CHINA LOCAL SUPPORT against STOCK FALL !!!

China stock brokers set up $19 billion fund to stem market rout

The 21 brokers led by Citic Securities will invest the equivalent of 15% of their net assets as of the end of June, or no less than ¥120 billion in total

Beijing: Chinese brokerage firms have come together to set up a stock-market fund, the latest effort to stem the biggest three-week drop in China’s key share index since 1992.

The 21 brokers led by Citic Securities Co. will invest the equivalent of 15% of their net assets as of the end of June, or no less than ¥120 billion ($19.3 billion) in total, the Securities Association of China said in a statement on its website Saturday. The fund will invest in blue-chip exchange- traded funds, it said.

The move comes after measures to shore up equities failed to stop margin traders from unwinding positions at a record pace, with the market losing more than $2.8 trillion of value in three weeks. The People’s Bank of China cut interest rates last week, while margin-trading rules were eased and trading fees were cut Wednesday.

The new fund to bolster equities may have only “a fleeting effect when daily turnover has reached ¥2 trillion”, according to Hao Hong, China equity strategist at Bocom International Holdings Co. in Hong Kong.

“This ¥120 billion won’t last for an hour in this market,” Hong said by phone from Beijing Saturday. “It might benefit blue-chip stocks, as investors may see them as value, but the bursting of the bubble in small-cap/tech stocks is likely to continue.”

Small-Cap stocks

The ChiNext index of smaller companies in Shenzhen traded at a record 131 times reported earnings last month — five times the level of the Shanghai Composite Index -- after tripling over the past year. The gauge had lost 33% from its 3 June peak as of Friday, trimming this year’s gains to 77%.

“The market’s most acute concern is still these smaller cap stocks, as investors levered up to buy them and now margin lending curbs hit them the hardest,” Hong said. “With their valuation in the stratosphere, nobody is willing to step in and bolster these stocks.”

The brokers on Saturday pledged not to reduce any proprietary investments in the equity market as long as the Shanghai Composite Index stays below 4,500, the association said; it closed Friday at 3,686.92. Listed brokers will actively buy back outstanding shares, while encouraging their parent companies to increase holdings, according to the statement.

The group of 21 brokers said the economic fundamentals that had justified the stock market’s rally before the rout hadn’t changed.

“It is therefore our duty to unite in stabilizing this market,” the statement said.

Li-Gang Liu, chief China economist for the Australia & New Zealand Banking Group Ltd., said the market would eventually find its own level.

“If a listed company thinks its shares are undervalued it could buy back shares. Such purchases shouldn’t be triggered by any kinds of administrative calls,” he said. “I believe the market is still under big downward pressure.”

There remain additional steps the government could take to support the market. China’s central bank-affiliated Economic Observer reported last week the government is considering reducing the stamp tax, while the finance ministry said it will allow the national pension fund to invest in shares.

On Friday, China’s securities regulator said it will limit the number of initial public offerings this month and revise rules to encourage foreign investment in the market. Chinese media reported that a unit of China’s sovereign wealth fund has been buying exchange-traded funds in the past week to support the market. Bloomberg

http://www.livemint.com/Money/jy1YOJCdnfUj6ybSLGbTMM/China-stock-brokers-set-up-19-billion-fund-to-stem-market-r.html

$100 bn SOLAR OPPORTUNITY...keep counting!!!!

India’s $100 bn push into solar energy to be driven by foreign companies as locals take backseat

Last week, Softbank became the latest foreign player to enter India's solar market, leading an investment of up to $20 billion.

India’s $100 billion push into solar energy over the next decade will be driven by foreign players as uncompetitive local manufacturers fall by the wayside, no longer protected by government restrictions on the sector.

The money pouring into India’s solar industry is likely to be soaked up by foreign-organised projects such as one run by China’s Trina Solar – not the country’s own solar panel manufacturers.

Last week, Softbank became the latest foreign player to enter India’s solar market, leading an investment of up to $20 billion. The Japanese firm said it would consider making solar panels locally, but with Taiwan’s Foxconn rather than a local manufacturer.

