1512 GMP

DECEMBER 2015
Global Market Perspective December 4, 2015
Prechters
GLOBAL MARKET PERSPECTIVE

2015 Elliott Wave International
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This report utilizes data through
December 3, 2015.
MARKETS AT A GLANCE
Stock Markets
The Dow and S&P 500 retraced on average 90% of
the decline from their respective May highs, while the
secondary stock indexesthe Value Line Index, the
Russell 2000 Index, the S&P 600 Small Cap Index and
the S&P 400 Mid Cap Indexretraced on average 63% of
the decline from their recent peaks. The latter percentage
is a normal retracement for a bear market rally. The Dow
and S&P could make final new highs, but the global
bear market is broadening and will eventually ensnare
all indexes.
competitors, but Thursdays collapse out of an ending

diagonal, erroneously attributed by the mainstream
media as a response to the European Central Bank
announcement, leaves the door open to a correction that
extends well into the first quarter of 2015.
Metals & Energy

Gold should rally short-term, but its longer-term bear
market from the September 2011 peak is not complete.
The European stock market rally since August/September

2015 has telegraphed its weakness in myriad ways.
Trading volume, for instance, has contracted, momentum
has waned, small-cap stock indexes have lagged, and wave
structures have developed in distinctively countertrend
formations. Moreover, the large-cap FTSE 100 displays a
revealing technical pattern that betrays its own underlying
weakness. Despite this technical evidence, investors
conviction about the prospects of seeing new stock market
highs are as strong as ever which contrarily signals a
top. The stage is set for an enduring sell-off that should
carry well into the New Year.
Crude and Natural Gas should both be moving towards

significant bottoms.
The evidence increasingly suggests that the correction

of the past several years in emerging markets is ending.
Global Interest Rates. . . . . . . . . . . . . . . . . 27
CONTENTS
World Stock Markets . . . . . . . . . . . . . . . . . . 4

Interest Rates
Signs of U.S. credit market distress are spreading, which
will negatively impact the price of nearly all financial
assets. Sentiment reached extreme levels in gold and
currencies.
World Stock Index. . . . . . . . . . . . . . . . . 4

United States . . . . . . . . . . . . . . . . . . . . . 5
Europe. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Asia-Pacific . . . . . . . . . . . . . . . . . . . . . 17
Debt Mans Curve . . . . . . . . . . . . . . . .

United States . . . . . . . . . . . . . . . . . . . .
Europe. . . . . . . . . . . . . . . . . . . . . . . . .
Asia-Pacific . . . . . . . . . . . . . . . . . . . . .
27
29
31
34
International Currency
Relationships . . . . . . . . . . . . . . . . . . . . . . . 35
Metals & Energy. . . . . . . . . . . . . . . . . . . . . 44
Only the 10-year Australian bond appears clearly to have

registered a lasting top. However, the JGB may be closing
in on a top for the ages, while any remaining upside in
the shorter term Euribor and Short Sterling appears quite
limited. The Bobl may have joined the Long Gilt and
Bunds as candidates for yet higher highs before their
historic bull market run completes.
Gold & Silver. . . . . . . . . . . . . . . . . . . . 44

Crude oil . . . . . . . . . . . . . . . . . . . . . . . 46
Natural Gas . . . . . . . . . . . . . . . . . . . . . 46
Economic, Monetary and

Cultural Trends. . . . . . . . . . . . . . . . . . . . . . 47
A Capsule Summary
of the Wave Principle . . . . . . . . . . . . . . . . . 51
Currencies
Glossary of Terms. . . . . . . . . . . . . . . . . . . . 54
The dollar finds itself at a critical juncture as 2015 comes

to an end. It remains favored relative to most of its major
December 2015
Cover | Stock Markets | Currencies | Interest Rates | Gold | Energy | Economy & Culture
MARKETS AT A GLANCE
The Dow and S&P 500 retraced on average 90% of the decline from their respective May highs, while the secondary
stock indexesthe Value Line Index, the Russell 2000 Index, the S&P 600 Small Cap Index and the S&P 400 Mid Cap
Indexretraced on average 63% of the decline from their recent peaks. The latter percentage is a normal retracement
for a bear market rally. The Dow and S&P could make final new highs, but the global bear market is broadening and
will eventually ensnare all indexes.
The stock market rally since August/September 2015 has telegraphed its weakness in myriad ways. Trading volume,
for instance, has contracted, momentum has waned, small-cap stock indexes have lagged, and wave structures have
developed in distinctively countertrend formations. Moreover, the large-cap FTSE 100 displays a revealing technical
pattern that betrays its own underlying weakness. Despite this technical evidence, investors conviction about the
prospects of seeing new stock market highs are as strong as ever which contrarily signals a top. The stage is set for
an enduring sell-off that should carry well into the New Year.
The evidence increasingly suggests that the correction of the past several years in emerging markets is ending.
WORLD STOCK INDEX

The recovery from the late September
low in the World Stock Index counts as
a countertrend move, labeled wave 2.
So far, prices have peaked at the exact
61.8% retracement of the prior decline.
But, slight further rally could take
place as some of the stronger markets
around the world make new highs and
complete the global topping process.
The next cluster of resistance lies in
the 326-330 area. Our outlook will
remain bearish as long as this range
contains any further upside. A decline
below the mid-November low near 306
would be a good sign that wave 3 down
has begun. The wave structure in the
WSI is telling us that the coming year
should be quite negative for most stock
markets around the world.
Stocks
THE UNITED STATES

Will the U.S. Federal Reserve really declare victory
over deflation with a December rate boost? According to
the consensus view, the thinking inside the Fed is that the
economy is finally healthy enough to return borrowing costs
to more normal levels. Such a move would actually be
consistent with many of the most important market peaks
in history, such as September 1929 and January 2000 when
the Fed famously pulled the punch bowl by increasing
the Federal Funds rate as stocks reached the extremes of
major advances. China did something similar in 2007,
raising borrowing costs several times. The Shanghai
Composite Index made its all-time high in October 2007.
Of course there is one big difference: On each of those
occasions, the central bank rate hike was part of a series
that pushed rates through 6%. This time, the rise will be
the first in more than six years, and it will come from a
virtually non-existent level of 0.25%. With the economy
so much weaker, some will view it as the straw that broke
the back of the global economy. The truth is that the Fed is
succumbing to the feel-good sentiment of a peak in positive
social mood by doing what it has always done in the past;
confidently raising interest rates just before the start of a
major bear market.
Momentum
The investment community lost one of its great forecasters
on November 21 when Richard Russell passed away.
Russell was one of those rare stock market thinkers who
never feared to tread the ground to which his ideas and
Elliott Wave Analysis

The stock market remains splintered, as shown on the
chart below. The blue-chip Dow Jones Industrial Average
and S&P 500 pushed to within 3% of their respective May
highs, while the smaller-cap, secondary stock indexes are
well below their respective April-June highs. If the Dow
makes a new high, exceeding the peak of May 19th at
18,351.30, it will likely be a fifth wave, the final advance
of an impulse pattern, as shown by the wave labels on the
chart. The secondary stock indexes, such as the Value Line
Index, would likely complete a countertrend bounce about
the same time that the Dow was finishing its fifth wave.
The stock market, however, has other options, and a new
Dow high is less than assured. Last month we said that the
fractured behavior among the markets stock indexes is
not an indication of a healthy bull market. On Thursdays
sharp sell off, 87% of the S&P 500 stocks were down.
If downside breadth continues to expand, the markets
bearish potential will increase. We are closely monitoring
the markets wave structure and will keep you apprised
of new developments.
Stocks
indicators carried him. Besides popularizing Dow Theory,

