An Elliott Wave Perspective of the Financial Crisis

Elliott Wave International www.elliottwave.com November 20, 2008 By Alan Hall

November 2008 Elliott Wave International (www.elliottwave.com)

Positive Correlation Index Reveals Supercycle-Degree Deflation Underway

Pre-1956 stock and commodity data courtesy Foundation for the Study of Cycles Post 1956 data: DJIA, PPI and Continuous Commodity Index courtesy Bloomberg and US Federal Reserve yearly data, log scale

((III))
(V)
3.7

(III)
3.2

((I))

Positive Correlation Index: Product of annual percent changes of Dow/PPI and CRB, when signs are identical

(I)
Stocks/PPI

(IV)
2.7

(II) 1842

1932

1721

((II))

2.2

1.7

Commodities
0.500
Rising together: Falling together:

Positive Correlation Index

-0.500

-0.5665 1721

-0.2342 1842

-0.5927 1930-1932

-0.6239
record low (through 10/08)

2008-20??

1855

1695

1705

1715

1725

1735

1745

1755

1765

1775

1785

1795

1805

1815

1825

1835

1845

1865

1875

1885

1895

1905

1915

1925

1935

1945

1955

1965

1975

1985

1995

2005

Figure 1

2015

14000

oz. 45

Top

12000

THE NOMINAL DOW

40

35
10000

THE DOW PRICED IN REAL MONEY (OUNCES OF GOLD)

weekly

30

8000

25

20
6000

15
4000

10

2000
November 2008 Elliott Wave International (www.elliottwave.com)

Down 77.4%
October 2008 Elliott Wave International (www.elliottwave.com)

0 1980 1985

1980

1985

1990

1995

2000

2005

1990

1995

2000

2005

Figure 2

Figure 3

Figure 4

1
(5) 5 2 4 2 1 3 5 (A) 4 A B (B) C 2 1 3 5 (C) 4

(3) 5 3 (1) 5 3 1 2 4 B A 1 2 C (2) 4 A

3 B C (4) 1

Elliott Wave Principle, Figure 1-3

Figure 5

Figure 6 3

Jul. 98

A RAGING BULL MARKET... IN CASH

weekly 100 150 200

80 70 60 50 40
1000 1200

BEAR MARKET STARTED 8+ YEARS AGO

monthly

Philadelphia Housing Sector Index

(inverted)

Coca-Cola

S&P 500
(inverted)

Dec. 99
50 40

$ 4.00 8.00 12.00

(inverted)

Silver

1400

Microsoft
30

(inverted)

Gold

20

Aug. 00
$ 600

CRB Index
225 275 325 (inverted)

700 800 900

50

General Electric
40

Crude Oil
(inverted) $ 60 100 140
November 2008 Elliott Wave International (www.elliottwave.com)

30

20

Dec. 99

70 60 50

2002

2003

2004

2005

2006

2007

2008

Wal-Mart

40 30

Figure 7

August 2008 Elliott Wave International (www.elliottwave.com)

20

1998

2000

2002

2004

2006

2008

Figure 8 4

1600

MSCI WORLD STOCK INDEX

EIGHT-YEAR TOTAL RETURN

12/31/99 to 11/12/08
Transaction costs excluded

INDEX
3-month T-bill

Total Return
+31.08% -29.43% 59.12% 24.77% 10.14%

CASH

1400

S&P 500
1200

Composite
1000

NASDAQ

Dow Jones Wilshire 5000

800

-51%
November 2008 Elliott Wave International (www.elliottwave.com)

Dow Jones Industrial Average

Figure 10

2002

2003

2004

2005

2006

2007

2008

Figure 9

We hope this interview and these charts helped give you a bigger perspective. If you would like more information, we have a ton of free educational material at our website elliottwave.com. Just join Club EWI. For more about Socionomics, visit socionomics.net, and if you are interested in the special reports, A Socionomic View of War, Stocks and Commodities, or the real estate study, The European Housing Mania, click here: elliottwave.com/GMPreports