Many Indian solar panel producers have benefited over the past six months from a surge in demand for panels not yet fulfilled by foreign companies. But their small scale and outdated technology will quickly make itself felt when the global players arrive.

“The smaller manufacturers of India, especially the cell manufacturers, will be adversely hit because they are unable to compete both on technology and even on price structures,” said Jasmeet Khurana at solar consultancy Bridge To India.

India’s solar panel makers can no longer turn to the Indian government for help. The government is more concerned about creating jobs quickly and ensuring plentiful power supply in a country known for its many blackouts.

India, in contrast to Chinese and German efforts to protect local producers, has scrapped most restrictions on where equipment that turns sunshine into energy is bought. Last year, it dropped an anti-dumping duty on panel import.

Foreign players making panels in India are expected to compete with local manufacturers to fulfil so-called domestic content requirements for government projects.

Trina has unveiled plans for a $500 million plant and US.-based SunEdison is investing up to $4 billion in a manufacturing facility. Both are tying up with Indian power firms to build the plants.

SOLAR TARGETS

India has said it expects peak power demand to double over the next five years from around 140,000 megawatts today. To help meet that demand, 100,000 MW of new capacity is to come from solar panels, and of that it wants at least 8,000 MW to come from locally-made cells.

Foreign players manufacturing in India will probably win the bulk of those orders.

Indian rivals like Indosolar and Moser Baer produce panels, but they cost 8 to 10 percent more than foreign producers, Khurana said.

It is not yet clear which foreign firms will emerge as the winners, with most of the facilities years away from being built and the big tenders for huge solar parks touted by the government still to be awarded.

But those who can quickly build scale will be the most able to compete on cost.

“The lowest cost in manufacturing will only come from scale and integrated facilities,” said Sujoy Ghosh, India Country Head at U.S.-based First Solar.

First Solar is to build 5,000 MW of solar power before 2020, but will rely on imported panels for now because it is cheaper to buy component parts internationally where they are more readily available.

As for some of India’s small panel makers, they are looking to complement the efforts of foreign players instead of trying to derail them.

Maharishi Solar, a small manufacturer based in Delhi, is looking to tie up with a foreign company, the company’s head Ajay Prakash Shrivastava told Reuters.

It stopped producing solar panels a few years back as it could not compete with foreign manufacturers, primarily Chinese. Shrivastava said import panels are as much as 45 percent cheaper thanks to subsidies in their home countries and lower borrowing costs.

“The Indian manufacturers do have a disadvantage,” he said. “We are trying to find a partner who can bring in the latest technology.”

First Published on July 2, 2015 2:37 pm======================

http://www.financialexpress.com/article/economy/indias-100-bln-solar-push-draws-foreign-firms-as-locals-take-backseat/93546/

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Just imagine the POTENTIAL AVAILABLE. It will be like wireless-mobile revolution.

The companies are going to use the HIGH-WAYS as OPPORTUNITY to Cover the VILLAGES and connect to GRID...Just wait for GESTATION period to explode.

CHINA MARKETS BUTCHERED...???

China stocks plummet as investors stampede out of the market

CSI300 index falls 7.9%, Shanghai Composite Index loses 7.4%

Reuters  |  Shanghai  

June 26, 2015 Last Updated at 12:59 IST

China stocks on Friday posted some of their worst losses in seven years, as investors stampeded out of a market amid increasing signs the country's eight-month-long bull run is running out of fuel.

The key CSI300 index fell 7.9%, to 4,336.19, while theShanghai Composite Index lost 7.4%, to 4,192.87 points.

For the SSEC, it was the worst one-day loss since Jan 19. For the CSI300, the drop was the biggest since June 2008.

Stocks fell across the board, with nearly 2,000 of the roughly 2,800 listed companies in Shanghai and Shenzhen slumping by their 10% daily limit.