Russell developed the Primary Trend Index, a proprietary
configuration of eight market-based measures. Russell
often said the PTI was smarter than he was, but we think
they were pretty evenly matched.
Russell often plotted the PTI along with an 89-day moving
average to help him discern the markets trend. At the
bottom of this chart weve created a momentum indicator
by subtracting the PTI from its 89-day moving average.
The indicator clearly shows the extreme upside exhaustion
that GMP has been tracking for months now. After peaking
nearly a year and a half ago, on July 1, 2014, the indicator
made a succession of lower highs against the markets rise
into May, reflecting a loss of upside energy. This is exactly
how stock market tops happen; momentum steadily erodes
as one index after another peels away from the uptrend.
Even if the blue-chip indexes manage to reach a new high,
the disparity between prices and the peak rate of upside
price change is consistent with a fifth wave. With the Dow
Theorys August bear market signal still intact and the PTI
languishing, were fairly sure that Richard Russell would
be skeptical of the markets upside potential.
Investor Psychology
GMP has been tracking a steady global shift to greater
financial conservatism over the last 18 months. As we
noted in October, the long duration of the transition
from a risk on to a risk off attitude suggests that the
next decline will go deeper and last longer than that of
2007-2009, which was the biggest bear market since the
Great Depression. The relationship between the MSCI
Emerging Markets Index and the MSCI World Index on
this chart shows a trend away from risk that will gradually
widen into a trend out of all equities. The MSCI Emerging
Markets Index comprises riskier stocks, and it made a
countertrend rally high in September 2014. The bluechip World Index comprises shares in more developed
countries, and it made its all-time high in May of this year.
The current rally shows how much the MSCI Emerging
Markets Index is lagging. In fact, it retraced only about
a third of its most recent decline while the MSCI World
Index retraced two-thirds of the sell-off from its May high.
issuance has stalled as prices have plunged (see bond

market discussion). The U.S. is supposedly a growth
haven, but more speculative assets are being shunned
here as well, for example, in the underperformance of
secondary indexes, as expressed in the chart on page 5.
Another example is the market for Initial Public Offerings,
which GMP identified as ripe for a reversal back in the fall
of 2014. Citing a euphoria surrounding Alibaba, which
remains the largest IPO ever, GMP noted a similarity to the
record-setting deals that hit the market in November 1999
and March 2008. After each ebullient period, the overall
market fell sharply. The long term chart of the Bloomberg
IPO Index shows the reversal in the IPO aftermarket that
followed each speculative episode. The latest top came
on November 13 of last year, a few days after GMP
commented on the frenzy of excitement surrounding IPOs.
Interestingly, the peaks are exactly 7.38 years from each
other, creating a long-term cycle top that is now behind us.
A Bloomberg article, Unnerved Investors Pull Shutters

as Capital Market Cracks Spread, captures the swelling
unease in noting, Investors around the world are running
away from almost anything smacking of risk. Junk bond
One by one, numerous highly celebrated offerings have

gone off the rails. Since September 2014, more than half of
the 35 companies that went public with initial valuations
of more than $1 billion are now below their IPO price.
Stocks
Back in December 2000, GMP noted that discussions

using words like mania and bubble had become
commonplace. When the next top was in place in March
2008, GMP documented the increased use of these
very terms with a chart showing bubble references.
It revealed a surge in 2000 and then again in 2007, as
the S&P 500 topped and started declines that ended up
subtracting more than half its value. Another famous
technology investor is bullish now due to Squares low
initial offering price. Heres the logic, as documented in
a November 10 Fortune article:
Square IPO Price Proves There Is No Tech Bubble
A real tech bubble, many say, can exist only if irrational
exuberance has extended to the public equity market
where most tech company value liesand that Squares
relatively modest pricing expectations are evidence
that it has not.
Many of the most heavily hyped offerings since 2011 are

also down dramatically from their post-IPO highs, such
as Alibaba (-30%), Twitter (-65%), Zynga (-85%) and
Groupon (90%). Square Inc., a digital payment company,
was supposed to be the next high-flyer when it debuted
in mid-November, but before it even hit the market, its
prospects diminished as underwriters reduced its offering
price to $9 a share, 20% below its estimated opening
range. According to The Wall Street Journal, skeptical
investors forced the reduction, further souring the
market for new technology-company stock. Square still
has a $4.4 billion market cap, but losses and expenses
are rising. Square is looking more and more like the last
flicker of a classic IPO flame outthe kind that leads to
a complete cessation of IPO activity near the onset of a
major stock market decline.
But the dissipating interest in IPOs actually fits perfectly

with the early stages of a bear market. We know because
we listed a record rate of IPO cancellations under
More Signs of a Burst Bubble in GMPs May 2008
issue, shortly before the bottom fell out of stock prices.
In the same entry, GMP cited anemic demand for OTC
Bulletin Board shares and a decline in NYSE margin
debt. Both conditions exist now. In October, the latest
month for which figures are available, NYSE margin debt
is down 7% from an April all-time high of $507 billion,
while OTC Bulletin Board volume and dollar volume hit
record lows in September (see chart, p.8 in October issue).
In the same May 2008 issue, GMP cited a sudden loss of
enthusiasm for company buybacks as another component
of a major market reversal. GMP noted that for companies
issuing buyback announcements cheers invariably turn
to jeers as the stock market reverses from up to down.
GMPs evidence included the following headline from
2001: Buybacks Hit a Wall of Fear. The 2008 version
from The Wall Street Journal read, [From] Buyback
Boom To Buyers Remorse. And here are the latest
headlines:
The response of technology gurus seems perfect for such

an outcome. Many insist that the sector is on solid ground
because expectations are more subdued than they were
at the end of the dot.com bubble in 2000. While they
agree that some tech firms with billion dollar valuations
will go down as poster children for hubris and excess,
others will surely live on as big successful corporations.
If thats a bubble, its the right kind of bubble. Another
venture capitalist insists that the current tech frenzy is
different from 1999, where you had companies that had
no way to make their economics work. No one was more
traumatized than me by the bubble. No one was saying
there was a bubble back then. Actually, its not true.
Stock Buyback Deals Can Be Stinkers

USA Today, Nov. 5, 2015
The Stock Market Has a Buyback Problem

Fortune, Nov. 18, 2015
Stocks
Surge In Stock Buybacks Good or Evil?
While the total number of deals has been falling, the

value of mergers as a percentage of GDP has continued
to climb rapidly. So, just like the overall stock market,
merger activity has continued to accelerate on the
strength of a few blockbuster deals. As At the Crest of
the Tidal Wave noted, one of the main ways companies
express optimism [is] by taking over other companies.
Such activity is indicative not of minor bull markets,
but of ones that precede prolonged and devastating
bear markets.
The Wall Street Journal, Nov. 22, 2015
As the chart shows, through the first three quarters of

2015, buybacks were the strongest since the record year
of 2007, when stocks made a major top. Until recently,
share repurchases
were considered a
positive development
for companies. But a
widely-circulated report
from Research Affiliates
says buybacks offer
little overall benefit.
Buybacks are simply
a mirage. Fortune
concludes, Investors
might soon regret the
buyback binge. They
always do, and the
outbreak of skepticism
is a sure sign that the
falling share prices that
invariably compounds
those regrets is very
close.
A June 2000 Special Report included a series of charts

showing a century-long positive correlation between
record-high mergers and peaking stock prices. We added,
Another major confirmation of a reversal in social mood
is a recent outbreak of anti-merger fever. The outline
of a similar public anger is now evident in the response
to the deal that pushed the 2015 total over the topa
proposed merger between Allergan and Pfizer. The biggest
marriage of pharmaceutical companies in history is also
the largest-ever corporate tax inversion, which means
the new company will skirt U.S. taxes by effectively
relocating Pfizers headquarters to Ireland. GMP covered
the rise of anti-trust initiatives in last months issue. This
is yet another by-product of the peak in social mood and
its subsequent reversal, when attacks emerge against the
methods and standards of the preceding advance. The urge
to acquire will dissipate on its own, but the government
will find various ways to contribute to the diminishing
M&A totals as stock prices retreat.
Corporate mergers are another peak-market metric that

generally moves to record levels as stocks complete major
bull markets. In November, a rash of major deals raised the
global year-to-date merger total to $4.1 trillion. According
to Dealogic, the current record total marks a 38% increase
over the same period in 2014. The prior record of $3.9
trillion came as stocks topped in 2007. Like the overall
stock market, however, the merger market is dominated
by large firms. While November broke the monthly record
with $606.6 billion in deals, it featured the lowest monthly
total number of deals (2657) since June 2005. The 2000
market top featured a similar splintering, which drew the
following comment in the February 2000 issue of GMP:
Stocks
EUROPEAN STOCK MARKETS

The stock markets advance continues to narrow, with
many secondary indexes such as the Spanish IBEX
Index, the Portuguese PSI Index, the Italian MIB and the
FTSE Small Cap Index failing to keep pace with the
German and British blue chip indexes. The lower graph
on the chart at right depicts Europes especially weak
eastern bloc, where the Stoxx EU Enlarged 15 Index just
fell to its lowest level since April 2009. The index tracks
stock performance in the 12 states that joined the EU
since 2004: Bulgaria, Cyprus, Czech Republic, Estonia,
Hungary, Latvia, Lithuania, Malta, Poland, Romania,
Slovakia and Slovenia. After ending its countertrend
advance back in May 2011, the region has diverged from
the blue chip Euro Stoxx 50 (top graph) for four years and
counting. More important, the index traced out an initial
five-wave decline from its April 2015 peak, as the daily
chart below depicts. In other words, the regional bear
market, which has been under way for nearly a decade,
probably just embarked on another impulsive decline.
In December 2009, Global Market Perspective (GMP)
forecast that Europe would eventually separate from the
eastern bloc nations, because the regions cultural ties
to Western Europe are comparatively loose. A new bear
market will re-introduce the region to a host of economic
crises, and a concomitant round of political, cultural and
social upheaval.
Elliott Wave Analysis

