sector
Sino-Australian relations
this year on the ASX, and they look likely to continue
The financial crisis has brought out the worst in
rising in 2020.
some trading partners, and Australia’s relationship

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 The Global Market Perspective — July 3, 2020

North Korea-South Korea conflict

We have long shown that North Korea’s international
relations are a good indicator of the mood on the
Korean peninsula as measured by the KOSPI, and the
regime proved it again on June 16: It blew up a four-
story liaison office that South Korea had built on the
North Korean side of the demilitarized zone at a cost
of $8 million in 2018. The North said that it destroyed
the building “to force the human scum, and those
who have sheltered the scum, to pay dearly for their
crimes,” referring to North Korean defectors living
in South Korea who have floated balloons containing
leaflets critical of the North across the border (AP,
6/16/20).
The provocation came a little more than two years
after North Korean leader Kim Jong-un met South
Korean President Moon Jae-in for the first time at
a summit in the demilitarized zone. That historic
The S&P ASX All Ordinaries Gold Index completed meeting, which led to the creation of the liaison office,
an initial impulsive advance at its 2019 high and then occurred in the wake of the wave (1) high in the
fell in three waves to a low in March 2020. The three- KOSPI. The North’s rage suggests that South Korean
wave retracement was shallow, ending in the upper stocks are probably climbing a wall of worry in the
half of the previous fourth wave of lesser degree. A early stages of a new bull market.
shallow retracement means either that the ongoing Pakistan
advance is very powerful or that the index will correct The Karachi Stock Exchange 100 Index is
for a while longer. Either way, the gold miners’ bull correcting its initial advance within wave 5 up. On
market from 2014 is far from over. June 29, four terrorists tried to storm the Karachi
South Korea and Taiwan Stock Exchange and managed to kill at least three
The KOSPI and the Taiwan Index are near the people before security officers shot and killed the
end of initial impulsive advances from their March attackers. The timing of the incident supports the
2020 lows. socionomic observation that violence tends to erupt

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 The Global Market Perspective — July 3, 2020

after significant stock market declines. In this case, 0.90% remains our key pivot point. A drop below that
the attack occurred in the wake of a nearly three-year level will mean that the decline in Intermediate degree
bear market in the KSE-100, when Pakistani stocks wave (5) of Primary wave C is still in operation.
declined 77% in U.S. dollar terms from their 2017
high, as indicated by the Global X MSCI Pakistan Yield Curve Control – Storing Up Problems
By Murray Gunn, European Short Term Update, Interest
ETF (NYSE: PAK). At the time of the attack, the ETF Rates Pro Service, Currency Pro Service
was still down by 68% from its 2017 high. The Fed is scraping the bottom of its policy barrel.
What is Yield Curve Control and what might it mean
GLOBAL INTEREST RATES for the markets?
Interest Rates Around the World
The Bloomberg Barclays Global Aggregate Bond There is increasing chatter that the Federal Reserve
Index yield declined over the past few weeks, will implement a policy known as Yield Curve Control
led by an outperformance of corporate credit and (YCC) now that it has reached its policy response
emerging markets. limits. A central bank sets a nation’s base interest rate
and market forces determine all other rates (actually,
Bond buyers of long-term maturities face an enormous
as EWI has shown, market forces determine the
risk of a huge price decline when interest rates start to
central bank’s base rate but that’s another story).
rise. Safe, short-term bonds remain the best choice.
YCC, though, refers to the practice of a central bank
The latest bounce in global 10-year yields was deliberately trying to control the level of interest rates
corrective. Expect the UK and Australia 10-year yields (bond yields) throughout the yield curve. It does this
to revisit their late-March lows and then stage at least a simply in order to ensure that borrowing costs do not
corrective bounce into the new month, while Germany rise and, it hopes, fuel economic growth.
will likely remain trapped in a sideways correction.
In practice, it means that the Fed will be prepared to
The Bond Universe buy any amount of bonds in the open market to keep
By Murray Gunn, European Short Term Update, Interest the yield at a level deemed appropriate. For example,
Rates Pro Service, Currency Pro Service
if the Fed decided that the 5-year Treasury bond yield
Corporate bond issuance ballooned as companies have should not exceed 0.50%, it will “sit on the bid” in
sought to shore up their balance sheets and replace that bond market, swallowing up all offers that come
short-term funding with longer-term funding. Lenders its way. 5-year Treasury bond holders will know that
have fallen over themselves to give them the cash they will always be able to sell their bonds at a yield of
as any incremental yield is still seen by investors as 0.50% to the Fed. Should the Fed run out of money to
being valuable, despite the increasing risk of defaults finance its purchases of said 5-year bond, hey presto,
spiraling out of control. One clue that the seemingly it simply creates the greenbacks out of thin air. This
stellar performance in credit might not be all it seems, policy should mean that the 5-year yield will not be
though, is the fact that since early June, the lowest able to exceed 0.50%.
rated corporate bonds (CCCs) have underperformed
the highest rated (AAAs). The Fed has actually used YCC before, starting in
1942 after the U.S. entered the Second World War and
ending in 1947, in order to ensure that government
borrowing costs did not balloon when it was financing
the war effort. However, in recent times, the only
central bank that has tried it is the Bank of Japan. How
has that worked out?
The BoJ started YCC in 2016 with the aim of keeping
the 10-year bond yield at around 0%, hopefully
spurring the economy and price inflation. Since
then, Japanese GDP and consumer price growth
have both remained feeble and the stock market has
underperformed the rest of the world. Essentially,
the Japanese bond market has been nationalized and
hardly any trading takes place now. The Japanese
yen has also remained remarkably stable since the

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 The Global Market Perspective — July 3, 2020

rates. The heightened potential for rising long-term

U.S. Treasury yields is shown on the bond chart in the
June issue . Bond buyers should limit their purchases
to safe, short-term instruments, such as T-bills or
Floating-rate notes, as discussed in EWT and Conquer
the Crash 2020.