After the CSI300 fell through several technical support levels, then there is "no technical buying support left following a massive rally over the last year or so," investment advisor Rivkin said in a note.

Further falls in China stocks "will send ripples throughout Asian markets," Rivkin said.

A more than doubling of China's stock market over the past year had been underpinned by rapidly-expanding margin financing, monetary easing and hopes of economic restructuring, but analysts said two of the three legs are now shaky.

Regulators have been cracking down on illegal margin financing and urging brokerages to tighten rules. Many investors have also faced increasingly expensive margin calls in the past week as share prices have retreated.

Outstanding margin loans shrank for the third straight day on Wednesday to 2.2 trillion yuan ($354.35 billion), as investors slashed 61.5 billion yuan worth of leverage during the period, the latest data shows.

Jiang Chao, strategist at Haitong Securities, said that further monetary easing - long another pillar of investor optimism - is also in question.

"Recent bond market performance reflects institutional investors' view that the rate cut cycle is coming to an end," he said.

Morgan Stanley sees Shanghai's benchmark index falling between 2 and 30% from current levels over the next 12 months, citing heavy equity issuance, weak corporate earnings, demanding valuations and excessive levels of margin financing. 

http://www.business-standard.com/article/reuters/china-stocks-plummet-as-investors-stampede-out-of-the-market-115062600322_1.html

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CHINA MARKETS BUTCHERED...???

MY SIMPLE QUESTION IS WHO IGNITED THE FIRE IN THE RALLY TO A STUPENDOUS LEVELS OF 87 P/E RATIOs,...AND WHO RECOGNISED THE VALUATIONS MIS-MATCH & MISTAKES AND OFCOURSE FINALLY WHO LOST?

RAJAN WARNS...WORLD ECONOMY MAY SEE DEPRESSION....!!

World economy may slip to 1930s-like depression: Rajan

Reiterates warning against competitive monetary policy easing by central banks

Press Trust of India  |  London  

June 26, 2015 Last Updated at 10:22 IST

RBI Governor Raghuram Rajan has asked central banks from across the world to define "new rules of the game" as he warned that the global economy may be slipping into problems similar to the Great Depression of the 1930s.

Rajan, who has been warning against competitive monetary policy easing by central banks, however, said the situation is different in India where RBI still needs to bring down lending rates to spur investments.

He expressed concern that the world may be slipping into the kind of problems of the depression of the 1930s and an international consensus was needed to be built over time.

"We need rules of the game in order to effect a better solution. I think it is time to start debating what should the global rules of the game be on what is allowed in terms of central bank action," he said at a London Business School (LBS) conference here last evening.

"I am not going to venture a guess as to how we establish new rules of the game. It has to be international discussion, international consensus built over time after much research and action," Rajan said.

"But I do worry that we are slowly slipping into the kind of problems that we had in the thirties in attempts to activate growth. And, I think it's a problem for the world. It's not just a problem for the industrial countries or emerging markets, now it's a broader game," he noted.

Asked specifically about interest rate cuts from an Indian perspective, he said, "I try to shut out market reactions as far as I can. We (India) are still in a situation where we have to spur investment and I am worried more about that."

http://www.business-standard.com/article/pti-stories/world-economy-may-be-slipping-into-1930s-depression-problems-115062600134_1.html

$20-bn solar power projects..!!!

SoftBank, Bharti, Foxconn in $20-bn solar power projects JV: 5 key points

SoftBank, Bharti Enterprises and Foxconn Technology teamed up to form a joint venture (JV) to set up a 20 gigawatt (GW) of solar and wind energy projects in India at an investment of about $20 billion.

By: feonline | New Delhi | June 23, 2015 9:56 am

Japan’s SoftBank, the Sunil Bharti Mittal-led Bharti Enterprises and Taiwan’s Foxconn Technology on Monday teamed up to form a joint venture (JV) to set up a 20 gigawatt (GW) of solar and wind energy projects in India at an investment of about $20 billion. Here are 5 key points:

1. Japan’s SoftBank, the Sunil Bharti Mittal-led Bharti Enterprises and Taiwan’s Foxconn Technology’s joint venture is one of the biggest investment pledges to date in the country’s renewable energy sector.