The regional uptrend is also thinning out in large
economies that contribute far more to the worlds
GDP. The following chart, for instance, compares the
performance of the broad market FTSE 350 (top graph)
with three critical sub-sectors of the UK economy:
banks, automobiles, and mining. Bank stocks peaked in
May 2013, and the sector has since traced out a series of
lower lows and lower highs. The auto sector topped less
than a year later in early 2014 and has since dropped to
a three-year low. Meanwhile, the mining industry, which
has led the global slowdown, just began a dramatic new
downleg this year. Diverging stock indexes alert investors
to the poor health of the regional uptrend and a similar
market splintering signaled the 2007 top. Back then, the
banks peaked first in February 2007, followed by the auto
shares in June. The mining sector held up until May 2008,
but once the mood turned, no amount of good intentions
Stocks
left shoulder peaked in September 2014 at 6,800, the

head topped in April of this year at 7123, and the right
shoulder is forming now. Nothing says that prices cant
extend marginally higher, but notice that the pattern
includes a down-sloping neckline, which, according
to the April 2010 Elliott Wave Theorist, denotes an
underlying weakness to the formation. Moreover, the
Theorist observed, generally, when the neckline slopes
downward, the right shoulder does not rise to the level of
the left shoulder. In the FTSEs case, the right shoulder
has so far peaked at 6488 on October 23, 2015, and that
may be all the bulls will get. A failure of the neckline,
which currently stands at about 5650, will in all likelihood
produce a dramatic round of selling.
could stop the chain reaction. An equivalent time bomb is
ticking today; the longer duration of the topping process
portends an even more dramatic explosion to come.
Market Psychology
After a brief respite in September and October, the equity
bulls quickly got back to the business of betting on a big
new stock market upleg. Heres a good description of the
turnaround in a November 20 Bloomberg headline:
A Brief Note on Market Technicals

The price action in the FTSE 100 has been weak compared
with various continental indexes, as European Short-Term
Update Editor Chris Carolan has observed for weeks.
The chart above (right) shows one potential reason why:
a near-term head and shoulders topping pattern. The
This Years Hottest ETF Now Luring

Cautious Set of Europe Bears
10
Stocks
According to the article, the darling of the ETF world is

none other than Wisdom Tree Europe Hedged Equity Fund
(HEDJ), a U.S.-based ETF that bets heavily on European
companies with significant export exposure. After prices
bottomed in September 2011 (top graph on the chart),
HEDJ traced out five waves up into its April 2015 high,
capturing the No. 1 spot for ETF inflows along the way.
The lower graph shows that the funds 22% nosedive from
April through September 2015 has entirely failed to shake
out the rampaging bulls. In fact, open interest in HEDJ call
options (bullish bets), which began to rise dramatically
this year, surged another 66% over the past two months.
Moreover, volume in HEDJ calls hit a single-day record
of 62,123 contracts on November 12, while volume in
put options (bearish bets) has stayed flat, according to
Bloomberg.
rally. Today, in contrast, the lopsided focus on the bullish

side of the market signals the early stages of a reversal.
The contrary sell signal is amplified by HEDJs near-term
wave structure, which shows a five-wave decline into the
September 2015 low. (Wave 5 ended in a slight truncation
[EWP, p. 35], which is common in leveraged markets.)
Last months bounce is either all of wave (2) or part of
wave (2) but, either way, HEDJ is unlikely to see a new
high anytime soon.
This Is London Falling!
This Financial Times article alerts readers to another
bygone bubble where a surging comeback has recaptured
investors imaginations:
Britons Pin Their Pension Hopes on Property
The UK has fallen in love with property as the best way
to make money for retirement
FT, November 11, 2015
Once again, fast-rising home prices have convinced
the public that bricks and mortar are likely to provide
the most comfortable retirement. (FT, 11/11/15) A
recent survey of 10,000 Britons finds that 44% believe
property will be their biggest moneymaker during
retirement. Pension income came in a distant second
place at 25%, while stock investments took third. Heres
how one retirement specialist captures the magnitude of
societys preoccupation with property: For many people
now approaching retirement, their property will be
particularly relevant as a capital reserve for costs such as
later-life care. (FT, 11/11/15)
By itself, the widespread belief that real estate is the
financial equivalent to cash is one of the most dangerous
ideas going. Cash is liquid by definition, whereas
property requires time, energy and money to off-load.
Cash generates income; homes generate expenses.
Cash is boring and, as an investment, cash exists in a
financial corner that is totally off the average investors
radar. Real estate, in contrast, is caught in the throes of
another speculative frenzy that nearly everyone expects
to continue. Take the following chart, which compares
London home prices to first-time buyer affordability
(mortgage payments as a percentage of mean take-home
pay). It shows a rising lower graph, which indicates
the declining affordability of London homes, because
a greater percentage of income goes to meet mortgage
payments.
A New-York based derivatives strategist correctly

observes that the sudden interest in HEDJ has caused
a liquid options market to spring up. But, as usual, the
investment crowd began pouring into the fund after the
11
Stocks
When buyer affordability hit 69.6% in the fourth quarter

of 2007, London home prices promptly plummeted 20%.
Prices bottomed in the first quarter of 2009, sending
mortgage payments back below 50% of take-home pay.
But, today, nearly 66% of Londoners income is going
toward mortgage payments, just a few percentage points
shy of the 2007 peak.
More important, the top graph depicts an extended
fifth wave in London home prices, with wave (5) of 5
reaching equality with wave (1) of 5. This is a common
wave relationship. As the textbook Elliott Wave Principle
observes, fifth-wave extensions are typically followed
by swift retracements, which usually return to the price
territory of the fourth wave of one larger degree. So, by
common wave relationships alone, London home prices
are set for a 30%-50% decline. Either way, unaffordable
homes are once again colliding with euphoric sentiment
and complete Elliott wave patterns. The combination
should prove to be even more deadly than it did in 2007.
Note: A more intensive discussion of U.S. and UK
real estate can be found in Alan Halls October 2015
Socionomist article, If Your Nest Egg Breaks, Will You
Still Want the Nest?
12
Stocks
Special Section:
AUSTRIAN BUSINESS MAGAZINE, GEWINN (PROFIT),