European and Asian-Pacific Interest Rates

By Ivelin “Ivo” Zhelev
German 10-Year Yield
The latest bounce in bunds is corrective, which signals
that wave B is still in progress, perhaps tracing out
BoJ started YCC. But herein lies the issue with YCC. a larger triangle correction. This implies further
By squashing volatility, unless the policy is going to sideways activity between -26 to -60 bps in waves
last forever, all a central bank is doing is storing up c through e. This would only delay the anticipated
problems for the future. As the chart shows, USD-JPY rally towards the -5 to 15 bps Fibonacci area in wave
volatility is at its lowest in history. When it returns, as C of (2).
it will, expect fireworks.
Should the Fed embark on YCC, can we expect similar
compression of volatility in the bond and currency
markets? Perhaps, but that depends on many factors,
not least the credibility of the Fed which is already on
the wane.
U.S. Treasuries
By Steven Hochberg and Peter Kendall, Elliott Wave
Financial Forecast (EWFF)
The declining line in blue on this chart is the
Bloomberg Barclays U.S. Aggregate Corporate Bond
Yield, which is at a record low 2.15%. The rising
line in red is the Bloomberg Barclays U.S. Aggregate
Corporate Duration, which is at a record high 8.6.
Bond duration is a measure of how sensitive prices
are to a move in interest rates. A long duration relative
to low rates indicates a greater risk of a price decline UK 10-Year Yield
when interest rates rise. Bond investors are now Our immediate focus remains lower with a close eye
making a hugely dangerous bet that interest rates will on 7 bps, the late-March low. We expect to see at least
stay low forever. It is dangerous because, as the chart a corrective bounce from there. Key resistance is 54
shows, there has never been a time in history when
there is a greater risk of loss during a trend of rising

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 The Global Market Perspective — July 3, 2020

bps. A return above this level would leave a corrective

structure behind and hint that wave C of a flat wave (2)
is on its way to revisit the late-March high of 106 bps.
We can see a cleaner corrective pattern in progress
on the futures chart of Long Gilt – a flat that needs a
c-wave decline below 127.05 for completion. A more
aggressively bullish gilts wave count would have to
adopted only if there is a sustained rally above 138.90,
the wave (1) high, which is the equivalent of 7 bps
in yields.

Japan 10-Year Yield

Japan’s 10-year yield saw a corrective bounce, which
keeps our immediate focus lower with the -14 to -19
bps area, channel and structural support, a short-
term target to watch. We would have to adopt a less
aggressive wave count – a bearish triangle wave 4 –
if yields continue lower in a corrective manner.

INTERNATIONAL CURRENCY
RELATIONSHIPS
Australia 10-Year Yield Currencies Around the World
Like in the UK 10-year, the March low of 55 bps will The US Dollar is poised to stage a broad-based
likely be tested near term, however, we don’t want advance relative to the Euro, Swiss Franc, and
to be overly aggressive to the downside until we see Canadian Dollar. Strong Dollar counts are also under
some downside acceleration or closing price action consideration relative to Sterling and the Australian
below this level. We want to acknowledge the potential Dollar. US Dollar strength should soon spread to the
of a larger flat correction in wave (2), especially given Japanese Yen.
the high likelihood of a larger corrective rally in both
The recent bout of underperformance in Sterling
German and UK 10-year yields.
against Euro, Yen, and the Swiss Franc should
continue for the summer. We are calling for a turn
in favor of the Euro against the Yen and Swissy;
however, it will continue to underperform against
the world’s commodity dollars, most notably against
Aussie, CAD, Nokkie & Kiwi.
Dollar Rates
By Jim Martens, Currency Pro Service
The anticipated thrust from a triangle completed the
corrective decline from the March peak at 102.99. The
US Dollar Index might be in a position similar to April
2018 when it started higher in a third-wave advance.
Wave 3 should easily exceed 102.99.
Dollar strength relative to the Euro, Swiss Franc,
and Canadian Dollar will drive the advance. The
buck staged a similar decline relative to all three
competitors. It also staged significant, potentially

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 The Global Market Perspective — July 3, 2020

corrective setbacks relative to Sterling and the from 0.9184, a common relationship. It should end
Australian Dollar if the Dollar turns higher relative to beneath 1.0233.
both from current levels. USDCAD broke down from the trading range we
EURUSD staged a rally like the US Dollar Index pointed out in the June issue of Global Market
retreat. It unfolded in three waves: a-triangle b-c. Perspective. The terminal thrust from a triangle leaves
The triangle signals that the rally is corrective, and USDCAD is a similar position to USDCHF, poised
the thrust from the triangle should bring it to an end. to stage a rally toward another test of prior highs
The recent reversal from near the prior peak at 1.1493 at 1.4690 and 1.4667. The rally might already be
suggests the correction is complete, and the larger underway from 1.3316.
decline has resumed. It should reach below 1.0636.

From 0.9184 and likely from the secondary established

low at 0.9376, USDCHF should stage a rally that
exceeds 0.9900. At 1.0107, a rally from 0.9376
will travel the same distance as the prior advance

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 The Global Market Perspective — July 3, 2020

Sterling has staged a significant rally since March. Given our outlook for a Dollar rally relative to several
Still, recognizing the corrective Dollar setback its other competitors, we’ve taken another look at
relative to several other pairs, the recovery might also AUDUSD. The most significant correction within
represent a correction. It has traced out three waves, the rise underway since March, a potential triangle,
and the potential zigzag correction alternates with the occurs near the mid-point of the rise, which suggests
prior correction that unfolded as an expanded flat. it represents wave b of a corrective recovery. An
Barring overlap with wave 6 at 1.2905, GBPUSD impulsive decline beneath the lower extreme of the
might stage a fifth-wave decline that reaches proposed triangle to 0.6253 would favor that Aussie
below 1.1411. has topped and turned lower.