2. SoftBank is the largest shareholder in Chinese e-commerce firm Alibaba, will have the majority control in the three-way JV company with Bharti and Foxconn as minority stakeholders.

3. SoftBank aims to endorse Prime Minister Narendra Modi’s Make in India and 100 GW of clean energy by 2022 vision.

4. SBG Cleantech will be headed by Manoj Kohli as its executive chairman while Raman Nanda will be the chief executive officer. It will be headquartered in New Delhi.

5. SoftBank had in 2011 set up SB Energy to develop clean energy projects following the Fukushima nuclear disaster.

http://www.financialexpress.com/article/industry/companies/softbank-bharti-foxconn-in-20-bn-solar-power-projects-jv-5-key-points/88768/

POSSIBLE SENSEX- 2025- A PREDICTION...!!

RIL, ONGC, SBI, BHEL, L&T could be out of Sensex in 10 years: Ambit Capital

New entrants could include Flipkart, Paytm, Cafe Coffee Day and ICICI Prudential Life Insurance, it says

Puneet Wadhwa  |  New Delhi  

June 23, 2015 Last Updated at 11:46 IST

Over the next decade, the report predicts the pace of churn in the 30-share index's constituents to gather momentum. The current economic-political environment, Ambit says, will usher in an era of change which will drive Sensex churn higher driven by Prime Minister Narendra Modi's resets to the Indian economy.

According to Ambit's analysis, Sensex's churns over a 10-year window from 1986 to date shows that the churn ratio of the Sensex tends to rise when the economy is undergoing irreversible structural changes.

"After having peaked at 67% in the years following the 1991 reforms (implying 20 replacements in a 30-stocks index), this churn has fallen to historical lows of 27% (i.e. 8 replacements) in the most recent ten-year period (2004-14)," the report says.

As a precedent, the report cites a few stocks like Aditya Birla Nuvo, Bombay Dyeing, Century Textiles, Future Polyester, Hindustan Motors and Premier, Mukand Limited, Ballarpur Industries, Bharat Forge, Cummins India, Siemens and Voltas. These stocks were ejected in the 1990s when the Sensex churn peaked in the four years following the reforms launched by PV Narasimha Rao's government withManmohan Singh as Finance Minister.

Going ahead, Ambit expects the Modi Government to force the next big disruption - dismantling crony capitalism and the subsidy culture, and directing savings away from land and gold to the financial system.

"We expect Sensex churn to rise to 50% in the next decade (2015 to 2025) from historical lows of 27% during the most-recent decadal bucket (2004 to 2014). This means that 15 stocks will be replaced in the Sensex in the upcoming decade," Ambit says.

NEW KIDS ON THE BLOCK

With as many as 15 companies exiting the 30-share index, Ambit applied its proprietary filters like the 'greatness' score, Coffee Can Portfolio and P-75 Index to arrive at the list of new constituents.

To identify potential Sensex entrants from the current listed universe, Ambit used a five step process that included analysis based on efficient capital allocation, consistent financial performance, elimination of Ambit's P-75 companies (i.e. eliminate companies whose core competitive advantage is politically connectivity), market-cap buckets and lastly pick and choose from the short-list.

Ambit believes that the size of a company at the beginning of the decade should play an important role in determining whether or not the company will be in the index a decade later with nearly half of the 15 Sensex entrants of the next decade likely to come from the top-100 stocks ranked by market-cap today.

"Another 10% are likely to come from the next 100 stocks by market-cap (below the top 100). About 6% should come from the universe beyond the top-200. Finally, a third of the entrants are likely to be new offerings," it says.

The entrants from the listed world include Page Industries, Eicher Motors, Asian Paints, Nestle and Pidilite (from Consumer Staples/Discretionary), HCL Technologies (IT Services), and Kotak Mahindra Bank and IndusInd Bank (BFSI). To these eight stocks from the top-100 by market-cap, Ambit has added Torrent Pharma and PI Industries from the next 100 by market-cap.