INTERVIEWS GMP EDITOR BRIAN WHITMER
The following interview is slated to be published in the December 2015 issue of Gewinn (Profit), a monthly business
magazine based in Vienna. The conversation covered a wide range of important topics, so I am grateful to the magazines
editor for giving me permission to share the English version with GMP subscribers early. (Note: This version has
been edited slightly for clarity.)
Gewinn: Hello Brian. In your model where are we right now in the wave structure?
Brian Whitmer: First, let me provide some context: The most important thing for investors to understand is that
the real bull market ended in 1999/2000. Since that time, some averages such as the S&P 500 and DAX have gone
to new highs. Other indexes like the FTSE 100 have traded more or less flat. Still others, like the CAC 40 and the
Euro Stoxx 50, have merely bounced. And still more indexes, such as the Athens Composite, have kept sinking.
The Elliott wave model uses pattern recognition to distinguish between authentic bull markets and countertrend
rallies within a bear market. For many world stock indexes, the past 15 years comprise an especially large and
ongoing countertrend rally within a larger bear market that remains incomplete to the downside.
Thats a general discussion of where we are. But for readers who are familiar with Elliott waves and want specifics,
the DAX and FTSE 100 are forming a Cycle degree top right now. Prices are due to begin Cycle wave c down,
which could begin at any time. The CAC 40 and Euro Stoxx 50 differ in that Cycle wave b peaked back in 2007.
However, both indexes are also due to begin the next wave down. With a few exceptions, all major U.S. and
European stock indexes display some version of this wave structure.
Gewinn: In your video on Elliottwave.com, you talk about jumping volatility. With volatility being exceptionally
low for such a long time, shouldnt investors be more nervous right now?
BW: Great observation. Stock markets became highly volatile in September and October of this year as shares
sold off. Meanwhile, gauges of implied volatility spiked as well, pointing to the return of fear vis--vis the options
market. This profile supports our view that stocks are transitioning from an uptrend to a downtrend. Moreover, most
gauges of longer-term investor sentiment indicate extreme complacency, which strongly signals that a major top is
forming now. During the bear market, gauges of stock market volatility will likely exceed the records set in 2008.
Gewinn: The economy has made a stealth move from expansion to contraction, as credit inflation has become
credit deflation. When will the stock market follow?
BW: Well, the stock market doesnt follow the economy; in fact, while it often leads the economy, thats not the
key point, either. Stocks immediately reflect naturally occurring waves of optimism and pessimism, which we
refer to as social mood. Social mood is first reflected in stock prices, and then it goes on to drive numerous
other slower-responding manifestations, such as elements of the economy and culture. Many world economies
have stayed weak throughout the last few years thats precisely because the larger bear market in social mood
is still ongoing. As I noted above, stocks are ready to join in on the downside at any time.
Gewinn: How should private investors prepare themselves? Are there any alternatives to owning stocks?
BW: There are, indeed, alternatives to owning stock, but most investors are ignoring them. With few exceptions,
investors should move into cash or safe equivalents to cash. Safety and liquidity will be paramount in the coming
13
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environment, and cash is the only asset that assuredly rises in value during deflation. By cash, we mean cash
notes say 50 notes, or $100 bills, or the equivalent in your home currency. By cash equivalents, we mean
high-quality, short-term debt issued by the worlds safest institutions or governments.
As for assets to avoid, investors should hold no corporate bonds, municipal bonds, mortgage debt, auto debt,
credit-card debt, foreign debt or any other IOUs that could evaporate in value. Investors should also own no stocks
or investment property, and they should avoid all but the safest banks on the planet. If your readers are interested
in more specifics, Bob Prechter updated his 2002 book, Conquer the Crash, this year. It gives detailed instructions
on how to keep your money safe and take advantage of a deflationary investment environment.
Gewinn: You stated in another recent video that deflation will affect creditors mostly. Why? Deflation implies
low interest rates, doesnt it? Will we see another credit crunch?
BW: Declining stocks reflect intensifying investor pessimism, which will dramatically disrupt the credit markets.
We saw snippets of what deflation can do during the bailouts of Ireland, Greece, Cyprus, Portugal and Spain.
However, during the next wave of declines, credit deflation will push into much larger economies and likely
bankrupt them. A negatively waxing mood trend decimates credit markets, because bond investors lose faith in
the ability of issuers to pay principal and interest. As bond prices plummet, yields will soar not due to inflation,
but rather due to investors concern that their principal has evaporated and the spread between low-grade and
high-grade debt will widen dramatically. These trends can be a great opportunity for experienced professionals,
but casual investors will want to avoid speculating in the debt markets altogether.
Gewinn: You talk about a world of cash, but European governments are restricting cash payments. In Italy,
cash payments are limited to 1,000 euros. Denmark also limits the use of cash. If governments want to pursue
a policy of financial repression, it is easier to offer negative interest rates in a world of digital money, right?
BW: The examples you cite provide powerful evidence that the demand for cash is growing. Otherwise, why
would governments feel the need to restrict the use of cash in the first place? There are times when holding cash
makes economic sense even in low-interest-rate or zero-interest-rate environments. The late 1920s and early
1930s offer historys most famous example, and, today, we are living through another case in point. During
deflation, cash is king.
Gewinn: You see the opportunity in cash, but isnt there a danger of a cash crunch and of devaluation against
the dollar and other currencies? What is Elliott Wave Internationals opinion on the euro, the U.S. dollar, the
yen and the yuan?
BW: The danger of a cash crunch is very real, which is why investors should beat the crowd and move into
safety now. We remain bullish on the U.S. dollar, and we like the currencies of Switzerland, Singapore and New
Zealand for safekeeping. These represent the four most stable governments on the planet, and their currencies
should be in high demand when the next financial crisis hits. Regarding the other currencies you mention, wave
patterns and sentiment point to a long-term bull market in the U.S. dollar against the euro, the Japanese yen and
the Chinese yuan.
Gewinn: How can you be sure of continuous deflation, when central banks are doing everything they can to
generate inflation? Does monetary policy have any impact anymore? Do central banks have any other options?
If central banks had left the markets alone after Lehman, wouldnt the economy be in a 1930s-style depression
right now?
14
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BW: The buildup of debt over the previous eight decades makes massive credit deflation virtually impossible
to avoid. So, its not a question of if deflation happens, but merely when. Central bankers have been furiously
trying to generate inflation for the past decade. But they are failing, because credit booms and busts are fueled
by the underlying trend in social mood, which they cannot control. Simply put, markets are more powerful than
central banks.
Regarding the economy, much of Europe is in a depression already. Most people dont realize it yet, because it
is coming on slowly. Frankly, I dont know what the economy would look like had central banks left the market
alone following Lehman. What I do know, however, is that world stock markets are flashing all of the same warning
signs that they flashed in 2000 and 2007. Back then, it paid to move into defensive positions, and making the
same moves today should pay off again. Given the higher degree of the waves that are present today, our view is
that the coming sell-off will eventually exceed the 2008-09 crash in terms of intensity.
Gewinn: Markets are again way out of balance, having been propped up for decades with debt. Are there any
secure investments anymore? What is the fair
value of stocks? Where and when can one expect
to buy stocks at a decent price?
BW: Youre absolutely correct: Credit growth
has fueled the bull market in stocks and in
financial assets, generally. But things are
changing. The growth of credit in the EU
(total bonds and loans) peaked back in 2008 at
an annual rate of more than 10% (see charts).
Credit inflation became credit deflation in
late 2009, when total bonds and loans began
to contract. The contraction hit a near-term
extreme of minus 5% in early 2014 and credit
growth has barely eked back above zero
today. The trend toward credit deflation has
been uneven, because the optimism of the old
bull market continues to linger. During the
coming mood decline, deflation will push into
all financial assets more or less uniformly. As
discussed earlier, the most secure investments
in this environment will be cash and cash
equivalents, with a small position held in
physical gold and silver (no more than 10%)
to hedge against unforeseen events.
Regarding the fair value of stocks, the
term is illusory, because stock values are
driven by collective human psychology,
which vacillates from one extreme to another.
Investor psychology is currently at an
optimistic extreme, signaling a market top.
A correspondingly pessimistic extreme will
signal a market bottom, but that low point is
still many years away.
15
Stocks
Gewinn: Will spreads widen and CDS rates increase ahead of the sell-off in stocks?
BW: The debt crisis in Greece was preceded by plummeting share prices, and the same relationship played out
in Cyprus, Ireland, Portugal, Russia, Spain and the Ukraine. Because stocks lead the economy, people who pay
attention to share prices have a fantastic advantage over those who dont. In other words, keeping an eye on the
stock market allows people to stay ahead of the developing debt crises. The trend in stocks has allowed us to
forecast most of the debt crises that have plagued southern Europe, and a major stock decline will likely precede
the broader credit crisis that is coming.
Gewinn: What technical tools do you use to help analyze the wave structure? Which levels in the DAX would
signal the approaching big sell-off? Are there any positive signals that would cause you to change your opinion?
BW: On a near-term basis, we use Keltner channels and Jurik moving averages to help discern the position of
stocks within their overall wave structure. Over the intermediate-term, the Daily Sentiment Index (trade-futures.
com) provides a daily poll of futures traders in various stock indexes. When the poll pushes to extremes typically
above 90% bulls or below 10% bulls it usually indicates that a reversal is nearby. Long term, we use numerous
surveys from Gfk, Sentix, the OECD, the Bundesbank, the Bank of England and the Europe Central Bank to
gauge investor optimism toward stocks and the economy.
Regarding price levels, Im closely watching the 9600 level in the DAX, which is based on a support line that
connects two important lows from the rally since September 2011. Another important support line is formed
by connecting the DAXs September 2011 low to its March 2009 low. Breaking either of these lines will likely
introduce heavy selling pressure.
Our long-term bearish opinion will change when we see a complete corrective wave structure to the downside,
alongside pessimistic sentiment extremes that are commensurate with a bear-market low of Cycle degree or higher.
Gewinn: The bull market has been unusually long. Does this mean we will see an extraordinarily long bear
market?
BW: In principle, yes. But history shows that bear markets happen far more quickly than bull markets. It wouldnt
surprise me at all to see this bear market play out much faster than even the most ardent bears expect.
If you would like thrice-weekly coverage of European stock indexes, we recommend you add The European Short Term
Update to your subscription. It is published each Monday, Wednesday and Friday evening via the Internet. You can add
ESTU to your GMP subscription for an additional $30 per month (a savings of $228 per year). Visit my.elliottwave.
com/offers/effs/ or call 800-336-1618 to subscribe risk-free.
Subscribers who desire intraday updates of the outlook for the major stock indexes should subscribe to European
Intraday Stocks Pro Service. To choose the coverage that is right for you, visit our Pro Services selection tool (www.
elliottwave.com/wave/PS_GMP) or call customer care at either 1-800-336-1618 (U.S.), or 770-536-0309 (international).
16
Stocks
ASIAN-PACIFIC STOCK MARKETS

