Today concludes my three-part "year-in-review" series inspired by the movie "It's a Wonderful Life." The basic gist: What if the early 2011 mainstream financial forecasts never existed? Would mainstream investors have been better -- or worse off -- today?
Part one flashed back to the early-year calls for "new stock market highs" -- which ultimately gave way to the Dow's 19% fall in early May. And
part two rewound to similar expectations of an "oil super spike" to above $220 a barrel -- which also gave way to crude's worst third-quarterly loss since the start of 2008 finanical crisis.
The early-2011 bullish forecasts for both stocks and oil were based on " fundamentals." That was their main flaw, as events outside the markets do not drive broad financial market trends. Today, let's look at two more markets -- the U.S. dollar and commodities -- and see how that same "fundamentals"-first approach misled mainstream forecasters.
What some in the mainstream said about the U.S. Dollar in mid-2011:
- April 28:"The US Dollar to Face Headwinds...With the Fed's commitment to the completion of QE2 and no change to the extended period language as it pertains to interest rates, the dollar's woes will continue to mount." (AFP)
- May 2:"The days of the US-unit's viability as a funding currency are numbered." (Forex News Now)
What we at Elliott Wave International said around the same time:
- May 4 Short Term Update: "The Dollar's Declining Days Are Numbered. With dollar optimism virtually non existent, the conditions are more than ripe for a dollar rally of import. A close above 74.34 would... be the first indication that the dollar has turned up into a bigger advance that should last months."
The May 4
Short Term Update provided this visual aid for its bullish dollar forecast:
What the U.S. dollar actually did in 2011: From its April 26 bottom, the U.S Dollar Index came alive in a powerful rally to the one-year highs we see today.
Now, onto what some in the mainstream said about commodities in mid-2011:
- April 30: "Making the Case for a long-term Bull Run In Commodities." (LA Times)
- May: "As demand [in emerging economies] snaps back -- and we're seeing it now -- then the commodity boom roars on." (Associated Press)
What we at Elliott Wave International said:
- May 6 Short Term Update: "I want to show you a beautiful chart of commodities. The CRB traced out a nice five-wave decline from July 2008 to February 2009, declining 58%, the same percentage of stocks.
From this low, an A-B-C rally has carried to a Fibonacci 62% retracement and has met the upper channel formed by the advance. Commodity bulls hit 93% (DSI) in April, as prices were putting the finishing touches on the advance. This week's sharp reversal indicates that the next declining phase has started."
What commodities really did in 2011: From its late April peak, the CRB index turned down in a sharp 11% reversal, as this updated chart makes clear:
When it comes to analyzing financial markets, the only guarantee is that there are no guarantees. Elliott wave analysis is not perfect, either -- but it does give you a fighting chance to stay in front of major trend changes via objective insight into the internal wave patterns and technical conditions underway.