5 out of the 15 new entrants will enter through the initial public offer (IPO) route, Ambit says, which includes themes like E-commerce (Flipkart and Paytm); Insurance (ICICI Prudential Life Insurance); Consumer Discretionary Services (Cafe Coffee Day); and Disinvestment (Hindustan Aeronautics Limited).

http://www.business-standard.com/article/markets/ril-ongc-sbi-bhel-l-t-could-be-out-of-sensex-in-10-years-ambit-capital-115062300208_1.html

Enzyme market- NEXT BIG OPPORTUNITY..!!!

Enzyme market in US to reach $ 2.2 bn in 2019

An increasing focus on sustainability by many companies will continue to support enzyme demand in otherwise mature industries, says the new Freedonia report

BS B2B Bureau  |  Cleveland, USA  June 8, 2015 Last Updated at 20:56 IST

Rising awareness about sustainability among companies and improved productivity are driving the demand of enzymes in the US to reach $2.2 billion in 2019 – a 3 percent annual growth, according to the new report of Freedonia Group Inc, a market research firm.
 
Healthcare reform and efforts to combat rising healthcare costs will lead to changes in the medical and pharmaceutical industries that in turn will result in strong gains in enzymes used in the research and biotechnology, in vitro diagnostics, and biocatalyst markets. In more mature industrial markets, efforts to reduce energy and water use will continue to have a positive impact onenzyme demand.
 
Strong growth in research and biotechnology enzyme demand will result from pharmaceutical companies looking to improve production processes by using biocatalysts and investing in the development of new biopharmaceuticals. “Increased diagnostic testing and genome sequencing in support of a personalised medicine approach, along with greater testing due to more insured people undergoing routine medical care and the generally increased medical care required by an aging population, will further drive enzyme demand,” said Christine O’Keefe, analyst, Freedonia.
 
An increasing focus on sustainability by many companies will continue to support enzyme demand in otherwise mature industries such as food and beverage processing and pulp and paper production. Sustainability and personal environmental impact are becoming increasingly important to consumers as well. “The growing popularity of high efficiency washing machines and the increasing use of cold water washes will require laundry detergents formulated with more expensive enzymes. Consumers are more frequently looking for foods with ‘clean labels’, that is, those that do not have chemical additives, benefiting enzymes that can replace these chemicals in food processing,” said Freedonia in a press release.
 
While the biofuels market was the primary driver of increases in US enzyme demand between 2004 and 2014, growth going forward will be limited, restrained by conflicting government policies, reluctance by vehicle manufacturers to incorporate higher levels of bioethanol into the gasoline supply, and changing consumer driving habits and attitudes toward biofuels. 

http://www.business-standard.com/content/b2b-chemicals/enzyme-market-in-us-to-reach-2-2-bn-in-2019-115060801174_1.html

SIMPLIFIED- The-Elliott-wave-mystery...!!!

The Elliott Wave principle is based on Ralph Nelson Elliott’s conviction that social, or crowd, behavior tends to trend, and reverse, in identifiable patterns, or cycles.

Elliott used the stock market as his main source for research, because it was an easy way to chart the current and past behavior of a crowd with similar interests. He identified a number of patterns of movement, or waves, that recurred, in combination with larger, and/or smaller, versions of the same patterns.

Those who are well versed in the intricacies of these patterns can gauge where the market’s recent movements fit into them, and then predict where the market will move to complete the cycle.

Elliott’s “The Wave Principle,” was originally published in 1938. Robert Prechter has since become the foremost authority on Elliott Wave theory by applying and enhancing Elliott’s ideas. Prechter is the president of Elliott Wave International.

Under Elliott Wave theory, the most basic pattern of market progress is the motive wave, which is subdivided into five waves and usually labeled by technicians with numbers. Three of those waves (1, 3 and 5) move in the direction of the underlying trend, or impulse, while the two intervening waves (2 and 4) act as countertrend interruptions, or retracements, of the motive wave.