OVERVIEW
One trading day before the November
2015 low in MSCIs Emerging
Markets Index, The Economist
summed up the conventional
wisdom about emerging markets
this way: The world is entering a
third stage of a rolling debt crisis,
this time centred on emerging
markets. Its cover depicted two
small figures attempting to stop
two book volumes from toppling
a third under the headline, The
Chronicles of Debt: A saga that
haunts the world economy. The
first book is titled, The Great
American Subprime Crash, 20072009. The second is titled The
Euro Crisis, 2010-2012. And the
third: The Emerging Market Bust,
2015-?
The late analyst Paul Macrae Montgomery spent decades
chronicling how the editorial boards of magazines tend
to recognize financial trends on their covers just as those
trends are ending. General interest publications tend to
produce the most reliable signals, but specialist publications
can sometimes be
just as accurate. Our
wave counts indicate
that The Economists
cover is likely to extend
Montgomerys record,
because they show that
wave (2) in the MSCI
Emerging Markets Index
has already ended or
should do so in early
2016.
agony of the slowdown still lies ahead simply support

our view that the bust is mostly over.
Sentiment considerations for individual Asian-Pacific
markets point to the same conclusion as our analysis
of The Economist cover above. Our November issue
showed how sentiment indicators in Asias three-largest
economiesChina, Japan and Indiahad recently hit
record pessimistic extremes. This month we add Malaysia
to that list (see page 25), while noting that the sentiment
indicator for India experienced the largest decline in its
history in October (see page 20).
Those sentiment extremes have coincided with dramatic
political and economic changes in the Asian-Pacific region
and other emerging markets. Here is a list of notable events
from only the past two months:
China followed through on commitments it made
toward the end of its 2007-2014 bear market by (1)
liberalizing deposit rates; (2) changing its one-child
policy to a two-child policy; and (3) announcing
the biggest military overhaul since the 1950s, as
a retired colonel in the Peoples Liberation Army
told Bloomberg on November 26.
The emerging markets

bust in fact began not in
2015, but four-and-a-half years earlier, at the highs of
wave (1) up in MSCIs Asia-Pacific and Emerging Markets
indexes in 2011. The Economists decision to date the
start of the bust in 2015 and its conviction that the full
17
Stocks
India relaxed foreign-investment rules in

15 industries. Among other developments,
this change will make it possible for foreign
retailers like Apple Inc. to open companyowned stores in the nation.
Voters in Myanmar awarded Aung San Suu
Kyis opposition party, the National League
for Democracy, a landslide victory in local
and national elections. How much power the
military will cede to the new government
remains to be seen, but the broad, cross-ethnic
turnout in support of the NLD showed the
strength of the anti-establishment mood in
the nation.
Voters in Argentina elected a pro-business
president, thereby ending decades of leftist
governments. (See page 25.)
Years from now, conventional observers will cite

these and other recent changes as having contributed
to the dramatic turnaround that emerging market
economies began in 2016. But Elliott wave analysts
and socionomists know that the changes merely
expressed negative sentiment extremes toward the
end of the wave (2) correction in emerging market
stocks.
If our analysis is correct, now is the time to identify
areas of opportunity. This issue features several individual
stocks that show clear long-term Elliott wave patterns.
Alibaba Group Holding: On the Way to $1 Trillion?
Lets look first this month at China, which continues to

provide stocks that are high-growth, global equity leaders.
CHINA & VIETNAM

Chinas Shanghai Composite and Vietnams Ho Chi
Minh Index continue to roughly parallel each other while
rising within their long-term trend channels. Chinese
stocks experienced a manic move during wave (1) up
from 2014 to 2015. Vietnamese stocks may now catch
up during their wave (3) advance. Both markets have
completed impulsive advances since their third-quarter
2015 lows and are now correcting those advances.
18
Stocks
Since its post-IPO high in 2014, Alibaba has

completed three waves down and an initial
impulse wave up. We cannot know at this
point whether that initial five-wave advance
is wave 1 or wave A, but it does tell us that
the larger-degree trend is up. Looking farther
ahead, if our long-term bullish forecast for the
Shanghai Composite is correct, Alibaba could
be one of Chinas first listed companies to reach
a trillion-dollar market capitalization, up from
$200 billion today.
TAIWAN
At its August 2015 low, the Taiwan Index
bounced off a support line that reaches back to
the start of the index in 1967.
Three cheers for negative growth

In the third quarter, Taiwans GDP contracted for
the first time since the 2008-2009 financial crisis.
The biggest drag is exports due to the softening
of China, an economist in Sydney told Reuters
on October 30. That wont dissipate anytime
soon, and probably will drag on growth in the
fourth quarter. Even so, stock investors should
note that the four previous contractions over
the past 50 years began toward the end of bear
markets in the Taiwan Index. Furthermore, by
the time the government reported the negative
growth, those bear markets were already finished,
or nearly so.
SOUTH KOREA
Showing some of the best relative strength in the
region, the KOSPI continues to trade close to its
uptrend line from the 1960s.
LG Display: Displaying a Completed Triangle

LG Display, the worlds largest maker of LCD
screens, has completed an eight-year contracting
triangle. We are bullish on LG Display as long as
the stock holds above its November 2015 lows.
19
Stocks
INDIA
The Nifty is testing its September 2015 low. The
MNI India Stock Price Sentiment Index supports
our bullish outlook: The sentiment index registered
the largest decline in its nearly three-year history
in October even though stock prices held above
their correction lows.
The beatdown of BJP in Bihar

The ruling Bharatiya Janata Party got hit by an
electoral loss in early November in Bihar, a large
and poor province. According to the Guardian, it
was the most significant domestic setback for
[Prime Minister] Modi since he won a crushing
victory in a general election last year. (11/8/15)
However, the defeat makes sense when viewed
from the perspective of negative social mood, as
measured by the stock market and the MNI India
Stock Price Sentiment Index.
The opposition will roar, wrote an analyst in the
Hindustand Times the same day. On the contrary,
the prime minister will likely enjoy renewed
popularity after the next wave up in Indian stocks
has continued for some time.
Crompton Greaves and Reliance Industries:

A Look at Two Large Caps
20
Stocks
These two large-cap Indian industrial companies

sport different long-term wave patterns, but both
have recently completed corrective patterns
near the lower lines of their long-term trend
channels. Crompton, which makes electrical
equipment, is beginning a third-of-a-third-wave
advance. Reliance, which refines fuel and makes
petrochemicals, is beginning a fifth-wave thrust
out of a fourth-wave contracting triangle. We are
bullish on both stocks as long as they hold above
their November 2015 lows.
Eros International Media Ltd.: Ready for its

Close-Up?
With a few thousand movie titles in its collection,
Eros International Media Ltd. is one of Bollywoods
largest film studios. (It is the India-listed unit of
U.S.-listed Eros International PLC.) From a low
in 2013, the India-listed stock roared six fold in
less than two years before plummeting as much
as 68% to its November lows. The companys
dramatic rise and fall traced out a clear five
waves upwithin a channelfollowed by three
waves down. The stock has so far turned up near
the 61.8% retracement of the prior impulsive
advance. Bollywood is likely to continue to
thrive as Indias bull market continues, so we are
bullish on Eros International Media and its parent
company as long as their stock prices hold above
their November 2015 lows.
To watch a 28-minute video of Editor

Mark Galasiewskis presentation at
the 28th Annual Conference of the
International Federation of Technical
A n a ly s t s i n To k yo , J a p a n o n
October 3, 2015, click here.
JAPAN
The Nikkei 225 has ended wave 1 of (5) up.
Bull market leaves political opposition in

disarray
After its approval ratings had fallen to record
lows near 20% in December 2012, the thenruling Democratic Party of Japan (DPJ) was
voted out of office after three years in power.
At the time, the Nikkei 225 had recently ended
its 23-year bear market. Now, after the Nikkei
has doubled in almost three years, the party is
in disarray. Both a former DPJ leader and one
21
Stocks
New World Development: A rare pattern
of its rising stars have called for the party to break

up and realign with some of Japans dozen-odd other
opposition parties. Theres never been a period in
postwar Japanese history when the opposition was as
weak as it is today, a political commentator close to
the DPJ told the Financial Times on November20.
Support for the Prime Minister and his Liberal Democratic
Party (LDP) has fallen from its post-election highs in
recent months, but it has begun to rebound along with the
stock market. Even if the opposition reshuffles its deck,
it may not make much difference because the bull market
will continue to raise the LDPs stature among voters.
Nine-wave trianglestriangles in which wave (E) is

itself a triangleare rare, according to Elliott Wave
Principle. Which is why its exciting to see that New
World Development, a property developer in Hong Kong
and China, appears to be ending a nine-wave contracting
triangle that has so far lasted 18 years. We are bullish on
New World as long as the stocks price holds above its
2014 low [low of wave C of (E)].
HONG KONG & SINGAPORE

The weekly chart shows how the Hang Seng Index (HSI)
and the Straits Times Index (STI) both declined in five
waves from their April 2015 highs to their September
lows and then retraced about 38.2% of those declines
in wave A up. We believe that both indexes will soon
end wave B down and begin wave C up. The Hang Seng
Composite InfoTech Index is testing resistance at its lower
trendchannel line.
Melco Crown Entertainment: Dealing a New Hand in