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 The Global Market Perspective — July 3, 2020

USDJPY is lagging behind the other pairs. It is EURCHF has run into resistance at the upper boundary
likely to slip beneath 105.98 toward the target area at of the corrective price channel. Locating support above
104.12 – 105.25 to complete a correction from 111.71. 1.050 will set the stage for swiftly higher in wave 8;
Afterward, a rally that exceeds 111.71 and approaches a five-wave advance is expected to take EURCHF well
118.65 should take place. The alternate scenario above 1.1059.
suggests that a bullish triangle will be at an end, and a
thrust to above 125.85 will follow.

Breaking decisively down from the corrective price

channel is additional bearish evidence. The key level is
adjusted to 1.6772, looking for the impulse unfolding
from 1.9801 to break below the end of the wave B
Other Rates triangle at 1.5854.
By Michael Madden, Currency Pro Service
The impulsive nature of the price action from 0.8671
keeps our focus on higher. Trading above 0.9500 is the
next objective for the bulls.

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 The Global Market Perspective — July 3, 2020

The corrective nature of last month’s price action A corrective rally that terminates below 11.6970 will
suggests that wave 7 is still unfolding; therefore, we set up for a swift move lower within this wave 3
are looking for a deeper retracement of wave 6. The decline.
reversal zone between 1.4924 & 1.4634 comprises the
.618 & .7876 Fibonacci retracements of wave 6.

The impulsive nature of the price action from 1.8264

is in line with our wave 3 forecast. Breaking below
Breaking through the end of wave 4 at 10.4879 is 1.6588 is the next objective for the bears.
more evidence in favor of the bear trend. Breaking
decisively out of the corrective price channel will put
this wave (1) forecast on a solid footing.

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 The Global Market Perspective — July 3, 2020

Favoring that wave 9 has registered its low, we are Raising the key level to 70.16, we expect last month’s
looking higher in wave 0 from 4.3710. Wave 0 must consolidation is within wave (iii) and will result in a
unfold in five waves and it will take EURPLN above test of the highs of the wave b triangle circa 80.00.
the 4.6352 peak.

Last month’s call for the full retracement of the Favoring that three waves are now in place for wave
ending diagonal is an excellent example of the Wave (b), our focus is on five waves unfolding for wave (c),
Principle’s guidelines. Under traditional technical a move that will take GBPJPY below 124.07 over the
analysis guidelines, price action will often pull back coming weeks.
to a trendline following the initial break; we expect
EURJPY will soon push higher from this trendline that
should now be support.

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 The Global Market Perspective — July 3, 2020

Against the 1.2260 key level, expect GBPCHF to push

below 1.1117 over the coming weeks, in a five-wave
decline underway for wave v of (c).

Energy
By Steve Craig, Energy Pro Service
Crude Oil
Cryptocurrency Crude extended its advance from April’s historic
By Tony Carrion low up to 41.63 in June, and it did so as commercial
[for video see online version] oil stocks in the U.S. climbed to record levels – a
seeming disparity from a fundamental perspective.
METALS & ENERGY In Elliott terms, the market was just tracing out an
Metals and Energy Around the World impulse wave and the price/momentum divergence on
Gold’s advance to a new recovery high this week the RSI that often accompanies fifth waves suggests
completes its bear-market rally. Both gold and silver that it’s complete or nearly so. The extent of the rally,
should now decline. however, argues for labeling the April low as the end
Crude should be at or near the end of a five-wave of Supercycle wave (a). It’s way too early to tell how
advance from its April low. A proportional corrective the Supercycle wave (b) advance will develop, but
retreat should follow. Further downward pressure with the odds high that it will be a multi-year event
in Natural Gas is still possible, but an immediately that eventually retraces between 90% and 105% of the
bullish alternate count has emerged.
Gold & Silver
By Steven Hochberg and Peter Kendall, Elliott Wave
Financial Forecast (EWFF)
Nearly a year ago, on September 4, 2019, gold and
silver rallied in unison to highs at $1557.29 and
$19.69, respectively. Since then, the metals have gone
their separate ways, as gold made a series of higher
highs, while silver has made a series of lower highs.
Now, however, gold is set to turn down, as the push
to $1789.56, the high on July 1, finishes the final
subdivisions of Cycle wave b. The Short Term Update
forecast the development of the subwaves to the high,
which completes the nearly five-year, bear-market
rally from December 2015. It’s time for the metals
to decline.

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 The Global Market Perspective — July 3, 2020

wave (a) decline, we’ll label it as a developing zigzag Our outlook for a lengthier wave (3) decline still
pending additional structural development. In any stands, but a bullish alternate count merits attention
event, a proportional corrective retreat should set the and that’s to label the five-wave decline from the 2018
stage for another five-wave advance. Trade below the Primary wave B peak as ending diagonal wave C to
wave (4) low should be a good sign that Primary wave complete Cycle wave y. Ending diagonals are found
1 is done and that the Primary wave 2 retracement at the termination points of larger patterns (see EWP
is in force. If wave 1 is still subdividing, a potential pg. 37). Reversals are typically swift and carry prices
objective is 46.12 where the length of wave (5) of 1 beyond the origin of the pattern. Trade above the last
equals the length of wave (1) – a common relationship. swing peak at 1.896 would argue for its adoption
since it would leave the 2.162 to 1.432 decline with
Note: The Supercycle wave (a) low on the prompt
a corrective three-wave look, which is not what we’d
month contract must hold to keep wave 2 from
expect to see if a third-wave decline is unfolding.
retracing more than 100% of wave 1 and in turn,
keep the prompt and continuation charts in sync. It’s at Note: In addition to reiterating the potential for the
20.28 basis August. We’ll need to re-think things if it steep contango into the winter months to “skew” the
gives way. wave count from a continuation perspective, we would
also note that it’s not uncommon to see a seasonal low
Natural Gas
in mid- to late-summer. If the alternate count is in play
Natural Gas extended its decline as anticipated. The
from 1.432, it has come a little early.
sell-off low is now 1.432, a level last seen in 1995.