“At any time, the market may be identified as being somewhere in the basic five-wave pattern at the largest degree of a trend,” according to a tutorial provided by Elliott Wave International to its members (Club EWI). “Because the five wave pattern is the overriding form of market progress, all other patterns are subsumed by it.”

There are certain “rules” that govern the five-wave pattern:

• Wave 4 cannot enter the territory of Wave 1, according to EWI. If it does, the market’s latest move must be part of a larger motive wave, which could be progressing higher or lower.

• Wave 2 can’t retrace more than 100% of Wave 1, according to the Market Technicians Association. If it does, then Wave 2 might not be a corrective wave as originally thought, and could actually be moving in the direction of a motive wave to a larger degree.

• Wave 3, which often represents the strongest part of the market cycle, can’t be the shortest by price, compared with Wave 1 or Wave 5.

A complete cycle of wave development actually consists of eight waves, made up of two phases: 1) a wave subdivided into five waves and 2) a three-wave corrective wave.

The corrective wave, usually labeled by technicians by letters, consists of two waves (A and C) that move in the opposite direction of the motive wave, and an intervening retracement wave (B) that moves in the same direction of the motive wave.

One key rule for the simple, zigzag corrective phase is that, in a bull market, Wave B ends noticeably lower than where Wave A starts. The opposite is true in a bear market.

“In summary, the essential underlying tendency of the Wave Principle is that action in the same direction as the one larger trend develops in five waves, while reaction against the one larger trend develops in three waves, at all degrees of a trend,” according to EWI.

One of the keys to interpreting wave counts is to determine what degree the wave in question represents.

As the above chart shows, each wave could be part of another wave of a higher degree, which in turn could be part of another wave of an even higher degree.

For example, a corrective Wave (A) could be the beginning of a countertrend Wave 4 pullback of a 5-wave uptrend to a larger degree.

“The Wave Principle, then, reflects the fact that waves of any degree in any series always subdivide and re-subdivide into waves of lesser degree and simultaneously are components of waves of higher degree,” EWI explains.

In Elliott’s original work, he identified nine degrees of waves, that could range from decades to intraday movements. His labels read a little like the classification of living things:

1) Grand Supercycle 
2) Supercycle 
3) Cycle 
4) Primary 
5) Intermediate 
6) Minor 
7) Minute 
8) Minuette 
9) Subminuette

Under Prechter’s view, the U.S. stock market’s rise from 1932 was the beginning of a Supercycle, with the rally to 1937 representing the first wave of a Cycle degree.

This spiral, which takes the form of a Nautilus sea shell, is commonly used to describe the mathematical ratio that Elliott Wave theorists lean on to explain why the stock market follows similar patterns to those found in natural systems, including living creatures on earth and galaxies in space.

The Fibonacci ratio of 0.618, made famous by a 13th-century mathematician named Leonardo Fibonacci of Pisa, is based on a number sequence, in which the sum of two adjacent numbers forms the next higher number (1, 1, 2, 3, 5, 8, 13 ...).

It is often referred to as the golden, or divine ratio, because it has been found throughout nature, such as in the breeding pattern of rabbits, the DNA double helix, how petals on a flower are arranged, proportions of the human body, a galaxy spiral, and so on ad infinitum.

Slide 5 of 6

In Elliott Wave, the five waves of a motive of phase have a Fibonacci relationship with the eight waves of a complete cycle. And each wave or phase tends to have a Fibonacci relationship with other waves or phases; thus a retracement phase is often close to 0.382 (1 minus 0.618), or up to 0.618, the length of the motive phase.

Walter Zimmerman, chief technical analyst at energy research firm United-ICAP, who studied chaos theory and complex systems in graduate school, said the process of price discovery follows a similar fractal structure: “The next price is always a function of the previous price, in any market, even at the open.”

In the simplest form, a weekly chart of Apple Inc.’s stock could represent an example of a five-wave pattern.