Macao
Our November 2015 issue said that Macao gaming
companies had begun an intermediate-term advance.
We based that forecast on Galaxy Entertainment Group,
the islands largest casino by revenue. Its stock showed
a five-up, three-down pattern from its 2008 low. A
U.S.-listed Macao gaming company, Melco Crown
Entertainment, shows a similar pattern. It recently
bottomed in the range of its previous fourth wave of lesser
degree, where corrections typically end.
22
Stocks
Jardine Cycle & Carriage: Time for a Trade-In?
AUSTRALIA
Most of Jardine Cycle & Carriages revenue comes from

its stake in Astra International, a conglomerate whose
flagship business is Southeast Asias largest automotive
dealer. The shares of Jardine Cycle at its August low
bounced off the lower line of a trendchannel that has
contained its advance over the past 10 years. It may now
be rising in wave (5) up.
The All Ordinaries may be approaching the end of

an A-B-C rally from its September low. It may meet
resistance near its long-term uptrend line from 1974,
which will travel through 5,600 in December. The ASX
200 InfoTech Index is showing good relative strength. In
fact, the pattern of the InfoTech Indexs decline since its
2015 high appears to be corrective, which suggests that
the sector index will eventually exceed its 2015 highs.
23
Stocks
Below, we analyze two fast-growing small cap internet

companies that appear to be headed to new rally highs
as well.
Carsales.com
Carsales.com is Australias largest auto website. The stock
ended a fourth-wave contracting triangle near the lower
line of the trend channel that has mostly contained its
six-year impulsive advance. Now, it is thrusting higher in
a fifth wave. If wave (5) equals wave(1), as is common
in impulses, then it would end near 15.50.
Seek.com
Seek.com is the largest employment website in Australia
and New Zealand. It also runs a portfolio of career,
education, and volunteer businesses that have experienced
rapid growth in China and Brazil. The stock completed
a three-wave decline at its September low near the lower
line of a five-year trendchannel. It should now rise to new
all-time highs.
24
Stocks
MALAYSIA
The KLCI declined in three waves from its 2014
high to its August 2015 low, where it bounced off
the lower line of a trend channel that has mostly
contained its advance since the 1970s. Because the
August lows in the index undercut the 2008 wave
1 high, we have labeled the 2015 low as the end
of wave(2). The record low in the MIER Consumer
Sentiments Index in the third quarter of 2015
supports that labeling. Elliott Wave Principle says
that conditions during second waves are often as
bad as or worse than those at the previous bottom.
(See page 79.) The previous bottom, the 2008 low,
also ended a large-degree second wave (wave 2),
when the sentiment index fell to even lower levels
than those at the 1998 low in the KLCI.
OTHER EMERGING MARKETS: ARGENTINA

A pro-business candidate, Mauricio Macri, defeated
the incumbent party candidate in Argentinas
presidential election in late November, ending
decades of political domination by leftist parties
in the nation that were anti-business. The political
revolution also supports our long-term wave count
for Argentinian stocks.
25
Stocks
The Merval Index has risen six fold in just three years
but most of that rally has been due to the nations chronic
hyperinflation. The MSCI Argentina Index, which is
denominated in U.S. dollars, tells the real story behind
the election results: As recently as the September 2015
lows, the MSCI index was no higher than it was at its
1992 high. The frustration over those intervening lost
decades led Argentine voters to reject the ruling socialist
party candidate in favor of a pro-growth candidate.
A third-of-a-third-wave advance is now under way in
Argentine stocks, in both nominal and inflation-adjusted
terms. Therefore, the new president and his party should
enjoy a nice honeymoon, thanks to the current bull market.
Argentinas choice of a market-friendly president has

also raised hopes that similar cultural shifts might occur
in other parts of Latin America. This is a sea change
not only for Argentina, but possibly for the region more
broadly, an analyst at a European bank told Bloomberg
on November 23. Brazils president faces possible
impeachment, which could end 12 years of rule by the
Workers Party in that nation. And, in Venezuela, where
the United Socialist Party has dominated the government
since 1998, the opposition is leading the polls ahead of
legislative elections on December 6.
If you would like thrice-weekly coverage of Asian-Pacific stock indexes, we recommend you add The Asian-Pacific
Short Term Update to your subscription. It is published each Sunday, Tuesday and Thursday evening via the Internet.
You can add ASTU to your GMP subscription for an additional $30 per month (a savings of $228 per year). Visit
my.elliottwave.com/offers/affs/ or call 800-336-1618 to subscribe risk-free
Subscribers who desire intraday updates of the outlook for the major stock indexes should subscribe to Asian Intraday
Stocks Pro Service. To choose the coverage that is right for you, visit our Pro Services selection tool (www.elliottwave.
com/wave/PS_GMP) or call customer care at either 1-800-336-1618 (U.S.), or 770-536-0309 (international).
26
December 2015
INTEREST RATES AROUND THE WORLD

Signs of U.S. credit market distress are spreading, which will negatively impact the price of nearly all financial assets.
Sentiment reached extreme levels in gold and currencies.
Only the 10-year Australian bond appears clearly to have registered a lasting top. However, the JGB may be closing
in on a top for the ages, while any remaining upside in the shorter term Euribor and Short Sterling appears quite
limited. The Bobl may have joined the Long Gilt and Bunds as candidates for yet higher highs before their historic
bull market run completes.
DEBT MANS CURVE

Around the globe, the bipolar personality of
the current peaking process is graphically
displayed in the credit markets. This chart,
for example, depicts 10-year swap spreads in
the UK, which track the difference in yield
between treasuries and interest-rate swaps. The
spread typically remains above zero, indicating
the markets view that governments are more
credit-worthy than financial institutions. When
the spread turns negative, however, bond
investors are essentially holding the view that
lending to governments represents greater risk
than lending to financial institutions.
As the labels on the bottom of the chart show,
a negative swap spread has either preceded
or coincided with at least a half dozen debt
crises over the past decade. In fact, the spread
briefly went negative in early 2009 at the
height of the global financial crisis, and its
six-month inversion in early 2010 preceded
the chain of credit implosions that roiled
through Europe in 2010 and 2011. Likewise
27
Interest Rates
in 2013, another brief stint below zero accompanied

Greeces third financial rescue.
thing that will stop them is outright depression, and a

turn toward that is not far away.
A Shorter Fuse on a Bigger Debt Bomb
Global Market Perspective, May 2015
Today, the spreads inversion coincides with looming debt

disasters in much larger economies. Indeed, the countries
listed on the bottom right depict six of the 13 debt-riddled
economies identified by the McKinsey Global Institutes
2014 study, Debt and (Not Much) Deleveraging. If you
recall, the May 2015 Global Market Perspective discussed
the study in detail:
Its not far away, and its getting closer by the day. The
spreads latest inversion has left the financial community
scratching its collective head. Its hard to overstate
how illogical it is when swap spreads are inverted,
says Bloomberg. The head of fixed income at Londons
HSBC says that the big question remains whether there
is something bigger brewing under the surface.
Over the next five years, these countries would have

to maintain an average growth rate of 3.3% just to
be able to retire some debt. Of course, the very idea
that anyone would reduce debt in a growing economy
is a pipe dream. Behavior during the latest recovery
proves that todays mindset is driving people toward
maximum indebtedness given any excuse. The only
He is asking the one question that very few others want

to ponder. Our view is that theres no question about
it: A bigger, badder debt implosion is under way, and
it will eventually take down the largest economies on
the planet.
28
Interest Rates
U.S. TREASURIES
Weve seen some bizarre behavior among
bond market participants in recent years, but
the current thirst to buy sub-zero-yielding,
multi-year debt instruments wins the prize.
The chart shows the yield on the five-year
government debt of Germany and Switzerland,
which continues to traverse the depths of
negative yields. In fact, yields on more than
one-third of all euro-area government bond, a
total of more than $2 trillion worth, are now
below zero. A buyer of these bonds at par who
holds them to maturity is guaranteed to lose
money. The only way that to avoid a loss of
principal is to wait for the negative yields to
become even more negative and hope someone
will then buy the old bond.
Meanwhile, global bond default rates hit their
highest level since 2009, the year of the nadir
of the last credit crisis. The default rise comes
despite economists assurances that global
economies are expanding. Considering the
relatively negligible level of interest rates,
debt loads should be easily serviceable for
companies, countries and municipalities.
Rather, GMP has continually pointed out
rising levels of credit stress in various bond
market indicators, a strong sign of spreading
trouble. A good example is the price of the
lowest-rated bonds in the BofA Merrill Lynch
U.S. High-Yield Index, those rated CCC and
lower. That portion of the index has dropped
22% on average over the past twelve months.
In January, April, July, August, September
and October, GMP published charts of the
surging spread between junk bond yields and
comparable U.S. Treasury yields and said,
the widening trend indicates that liquidity is
waning, which will negatively affect nearly
all asset prices. The chart shows that the
debt troubles are expanding, as the total
number of distressed bond issuers traded
each day jumped more than 110% in 2015.
Bloomberg defines a distressed bond as one
that trades at greater than 1000 basis points
over a comparable benchmark U.S. Treasury
bond. The current setup is similar to the one
that preceded the 2007-2009 credit crises.
29
Interest Rates
An increase in aggregate pessimism led to a major price