ECONOMIC, MONETARY, AND

CULTURAL TRENDS
The Fed Really Needs to Look at This Chart:
Deflation Ahead
By Murray Gunn, European Short Term Update, Interest
Rates Pro Service, Currency Pro Service
Rule number one—when you’re in a hole, stop
digging. If the Fed is serious about trying to prevent
price deflation, it should STOP printing money.
It’s been a well-worn policy response from the Federal
Reserve for many years now. If the economy stumbles,
just print more money—quod erat demonstrandum
(QED), the economy should recover. Printing vast
sums of money should certainly wardoff any threat
of price deflation. So goes the thinking at the Eccles

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 The Global Market Perspective — July 3, 2020

Building in Washington D.C, where the Fed is By Brian Whitmer, European Financial Forecast (EFF)
headquartered. Could that thinking be wrong? A two-month uptick in Europe’s PMI data simply
The chart shows the velocity of the M2 money stock cannot mask the wider economic destruction that will
versus Core Consumer Price Index (CPI) on an annual take place over the second half of 2020. At -11.5%,
percentage change basis. M2 Velocity is a ratio, Britain will suffer the worst GDP hit out of the 15
calculated by dividing the nominal Gross Domestic largest economies that the Organization of Economic
Product by the M2 Money Stock. As more money Cooperation and Development (OECD) just studied.
is printed relative to the size of the economy, M2 Not far behind, the French, Italian and Spanish
Velocity declines. The chart shows that the annualized economies will each contract at more than 11%,
change in M2 Velocity has collapsed, as not only has sending the eurozone economy (No. 5 on the list of
M2 Money Stock expanded, but the economy has worst-hit economies) into a -9.1% tailspin. Number 6
contracted. on the list is Russia, which will also contract at -9.1%.
Now look at its relationship with Core CPI, the Europe’s overrepresentation on the OECD’s list should
annualized change in consumer prices excluding food come as no surprise to subscribers. As we explained
and energy. Over the past 20 years there has been a last month, only a massive buildup of debt can account
distinct relationship, with the change in M2 Velocity for the fact that a relatively short work stoppage has
leading Core CPI by around 7 quarters. Therefore, if produced such a dramatic economic collapse. As this
this relationship holds, we must anticipate a huge drop Financial Times chart illustrates, debt ratios in Greece,
in the year-on-year rate in Core CPI over the next 18 Italy and Portugal had already jumped ahead of
months or so. national output before the pandemic struck. If the light
blue forecasts on the chart turn out to be correct, then
What this evidence suggests is that, contrary
France, Spain and Belgium will join the 100% debt-
to conventional thinking, not only does money
to-GDP club before the year is out. More important,
printing not lead to increasing price inflation, it
the average debt-to-GDP ratio across the 19 eurozone
can actually lead to price disinflation and possibly
nations will also soon exceed the region’s economic
deflation. Perhaps QED in this context should mean,
output. Keep in mind that the OECD based its figures
Quantitative Easing equals Deflation.
on a single-hit scenario, meaning that a second wave
of Covid-19 infections would fail to materialize before
the end of the year.

Because bear markets never move in a straight line,

the economic statistics that lag stock prices invariably
produce a series of false recoveries that lure investors
into believing the worst is over. June’s record rise in
German business morale, for example, prompted this
statement from the chief economist at the Munich-

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 The Global Market Perspective — July 3, 2020

based Ifo Institute: “We have passed the economic time, the office space glut that had begun to burgeon in
trough, the low point is behind us and things are the first quarter of 2020 is only expected to get worse.
looking up again.” One of Europe’s largest property developers reports
that European employers could slash desk space by as
With Europe showing few signs of a second
much 30% in order to save money and adhere to social
coronavirus wave, many anticipate that the economy
distance guidelines. The question is not if the office
will just keep leaping forward. In our view, this
market will get hit, but “how bad the hit will be for
assessment is way off. The problem lies in the
commercial real estate.” (Bloomberg, 6/9/20) In turn,
half dozen economic reversals that predated the
commercial landlords are bracing for a “huge overhang
coronavirus outbreak. As we illustrated in January
over the office sector.” Finance and technology
2020, German manufacturing orders, industrial
companies from American Express to Nomura to
production, producer prices and foreign industrial
Google have adopted work-from-home strategies.
orders peaked back in late 2017 or early 2018. The
Central Europe looks especially vulnerable. More than
peak in German wholesale prices arrived a full year
13 million square feet of office space currently sits
before that, in December 2016. In other words,
empty in Warsaw, Budapest and Prague, with another
Europe’s largest economy was on life support before
1.6 million square meters under development.
Covid-19, and the economy simply went comatose
afterward. In April, German industrial production Soon to come will be a much bigger glut that few
plunged 18%, the biggest drop since records began to people want to acknowledge: a surplus of workers
be kept in 1991. Production of capital goods fell more themselves.
than 35%, while factory orders plummeted nearly
Some Jobs May Not Come Back Post-
26%, the largest-ever monthly decline that was nearly
Pandemic
double the previous record set in March 2020. Car —Bloomberg, 6/15/20
sales, meanwhile, were half their levels of the same
month in 2019, and car production over the first five The headline refers to the situation in Italy, one the
months of 2020 just sank to levels last seen in 1975. world’s Covid-19 epicenters, but most European
Many economists have used the 2008 financial crisis nations are facing the same problem. Despite two
to benchmark the current downturn, but, as we stated fiscal stimulus packages totaling €75 billion, Italian
last month, the 2020s will more closely resemble employers are expected to eliminate more than 3
the 1930s. In fact, the 2008 financial crisis saw a million employment contracts, according to temporary
cumulative 20% contraction in German industrial employment agency Adecco. That’s 13% of Italy’s
production. Today’s contraction stands at 25% ... and 23 million-person labor force. In the UK, British
that’s just for four months through April. Petroleum will soon let go 14% of its workforce
Here’s more headline evidence that Europe’s economic permanently, representing 10,000 jobs. Royal
engine stalled out before the pandemic: Dutch Shell is reviewing expatriate staff contracts,
scaling back on recruitment, and offering voluntary
Germany’s ‘Decade of Real Estate’ Is Over…. redundancies, according to Bloomberg. On June 9,
—FT, 6/4/20 France unveiled a €15 billion plan to rescue Airbus
“with measures aimed at preventing massive job losses
According to the Financial Times article, “the boom,
and underpinning aircraft orders.” (Bloomberg, 6/9/20)
aided by years of high growth and low unemployment,
The airline industry employs about 300,000 people
was drawing to a close even before Covid-19 hit.”
in France.
In April, gross leasing activity across Germany’s so-
called Big 7 cities—Berlin, Cologne, Düsseldorf, This chart shows that unemployment forecasts
Frankfurt, Hamburg, Munich and Stuttgart—sank to in Germany (left graph) slowly trickled higher
701,000 square meters. That number, which represents throughout 2019. And while forecasts in France and
a 30% decline on a 12-month basis, is the weakest the eurozone fell last year, unemployment across all
three-month period since the third quarter of 2014, three regions has exploded since February. In the
according to property services company JLL. More United States, the number of employed people as a
important, none of Germany’s property strongholds percentage of the U.S. adult population plummeted
escaped the downturn, which is “unusual given that the below 53% in May. That employment ratio was 64.7%
trend has generally been upwards in the past 10 years.” near the stock market’s peak in 2000. Meanwhile,
(JLL Office Market Overview, April 2020) At the same Bloomberg estimates that about one-third of the