That doesn’t necessarily mean the start of a new corrective phase is imminent. If Wave 5 develops into a “fifth-wave extension” that is 1.618 times the length of the first three waves, Apple’s stock AAPL, -1.13% would climb to above $209.

But given that Wave 3 is more than 1.618 times the length of Wave 1, and Wave 3 is longer than the length of Wave 1, the pullback from the May 28 record intraday high of $134.54 could already be the start of a corrective phase.

And again, in the simplest terms, a 61.8% retracement of the uptrend from the April 2013 low of $55.01 to the record high comes in at $85.39, which is 35% below current levels.

The textbook definitions of wave counts and degrees are always open to interpretation, something a simple slide show of charts can’t completely explain.

United-ICAP’s Zimmerman said it took years to cultivate his understanding of Elliott Wave theory. Then all off a sudden, it became clear to him, like one of those “Magic Eye” pictures that if you blur your eyes just right becomes a detailed 3-D image.

“It was wonderful,” Zimmerman said. “Something that was fuzzy and out of focus, suddenly came into focus.”

http://www.marketwatch.com/story/5-charts-to-help-unravel-the-elliott-wave-mystery-2015-06-08

US-STOCKS-SHARP COLLAPSE WARNINGS..! BECAREFUL.!!

Why you should care that Robert Prechter is warning of a ‘sharp collapse’ in stocks   Published: June 8, 2015 9:33 a.m. ET

Who is Robert Prechter, and why should investors care that he is warning them to be on high alert for a potential collapse in the stock market?

The president of Elliott Wave International, Prechter may not be a household name on Main Street, but he’s widely known on Wall Street as the foremost authority on the Elliott Wave principle, a forecasting methodology used by generations of technical analysts that is based on the belief that financial markets trend in five waves, and retrace in three waves.

Don’t miss the slideshow: 5 charts to help unravel the Elliott Wave mystery

Prechter is also the executive director of the Socionomics Institute, founded to study how those same wave patterns define changes in social mood and govern social events.

“If the cycle is still operating, the stock market is at high risk of a sharp collapse. Near term, we’re prepared to see the Dow make one more high. But it doesn’t have to happen.”

Robert Prechter, president of Elliott Wave International

Elliott Wave analysis, which was devised by Ralph Nelson Elliott in the 1930s, is much more than a bunch of numbers and letters placed on a chart to denote which wave, or degree of waves, the market is traversing. Those who fully embrace it say it is the only form of technical analysis that can incorporate and explain all the other techniques used by chart watchers.

Walter Zimmerman, chief technical analyst at energy research firm United-ICAP, calls it the “grand unified field theory of chart pattern analysis.” Head-and-shoulders reversals, technical divergences, candlestick charts—they can all be explained within the framework of the Elliott Wave principle, Zimmerman said.

Based on Prechter’s analysis of where the stock market is positioned within its wave structure, he believes the bull market is in a “precarious position.”

For one, he said the sentiment indicators he follows have reflected extreme optimism for over two years. That is often viewed as a contrarian signal, because it suggests those looking to buy have already done so, leaving fewer buyers to step in if the market starts slipping. Read more about bullish exuberance.

In addition, Prechter said a number of momentum indicators have been revealing a “dramatic lessening” in the number of stocks and indexes that have participated in the rally in recent months.

For example, when the Dow Jones Industrial Average DJIA, -0.33%  reached a record closing high on Feb. 27, there were 172 NYSE-listed stocks that achieved new 52-week highs, and 31 stocks that hit 52-week lows. But when the Dow rose to it is latest record on May 19, the number of new highs had fallen to 118, while new lows rose to 38.

FactSet

New highs fall, while Dow rises

And while the Dow has reached six record-high closes so far this year, the Dow Jones Transportation Average DJT, -1.91%  hasn’t hit a record high since Dec. 29, and closed at a seven-month low as recently as May 29. The century-old Dow Theory of market analysis suggests the Dow transports must confirm the movement of the Dow industrials for a market trend to have staying power, according to S&P Dow Jones Indices.