plunge for the lowest-rated and thus riskiest debt, which
created a liquidity crunch that resulted in soaring defaults
and lower asset prices for nearly everything. This time
the squeeze should be even more extreme because there
is far more debt now than at the 2007 peak and, as the
Economy & Deflation section illustrates, the economy is

far more vulnerable than it was prior to the last decline.
The next episode of deflation and economic contraction
will be more severe than that of 2007-2009, and those
willing to lend and borrow will become scarce.
30
Interest Rates
EUROPEAN OVERVIEW
Only the 10-year Australian bond appears
clearly to have registered a lasting top.
However, the JGB may be closing in on a top
for the ages, while any remaining upside in
the shorter term Euribor and Short Sterling
appears quite limited. The Bobl may have
joined the Long Gilt and Bunds as candidates
for yet higher highs before their historic bull
market run completes.
Euribor
The most actively traded March 2017 Euribor
futures contract has been trading at a negative
yield (above 100.000) since late September.
And, with prices nearing completion of a fivewave rally from the 97.815 September 2013
low for a possible Primary degree wave 5,
an important top could be near. The wave (5)
advance from the 99.740 June low apparently
began its fifth wave at the 100.085 November
9 low. It has already slightly exceeded the
size of its first wave, and it could end at any
time. Prices have reached 100.285 as this is
written. At 100.300, wave (5) would equal
.618 of the wave (1) advance, one possible
target for wave (5). The key point is that at
this juncture, traders should view every daily
(and especially weekly) reversal indication as
potentially marking a lasting major top.
Short Sterling
Last month, we noted that Short Sterlings
99.17 early October high made wave 5 of (5)
equal in length to wave 1 of (5) and could
have registered a lasting important top. It now
appears that the subsequent drop to the 98.93
November low was wave 9 in a larger wave
5 of (5) advance that literally could complete
at any time, perhaps no higher than the 99.26
price where wave 0 of 5 would equal wave 6.
31
Interest Rates
Long Gilt
The wave (5) rally from the 106.00 early
January 2014 low is expected ultimately to
register a lasting major top. Its fifth wave from
the 114.07 late June low may prove to be an
ending diagonal. Wave 7 of 5 need only hold
114.07 and it appears to be complete at the
116.17 November low from which a wave 8
rally is in progress.
The Bobl
The imminent shift to the much-higher-priced
March contract may throw a monkey wrench
into our idea of a major top in place. For the past
two years, weve had to cope with alternating
large daily chart gaps with every quarterly
expiration. Through it all, continuation chart
prices traced out a double zigzag from the
122.34 September 2013 low for a Primary
degree wave 5 that appeared to complete
a Cycle degree diagonal triangle wave c at
the 131.33 late February high this year for a
lasting major top. A leading diagonal decline
followed for wave (1) down to the 127.54 June
low. As long as prices do not exceed 131.33
when trading shifts to the March contract on
December 7, a wave (2) rally could end and
the larger decline will resume in wave (3).
However, the March contract has traded as
high as 131.96 before collapsing to 130.39 as
this is written. If the Bobl trades above 131.34
after March becomes the active contract, the
wave count will change to that shown in the
second chart here.
32
Interest Rates
Under that second scenario, prices at a new

high would be completing wave 8 in an ending
diagonal wave C in progress from the 127.54
June low. A final top would follow a wave 9
decline (probably of about 2.00 points) and
then at least one more high to complete the
entire pattern from the September 2013 low.
The Bund
Within the wave (5) rally from the 148.23 June
low, prices saw a smaller-than-expected wave 2
pullback to the 154.81 November low. A wave
3 rally appears set to continue from there. A
final top will be preceded by a wave 4 pullback
and one more rally in wave 5.
33
Interest Rates
ASIAN-PACIFIC
Australia
After registering an apparent major top at the
97.785 February high, Australian 10-year bond
prices declined in five waves to the 96.795
early July low for wave (1). A corrective rally
followed to the 97.510 August high for what
may be wave (2). If so, wave 1 of wave (3) is
still in progress and apparently yet to see its
third wave complete. Only a larger rally from
the alleged wave (iii) low, carrying above
the 97.245 October low, would be reason to
question the idea of a wave (2) peak in place.
Japan
At the end of October, the active JGB contract
managed to eke out a new all-time high by
literally one tick, hitting 148.68. A modest
three-wave decline ensued to 148.09. That low
may be the fourth wave in a FINAL ending
diagonal wave C that with one more upleg
will complete a zigzag from this years low
and a triple zigzag from the May 2013 low
for a Primary degree wave 5 to complete a
9-year Cycle degree ending diagonal triangle
and register a top for the ages!
This Interest Rates section presents the same longterm analyses that we include and continuously
update as part of our daily and intraday on-line
Pro Services. Be advised that these opinions can
change intramonth, in which case we update them
instantly in Pro Services.
Subscribers who desire constant monitoring
of the outlook for interest rates for all time
horizons, including daily and intraday, should
subscribe to Interest Rates Pro Service. To
choose the coverage that is right for you, visit
our Pro Services selection tool (www.elliottwave.
com/wave/PS_GMP) or call customer care at
either 1-800-336-1618 (U.S.), or 770-536-0309
(international).
34
December 2015
CURRENCIES AROUND THE WORLD

The dollar finds itself at a critical juncture as 2015 comes to an end. It remains favored relative to most of its major
competitors, but Thursdays collapse out of an ending diagonal, erroneously attributed by the mainstream media as
a response to the European Central Bank announcement, leaves the door open to a correction that extends well into
the first quarter of 2015.
DOLLAR RATES
The Dollar Index
The Dollar Index advanced during November and ended
the month just pips below its March peak. If wave (4)
ended in August at 92.62, the 96.00 area will act as support
and wave (5) might extend to 104.02, where it would
travel the same distance as wave (1). Thats a common
relationship when the third wave is the longest.
first leg of a larger correction. The top at 100.51 would

represent wave B of a larger wave (4). A triangle would
alternate with the flat wave (2), and wave C of (4) might
reach 95.50, where it would travel 61.8% of the distance
traveled in wave A, a common occurrence in triangles.
Additional consolidation above 92.62 in waves D and E
would likely extend into the first quarter of 2016. Such
action would delay, but would not change the expectation
for a run to a new high in wave (5).
This weeks dive might signal that wave (4) is still in