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 The Global Market Perspective — July 3, 2020

increase in U.S. unemployment from February to May bailout measures that have convinced investors of
risks becoming long term. all classifications that the Fed can and will stop any
decline. Here’s Bloomberg’s headline verdict as
As Conquer the Crash explained, a trend of credit
of June 23:
expansion has two components: (1) the general
willingness to lend and borrow and (2) the general Fear Is All But Dead In
ability of borrowers to pay interest and principal. With Credit Markets Backed by Fed
the darkening employment picture kicking out the As explained in detail in Chapter 10 of Conquer the
second pillar, the worldwide debt pile will soon come Crash 2020, this is a false premise, and the Fed’s
crashing down. The question of how to get out from limitations will be exposed as negative mood becomes
under it will dominate the economic discourse for at more dominant.
least the next decade.
At the moment, though, fear is indeed dead. Junk
By Steven Hochberg and Peter Kendall, Elliott Wave Finan-
cial Forecast (EWFF) issuers raised more than $51.5 billion in June, the most
In 2013, the percentage of zombie companies was on record. For the second quarter, the total is more
less than half what it is now. But even at that point, than $120 billion, also the most on record. Consider
the level of Federal Reserve intervention in the bond these facts alongside the chart of topping global stock
market worried a newly appointed Federal Reserve indexes on page 3 and the 20-year-long rise in the
Board governor: “There’s reason to be concerned percentage of U.S. zombie companies on page 7. The
about the growing market disruptions created by our Fed’s complicity in the deterioration of credit quality
continuing asset purchases,” said Jerome Powell at that calls to mind the following quote from the conclusion
time. “Many fixed-income securities are now trading of Elliott Wave Principle:
well above fundamental value, and the eventual Institutionalized policies create increasing
correction could be large and dynamic.” Turns out instability and have the power to turn a nation of
Mr. Powell was absolutely right. The correction is conscientious producers into a private sector full
“large and dynamic.” Now, however, as chairman of impatient gamblers and a public sector full of
of the Federal Reserve, Powell is not wavering from unprincipled plunderers. When the fifth wave of
the institutional imperative of the Fed: to defend the the fifth wave tops out, we need not ask why it
bull market at all costs. If this means buying junk has done so. Reality, again, will be forced upon
bond ETFs, the Fed said “so be it” in March. At about us.
the same time, it instituted about a dozen different

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 The Global Market Perspective — July 3, 2020

It’s all in place: an epic loss of lending discipline and wave 2 is topping, and wave 3 is nigh, hope will be
the fifth of the fifth wave up in the DJIA. Of course, short-lived. An economic depression that challenges
reality still has a lot of work to do. On June 8, the day the Great Depression in depth and duration could not
of the countertrend high in the Dow, the Associated be more perfectly positioned.
Press reported, “Some Economists Say, ‘It Could be
HANGING SADLY DOWN
the Shortest Recession in History.” Recent job figures
AMID THE MERRY MAKERS...
have convinced people that the recovery has already
GREEN WEEPING WILLOW
started. But the economy lags the stock market, and
—ROKA SHONIN
after over three months of recovery in stock prices, the
economy has naturally rebounded somewhat. But if

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The Wave Principle is Ralph Nelson Elliott’s discovery that social, or crowd, behavior trends and reverses in recognizable
patterns. Using stock market data as his main research tool, Elliott isolated thirteen patterns of movement, or “waves,”
that recur in market price data. He named, defined and illustrated those patterns. He then described how these structures
link together to form larger versions of those same patterns, how those in turn link to form identical patterns of the
next larger size, and so on. In a nutshell, then, the Wave Principle is a catalog of price patterns and an explanation of
where these forms are likely to occur in the overall path of market development.

Pattern Analysis
Until a few years ago, the idea that market
movements are patterned was highly
controversial, but recent scientific discoveries
have established that pattern formation is
a fundamental characteristic of complex
systems, which include financial markets.
Some such systems undergo “punctuated
growth,” that is, periods of growth alternating
with phases of non-growth or decline, building
fractally into similar patterns of increasing
size. This is precisely the type of pattern
identified in market movements by R.N.
Elliott some sixty years ago.

The basic pattern Elliott described consists

of impulsive waves (denoted by numbers)
and corrective waves (denoted by letters). An
impulsive wave is composed of five subwaves
and moves in the same direction as the trend
of the next larger size. A corrective wave
is composed of three subwaves and moves against the trend of the next larger size. As the chart shows, these basic
patterns link to form five- and three-wave structures of increasingly larger size (larger “degree” in Elliott terminology).

In the chart above, the first small sequence is an impulsive wave ending at the peak labeled 1. This pattern signals
that the movement of one larger degree is also upward. It also signals the start of a three-wave corrective sequence,
labeled wave 2.