FactSet

Dow Theory divergence warns of market top

There’s more. Prechter said the market’s rise since 2009 has carried 6.25 years into a 7.25-year cycle, that has been operational since 1980.

“If the cycle is still operating, the stock market is at high risk of a sharp collapse,” Prechter said. “Near term, we’re prepared to see the Dow make one more high. But it doesn’t have to happen.”

Prechter’s path to analyzing financial markets started where you might least expect it, but in hindsight it makes perfect sense. He got his bachelor's degree in psychology from Yale University in 1971, then became a professional musician for four years, in which time his band News recorded an album, “Hot off the press”, that was re-released on CD a few years ago.

He was already intrigued by technical analysis during that time, because his father had a subscription to Elliott Wave enthusiast Richard Russell’s “Dow Theory Letters,” and he would occasionally read them.

“I felt the way John Lennon did after he saw Elvis on screen and thought: ‘That’s a good job’,” Prechter said.

Once the music career played itself out, he started working in Merrill Lynch’s market analysis department. By April 1976, he was writing Elliott Wave reports.

Around that time, it hit him that the waves weren’t confined to just the stock market.

“Something was coordinating the tone of all kinds of social activities, including trends in pop music, movie themes, the economy, and the timing of peace and war,” Prechter said. “I figured out that waves of unconscious social mood would account for the correlation.”

The way United-ICAP’s Zimmerman describes it, Elliott Wave helps you find order in chaos. That’s because the mathematical ratio known as the Fibonacci ratio is embedded in Elliott Wave theory, which means it can be applied to any market, across any time scale.

Fibonacci is also known as the divine, or golden ratio, as it has been found to exist throughout nature, and even in outer space. Zimmerman reckons it even helps explain moods on personal and collective levels. And that’s coming from a man who started graduate school studying chaos theory and complex patterns.

Some technicians will brush off Prechter’s current bearish view on stocks, because he has had similar views during the 6.25 years that the market has been climbing. MarketWatch’s Mark Hulbert, editor of the Hulbert Financial Digest, said that over the last 35 years, a conservative portfolio that goes to cash when Prechter’s market-timing service flashed a sell signal, has produced an annualized return of 7%, compared with an annualized return of 11.5% for buying and holding.

But strategists often say that sell warnings are like yellow lights at a traffic stop—the driver still has the choice to either speed up or slow down, depending on whether he believes he can beat the red light or not. An investor that doesn’t have the luxury of long-term smoothing might be more inclined to slow down at any sign of weakness than someone with much more leeway.

Prechter said he had similar trouble with stocks in the late 1990s. Although he had predicted in the early 1980s that stocks were beginning an advance that would eventually become a bigger mania than that of 1929, the market’s bubble had inflated much more than he thought.

“Today, the stock market is in its third mania in 15 years,” Prechter said. “The historic overvaluation of 2000 has never been properly corrected. But it will be.”

Prechter has made some major calls that have ensured interest in his Elliott Wave International (EWI) analytical service has continued to grow. Examples include the call for a bear market in gold and silver in the early 1980s, and a warning just before the oil price peak in 2008 that “one of the greatest commodity tops of all time” was looming.

What started 36 years ago as a husband-and-wife operation on the kitchen table with an electric typewriter and paste-on lettering has grown into a company that employs 80 people, including 20 market analysts, covering virtually every major market worldwide, 24 hours a day. The most popular premium service is the coverage of currency markets.

EWI has published more than a dozen books, many DVDs and online videos, and offers a program from those who want to earn the designation of Certified Elliott Wave Analyst.

What pleases him most isn’t just the success EWI has had over the years, or when a market call he makes plays out.

“Our first two employees joined us 33 years ago, and are still here,” Prechter said. “That makes me happy.”

http://www.marketwatch.com/story/why-you-should-care-that-robert-prechter-is-warning-of-a-sharp-collapse-in-stocks-2015-06-08