Waves 3, 4 and 5 complete a larger impulsive

sequence, labeled wave (1). Exactly as with
wave 1, the impulsive structure of wave (1)
tells us that the movement at the next larger
degree is upward and signals the start of a
three-wave corrective downtrend of the same
degree as wave (1). This correction, wave
(2), is followed by waves (3), (4) and (5) to
complete an impulsive sequence of the next
larger degree, labeled wave 1. Once again,
a three-wave correction of the same degree
occurs, labeled wave 2. Note that at each
“wave one” peak, the implications are the

36
Global Market Perspective Capsule Summary

same regardless of the size of the wave. Waves come in degrees, the smaller being the building blocks of the larger.
Here are the accepted notations for labeling Elliott Wave patterns at every degree of trend:

Within a corrective wave, waves A and C may be smaller-degree impulsive waves, consisting of five subwaves. This
is because they move in the same direction as the next larger trend, i.e., waves (2) and (4) in the illustration. Wave B,
however, is always a corrective wave, consisting of three subwaves, because it moves against the larger downtrend.
Within impulsive waves, one of the odd-numbered waves (usually wave three) is typically longer than the other
two. Most impulsive waves unfold between parallel lines except for fifth waves, which occasionally unfold between
converging lines in a form called a “diagonal triangle.” Variations in corrective patterns involve repetitions of the
three-wave theme, creating more complex structures that are named with such terms as “zigzag,” “flat,” “triangle”
and “double three.” Waves two and four typically “alternate” in that they take different forms.

Each type of market pattern has a name and a geometry that is specific and exclusive under certain rules and guidelines,
yet variable enough in other aspects to allow for a limited diversity within patterns of the same type. If indeed markets
are patterned, and if those patterns have a recognizable geometry, then regardless of the variations allowed, certain
relationships in extent and duration are likely to recur. In fact, real world experience shows that they do. The most
common and therefore reliable wave relationships are discussed in Elliott Wave Principle, by A.J. Frost and Robert
Prechter.

Applying the Wave Principle

The practical goal of any analytical method is to identify market lows suitable for buying (or covering shorts), and
market highs suitable for selling (or selling short). The Elliott Wave Principle is especially well suited to these functions.
Nevertheless, the Wave Principle does not provide certainty about any one market outcome; rather, it provides an
objective means of assessing the relative probabilities of possible future paths for the market. At any time, two or more
valid wave interpretations are usually acceptable by the rules of the Wave Principle. The rules are highly specific and
keep the number of valid alternatives to a minimum. Among the valid alternatives, the analyst will generally regard
as preferred the interpretation that satisfies the largest number of guidelines and will accord top alternate status to the
interpretation satisfying the next largest number of guidelines, and so on.

Alternate interpretations are extremely important. They are not “bad” or rejected wave interpretations. Rather, they
are valid interpretations that are accorded a lower probability than the preferred count. They are an essential aspect of
investing with the Wave Principle, because in the event that the market fails to follow the preferred scenario, the top
alternate count becomes the investor’s backup plan.

Fibonacci Relationships
One of Elliott’s most significant discoveries is that because markets unfold in sequences of five and three waves, the
number of waves that exist in the stock market’s patterns reflects the Fibonacci sequence of numbers (1, 1, 2, 3, 5,
8, 13, 21, 34, etc.), an additive sequence that nature employs in many processes of growth and decay, expansion and
contraction, progress and regress. Because this sequence is governed by the ratio, it appears throughout the price and
time structure of the stock market, apparently governing its progress.

What the Wave Principle says, then, is that mankind’s progress (of which the stock market is a popularly determined
valuation) 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. As a corollary, the Wave
Principle reveals that periods of setback in fact are a requisite for social (and perhaps even individual) progress.

Implications
A long-term forecast for the stock market provides insight into the potential changes in social psychology and even
the occurrence of resulting events. Since the Wave Principle reflects social mood change, it has not been surprising to
discover, with preliminary data, that the trends of popular culture that also reflect mood change move in concert with
the ebb and flow of aggregate stock prices. Popular tastes in entertainment, self-expression and political representation
all reflect changing social moods and appear to be in harmony with the trends revealed more precisely by stock market
data. At one-sided extremes of mood expression, changes in cultural trends can be anticipated.

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Global Market Perspective Capsule Summary

On a philosophical level, the Wave Principle suggests that the nature of mankind has within it the seeds of social
change. As an example simply stated, prosperity ultimately breeds reactionism, while adversity eventually breeds a
desire to achieve and succeed. The social mood is always in flux at all degrees of trend, moving toward one of two
polar opposites in every conceivable area, from a preference for heroic symbols to a preference for anti-heroes, from
joy and love of life to cynicism, from a desire to build and produce to a desire to destroy. Most important to individuals,
portfolio managers and investment corporations is that the Wave Principle indicates in advance the relative magnitude
of the next period of social progress or regress.

Living in harmony with those trends can make the difference between success and failure in financial affairs. As
the Easterners say, “Follow the Way.” As the Westerners say, “Don’t fight the tape.” In order to heed these nuggets
of advice, however, it is necessary to know what is the Way, and which way the tape. There is no better method for
answering that question than the Wave Principle.

To obtain a full understanding of the Wave Principle including the terms and patterns, please read Elliott Wave Principle
by A.J. Frost and Robert Prechter, or take the free 10 Lessons on the Wave Principle on the Elliott Wave International
website at www.elliottwave.com (http://www.elliottwave.com/tutorial/).

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Global Market Perspective Bios

GLOSSARY OF TERMS

Alternation (guideline of) — If wave two is a One-two, one-two — The initial development in a
sharp correction, wave four will usually be a sideways five-wave pattern, just prior to acceleration at the center
correction, and vice versa. of wave three.

Apex — Intersection of the two boundary lines of a Overlap — The entrance by wave four into the price
contracting triangle. territory of wave one. Not permitted in impulse waves.

Corrective Wave — A three-wave pattern, or Previous Fourth Wave — The fourth wave within the
combination of three-wave patterns, that moves in the preceding impulse wave of the same degree. Corrective
opposite direction of the trend of one larger degree. patterns typically terminate in this area.

Diagonal (Ending) — A wedge-shaped pattern Sharp Correction — Any corrective pattern that does
containing overlap that occurs only in fifth or C waves. not contain a price extreme meeting or exceeding that of
Subdivides 3-3-3-3-3. (Original Terminology: Diagonal the ending level of the prior impulse wave; alternates with
Triangle) sideways correction.

Diagonal (Leading) — A wedge-shaped pattern Sideways Correction — Any corrective pattern that
containing overlap that occurs only in first or A waves. contains a price extreme meeting or exceeding that of
the prior impulse wave; alternates with sharp correction.
Double Three — Combination of two simple sideways
corrective patterns, labeled W and Y, separated by a Third of a Third — Powerful middle section within an
corrective wave labeled X. impulse wave.

Double Zigzag — Combination of two zigzags, labeled Thrust — Impulsive wave following completion of a
W and Y, separated by a corrective wave labeled X. triangle.

Equality (guideline of) — In a five-wave sequence, Triangle (contracting, barrier) — Corrective pattern,
when wave three is the longest, waves five and one tend subdividing 3-3-3-3-3 and labeled A-B-C-D-E. Occurs
to be equal in price length. as a fourth, B, X (in sharp correction only) or Y wave.
Trendlines converge as pattern progresses.
Expanded Flat — Flat correction in which wave B
enters new price territory relative to the preceding impulse Triangle (expanding) — Same as other triangles, but
wave. (Original Terminology: Irregular Flat) trendlines diverge as pattern progresses.

Flat — Sideways correction labeled A-B-C. Subdivides Triple Zigzag — Rare combination of three zigzags,
3-3-5. labeled W, Y and Z, each separated by a corrective wave
labeled X.
Impulse Wave — A five-wave pattern that subdivides
5-3-5-3-5 and contains no overlap. Truncated Fifth — The fifth wave in an impulsive
pattern that fails to exceed the price extreme of the third
Motive Wave — A five-wave pattern that makes wave. (Original Terminology: Failure)
progress, i.e., any impulse or diagonal.
Zigzag — Sharp correction, labeled A-B-C. Subdivides
5-3-5.

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Global Market Perspective Bios

EDITORS

Robert R. Prechter, CMT

Robert R. Prechter, is president of Elliott Wave International, publisher of Global Market Perspective. After
working as a Technical Market Specialist with the Merrill Lynch Market Analysis Department in New York,
he founded EWI in 1979. Bob served for ten years on the Board of Directors of the Market Technicians
Association (MTA) and was elected its president in 1990. Currently he serves on the advisory board of the
MTA’s Educational Foundation. Bob has made presentations on his socionomic theory of finance to the
London School of Economics, Oxford University, Cambridge University, Trinity (Dublin), MIT, Georgia
Tech, SUNY and academic conferences. He graduated from Yale University in 1971 with a degree in
psychology. For more information, visit www.robertprechter.com.

Dave Allman
Dave Allman graduated from the University of Maryland at the age of 19 with a degree in mathematics,
became addicted to the markets and what makes them tick in 1978, and has worked closely with Bob Prechter
since 1983. He has lectured around the globe on the application of the Wave Principle and investor psychology
and has taught advanced classes on Elliott wave analysis to hundreds of investors. Today, Dave is active
behind the scenes on a variety of projects at Elliott Wave International and the Socionomics Institute. Since
October 1990, Dave has reviewed and edited all the commentary and charts in Global Market Perspective.

Tony Carrion
Tony Carrion is an Elliott wave specialist, investor and trader who covers intraday analysis on eleven major
currencies for Elliott Wave International. Prior to joining EWI, in 2000 he formed an independent online
research service, Market-Harmonics.com, providing research reports and market letters covering equities,
futures and forex.

Steven Craig
Steve has been involved with the energy industry for well over a decade and joined EWI in January 2001
as senior energy analyst. His industry focus was on trading and risk management, and he is intimately
familiar with the production and consumption side of the business. Steve’s most recent positions were at
Central and South West (now American Electric Power) and with Kerr-McGee. His extensive experience
with the physical and financial aspects of crude oil, natural gas and electricity adds a valuable dimension
to his analytical approach. He is responsible for EWI’s online Pro Services energy coverage, and his crude
oil and natural gas views are featured each month in Global Market Perspective.

Mark Galasiewski
Mark Galasiewski began his analytical career in 2001, researching company fundamentals at an institutional
brokerage in Stamford, Connecticut. After joining Elliott Wave International in 2005, Mark contributed to
Robert Prechter’s Elliott Wave Theorist before joining EWI’s Global Market Perspective team covering Asian
stock indexes. For six years during the 1990s he lived in Japan, where he observed that country’s extended
bear market first-hand. Mark has traveled to many of the countries whose markets he analyzes. A graduate
of Middlebury College in East Asian Studies, he is fluent in Japanese and conversant in Mandarin Chinese.

Murray Gunn
After earning his Master of Arts Degree in economics, Murray went straight into fund management in
1991. He quickly realized that textbook descriptions don’t apply to real-world markets, which in turn led
him to technical analysis and the Elliott Wave Principle. He worked for several firms as a fund manager in
global bonds, currencies and stocks, including long posts at Standard Life Investments and the Abu Dhabi
Investment Authority. Murray then joined HSBC Bank as Head of Technical Analysis. A published author
(Trading Regime Analysis), he has served on the board of the Society of Technical Analysts (UK), and
delivered lectures on the Elliott Wave Principle to students at Queen Mary University and Kings College
London. Watch for Murray’s commentary in Global Market Perspective, Interest Rates and Currency Pro
Services, and on deflation.com.

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Global Market Perspective Bios

Steven Hochberg
Steve Hochberg began his professional career with Merrill Lynch and joined Elliott Wave International in
1994. Over the years, Steve has become a sought-after lecturer and is quoted in various media outlets, such
as USA Today, The Los Angeles Times, The Washington Post, Barron’s, Reuters and Bloomberg. He also does
interviews about the financial markets on CNBC, MSNBC and Bloomberg Television. Steve co-edits The
Elliott Wave Financial Forecast with Pete Kendall, writes the Short Term Update thrice weekly, and provides
commentary on the U.S. stock market, interest rates and precious metals for Global Market Perspective.

Robert Kelley
Robert Kelley has worn numerous hats since beginning his career in 1987 as a futures broker. He joined
EWI in 1990 and edited The Elliott Wave Short Term Update, the Currency and Commodity Hotline and the
currency section of The Elliott Wave Currency and Commodity Forecast newsletter. In 1994, he left EWI for
New York to become a Vice President of JP Morgan where he was in charge of the technical market research
department. He later served as a consultant for HSBC Securities and thereafter developed a proprietary
options trading system. In May 2000, Robert rejoined EWI where he now provides analysis for the World
Stock Index for Global Market Perspective.

Peter M. Kendall
Peter Kendall served as a financial reporter and columnist from 1983 to 1992. He wrote the “On the Money,”
a column for The Business Journal from 1991 to 1997. Pete joined Elliott Wave International as a researcher
in 1992 and has been contributing to GMP since 1995. Pete is Director of EWI’s Center for Cultural Studies,
where he focuses on popular culture and the new science of socionomics. Pete graduated from Miami
University in Oxford, Ohio with a degree in Business Administration. For Global Market Perspective, Pete
provides commentary on cultural trends, the economy and the U.S. stock market.

Michael Madden
Michael Madden, CMT, CFTe, CEWA, began his financial career in 2009 while living in the United States.
He focused on technical analysis and grew to appreciate using the Wave Principle in his own trading. After
he settled back in his home in Ireland, he earned the Certified Elliott Wave Analyst (CEWA) designation
and launched his own Elliott wave forecasting and consulting service in 2012. He joined EWI in 2014 and
now covers intraday currency cross rates for EWI’s online Pro Services currencies coverage and Global
Market Perspective.

Jim Martens
Jim Martens began using the Elliott Wave Principle in 1985 and by 1989 was making
insightful market calls for his metals trader colleagues on the Commodity Exchange
Center in New York. Jim joined Elliott Wave International in 1993 as a commodity
specialist. He also oversaw EWI’s currency analysis before joining Nexus Capital Ltd.,
a Soros-affiliated hedge fund in 2001. He rejoined EWI in 2005. Jim received a degree
in finance from Florida Atlantic University. He covers currency relationships for Glob-
al Market Perspective and provides full coverage of dollar rates in EWI’s online Pro
Services currencies coverage.

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Global Market Perspective Bios

Brian Whitmer
Brian Whitmer’s analytical proficiency extends to two professions: He received a degree in civil engineering
from the University of Maryland and has served as a designer, planner, and project manager for $100-million-
plus civil and residential developments. Brian also is an Elliott-savvy technical analyst who is proficient in
socionomics, the science of history and social prediction. He describes himself as self-educated in Austrian
economics and thus well-versed in the misunderstandings of mainstream economics. Joining Elliott Wave
International in 2009, Brian serves as editor of The European Financial Forecast and contributes the
European stock section of Global Market Perspective.

Ivelin “Ivo” Zhelev

Based in Bulgaria, Ivelin Zhelev, CEWA, has been involved in the financial markets since 2011. He is a
co-founder of EWM Interactive, a company that provides weekly wave outlooks for the major forex pairs
and major stock indexes and a contributor to two books published by Academic Publishing House “Tsenov”
- Svishtov, “Capital Optimization” and “Debt Management.” Ivo contributes commentary for the interest
rates section of Global Market Perspective.

Ignat Borisenko
Ignat Borisenko has been publishing Elliott wave analysis since 2004 for several financial companies and
has created many highly popular Russian-language resources on the Wave Principle. He joined EWI in
2017 and works from his home in Moscow. Ignat writes the Currency Opportunities for our Pro Services.

Acknowledgments
Our production team is indispensable in getting out each issue of GMP. For this issue, Angela Hall, Shannon Clark, Tyler Terry
and John Watson handled charts, fact-checking, proofreading, layout and other details.

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The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass
psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns
in price movements. Each pattern has implications regarding the position of the market within its overall progression,
past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the
progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of
the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the
Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person, and
at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries
risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and
traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed
in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success
trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort
to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any
trading and investing decisions.

Global Market Perspective (GMP) is published by Elliott Wave International, Inc. Mailing address: P.O. Box 1618, Gainesville,
Georgia, 30503, U.S.A. Phone: 770-536-0309. All contents copyright © 2020 Elliott Wave International, Inc. All rights
reserved. Reproduction, retransmission or redistribution in any form is illegal and strictly forbidden, as is continuous and regular
dissemination of specific forecasts or strategies. Otherwise, feel free to quote, cite or review if full credit is given. Typos and
other such errors are corrected in the online version, which is the official final version of each issue. Subscribers will be notified
via email if substantive changes are made.
EWI offerings: EWI offers tri-weekly and monthly commentary on U.S. stocks, bonds, metals and the dollar in the Financial
Forecast Service; daily and monthly commentary on commodity futures in Commodity Junctures Service; tri-weekly and monthly
commentary on major European and Asian-Pacific indexes in the European Financial Forecast Service and the Asian-Pacific
Financial Forecast Service; and monthly commentary on all the world’s major markets in Global Market Perspective. Rates vary
by market and frequency. EWI also delivers intraday coverage of all major currencies (including cryptocurrencies), interest rates,
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Contact EWI Customer Care: Call 770-536-0309 (internationally) or 800-336-1618 (within the U.S.). Or email customercare@
elliottwave.com or online at www.elliottwave.com/contact/.
The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass
psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price
movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and
future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of
the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct
regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International
make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring
that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these
instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave
International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist.
Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any
effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading
and investing decisions.

43