progress and the March to August drop represents just the
35
Currencies
EURUSD
If the U.S. dollar correction is to continue,
EURUSD is likely to mirror the Dollar Index
and trade in a sideways to higher manner into
the New Year before it continues lower. At
1.0283, y would travel the same distance as w,
equality being a common relationship between
these waves. If the euro is to completely retrace
its three-wave advance from the October 2000
low, then 82.30 is a possible objective.
USDCHF
USDCHF established the anticipated new
high on the year above 1.0293 in November
and traded to its highest level since mid-2010.
Wave (C), a thrust from a triangle, should
extend deep into resistance at the end of wave
4 in the 1.18 area. If wave (C) of Y travels
the same distance as wave (A), it will reach
the 1.22 area.
36
Currencies
GBPUSD
Cable continued lower during November,
and as mentioned last month, A sharp drop
through the 1.50 handle will signal a thirdof-a-third wave is underway. The 1.4230
low from May 2010 would represent the next
objective, followed by 1.3500.
USDJPY
Despite the corrective setback from 125.85
to 116.17, the subsequent recovery also looks
corrective and suggests that additional dollar
weakness lies ahead. A flat or combination
correction would extend to a new low on the
year and closer to the fourth wave of one lesser
degree near 100.
37
Currencies
AUDUSD
AUDUSD traded in a sideways range during
November. Its three-wave recovery from
Septembers 0.6904 low should be fully
retraced, continuing to dictate a bearish
view. The wave (B) low near 0.60 is the next
significant objective.
USDCAD
A limited new high above 1.3457 should bring
wave 3 to an end and set the stage for a turn
lower in wave 4. The low end of the fourth
wave of one lesser degree near 1.19 should
offer support. A subsequent rally to a new high
accompanied by a divergence between price
and momentum should complete the advance
underway since 2012.
38
Currencies
USDMXN
We are looking for a break of 16.32 to bolster
the idea that a terminal thrust from a triangle
has ended. If wave 5 has ended, the ensuing
decline should return to the area of the wave
4 triangle that ended at 12.81.
Without the break of 16.32, a larger wave (4)
is possible. This scenario allows for a new
high above 17.34.
USDRUB
The three-wave setback from 71.6191 to
60.4926 might represent all of wave 2 of (5),
but the overlapping nature of the subsequent
advance warns that the correction may still
be in force. Several paths are possible; each
suggests a break of 60.4926, after which
USDRUB should surge higher in wave 3.
39
Currencies
USDBRL
USDBRL dipped below 3.7242 as expected.
We are looking for a flat or triangle to alternate
with the sharp wave 2, so this three-wave drop,
retracing 38.2% of wave 3, is most likely only
wave A of 4. This should delay the resumption
of the larger advance until the New Year.
USDZAR
The U.S. dollar pushed to a new high relative
to the South African rand, but it does not
change the outlook for this pair. The five-wave
count from the low established in May 2011
warns the advance is mature. Watch for a turn
lower starting from nearby levels. A correction
of the years-long advance should reach the
area of the fourth wave of one lesser degree,
11.69 12.52, and could test lower levels.
40
Currencies
OTHER RATES
EURJPY
Wave 8 remains on a downward course from
141.05 and is keeping our bearish outlook
on track. The best short-term count labels a
series of first and second waves and implies
an accelerating third-of-a-third wave decline
in the next several weeks. A minimum, initial
target continues to lie at 117.38 where wave
8 would equal the length of wave 6. The
larger count calls for a five-wave decline from
the December 2014 high to the 110-115 area
before wave (2) ends.
GBPJPY
The recovery from the September low counts
as a countertrend move that appears to be
complete. Expect the larger downtrend to
reassert itself and take prices to the lower 170s.
The internal structure of wave (B) now appears
to be a developing double zigzag. Wave X just
ended at 188.80. Our first target zone for wave
Y lies near 173 where it would equal wave
W, and also meet the extreme of wave 4, both
common relationships. The next lower target
cluster is 163-165.
41
Currencies
AUDJPY
Wave D of a larger triangle pattern is still
expected to play out lower in a developing
impulsive wave (C). Our preferred target,
common to triangles, remains 72.76 where
wave D would be 0.618 of wave B. We will
reevaluate the wave count should AUDJPY
sustain a rally above 92.
EURGBP
The action from the July low appears to be a
developing flat wave 2. Wave b of this pattern
should be near a bottom and soon be followed
by a rally in wave c to above the .7492
October peak. A test of the 38.2% retracement
of wave 1 at 0.7654 remains a good upside
target for wave 2. The best alternate count is
that a bearish wave 3 down is already in force,
though prices would have to accelerate below
the .6933 low to activate this scenario.
42
Currencies
EURCAD
The decline in wave D of a barrier triangle
has continued. An initial zigzag is complete
and the current wave x recovery should meet
resistance in the 1.5000 area if it carries that
far. Expect the decline to resume soon and take
prices toward 1.3978 where wave D would
equal 0.618 of wave B of the triangle pattern.
Once wave D is complete, probably in the first
month or two of next year, prices should rally
in wave E toward the 1.5000 area.
This Currencies section presents the same long-term analyses that we include and continuously update as part of our
daily and intraday on-line Pro Services. Be advised that these opinions can change intramonth, in which case we
update them instantly in Pro Services.
Subscribers who desire constant monitoring of the outlook for currencies for all time horizons, including daily and
intraday, should subscribe to Currency Pro Service. To choose the coverage that is right for you, visit our Pro Services
selection tool (www.elliottwave.com/wave/PS_GMP) or call customer care at either 1-800-336-1618 (U.S.), or 770536-0309 (international).
43
December 2015
METALS & ENERGY AROUND THE WORLD

Gold should rally short-term, but its longer-term, bear market from the September 2011 peak is not complete.
Crude and Natural Gas should both be moving towards significant bottoms.
GOLD & SILVER

Gold prices are in the late stages of an
ending diagonal (see text, p.36), which, when
complete, will finish a five-wave decline
from the September 2011 peak at $1921.50.
GMP alerted readers to the diagonal structure
last month as well as a pessimistic extreme
in sentiment. Ending diagonals are almost
never as large as the current one in gold, but
over the past week pessimism has grown
more intense, which is consistent with an
impending rally, the same message conveyed
by the completion of a diagonal pattern. The
CFTCs weekly Commitment of Traders report
shows the net-number of futures and options
contracts held by different cohorts of investors,
Commercials, Large Speculators, Money
Managers and Small Traders. As shown on
the chart above, Large Speculators hold their
smallest net-long position in 12 years, since
April 2003. Back then, gold rallied nearly 30%
over the following eight months. The bottom
graph on the chart shows that Commercials
currently hold their smallest net-short position
since the two weeks surrounding the July low,
when gold started an 11% rally to October
12. Prior to that its been 14 years, since
December 2001, that Commercials have held
a smaller net-short position. As the arrows on
the chart show, each of the prior instances that
the Large Specs and Commercials have held
similar-sized positions since golds September
44
Metals & Energy
2011 peak have led to rallies, even though

theyve been short-term and countertrend. We
expect the next rally to be countertrend too.
But it will be a Primary-degree advance, so
it should last longer and carry higher than the
prior instances. As for silver, with world-wide
economic measures weakening, the industrial
metal component of silver continues to show
muted demand. Still, golds and silvers main
trends align and when gold starts to rally, silver
should too.
GMP often confronts investment myths, which,
when analyzed against history, prove to be
untrue. With speculation running rampant
whether the U.S. Federal Reserve will start to
raise the Fed Funds rate at their December 16
meeting, one commonly accepted notion is that
rising interest rates are bearish for gold prices.
The seeming logic behind this view is that since
gold does not pay interest or dividends, rising
interest rates provide competition for gold
prices. The chart above shows this idea to be
false. Golds bull market from 1999 to 2011
included a period when the 6-month U.S. T-bill yield rose
560%, from 0.81% in June 2003 to 5.32% in July 2006.
During this time, gold rallied 85%. T-bill yields then
plunged from 5.32% to 0.01% in September 2011, and
gold rallied another 187% to its peak that month. In other

words, there is no consistent correlation between the level
or trend in interest rates and the level or trend in gold.
45
Metals & Energy
ENERGY
Crude Oil
Crudes break below the 42.58 level cited
last month leaves it vulnerable to additional
selling pressure. The market should be moving
towards a significant bottom; whether its
above or below the 37.75 late-August low, and
whether its still part of wave 3 or B of wave
4, however, remains to be seen. Regardless
of the wave count, the advance that follows
should be lengthy in terms of both magnitude
and duration.
Natural Gas
Natural Gas registered a series of lower
lows from a prompt month perspective as
anticipated, but you wouldnt know it from a
continuation perspective. The steep contango
discussed last month still masks the wave
count on the continuation chart. Well follow
the prompt month contract until an identifiable
bottom is in place. Ideally, the wave 0 decline
will terminate below the 1.948 continuation
sell-off low to put the continuation and prompt
charts back in sync. A potential wave 3 target
zone is 1.820-1.801, where the length of wave
0 equals 61.8% of the distance traveled
between waves 6 and 8 and where the length
of wave 0 equals 1.618 times the length of
wave 6.
Erratum: In last months issue, we cited the
1.902 wave (B) low in 2012 as the lowest
price since 1999 when in fact, its the lowest
since 2002.
This section presents the same long-term analyses that we include and continuously update as part of our daily
and intraday on-line Pro Services. Be advised that these opinions can change intramonth, in which case we update
them instantly in Pro Services.
Subscribers who desire constant monitoring of the outlook for metals or energy for all time horizons, including
daily and intraday, should subscribe to Metals Pro Service and Energy Pro Service. To choose the coverage that is
right for you, visit our Pro Services selection tool (www.elliottwave.com/wave/PS_GMP) or call customer care at
either 1-800-336-1618 (U.S.), or 770-536-0309 (international).
46
December 2015
U.S. ECONOMY & DEFLATION

The S&P Goldman Sachs Spot Commodity Index is
almost back to where it was at the end of the last bear
market wave in February 2009. No matter how deep
the commodity slump becomes, however, economists
continue to assert that it is meaningless. On Monday,
when iron ore prices slipped below $40 a metric ton in
Singapore for the first time ever, one big bank economist
stated, Generally consumers are not big buyers of iron
ore, and the translation of moderate commodity prices
into consumer prices is limited.
research firm, sales for Thanksgiving Day and Black

Friday plunged 10.3% this year. Some attribute the drop
to increased on-line purchases, but the chart below of total
retail and food service sales shows the long-term story:
a steady decline from more than 8% growth beginning
in 2011, to just 1.7% in the latest available quarter. The
bottom graph shows that online sales growth registered
no strong uptick.
Consumer confidence remains relatively elevated because

it generally tracks social mood and thus stock prices, but
the next chart shows a steady long-term deterioration in
this measure. Back in 2000, when Consumer Confidence
hit a record high of 144.7, GMP identified it as an extreme.
The most recent peak reading in January of this year was
28% lower than the high in 2000. Reflecting on his latest
monthly poll, the director of another consumer confidence
survey says, People cannot maintain the same material
aspirations. In only nine surveys in our long history,
and this goes back more than half a century, have more
consumers mentioned their insistence on price discounts
Actually, the translation to falling consumer prices is

far from limited, as shown last month on our chart
of consumer prices for IMF Advanced Economies (see
p.43). The annual percentage change in consumer prices
in advanced economies made a high in September 2011,
three months after a high in commodity prices, and is
now within a hair of outright contraction. Evidence of
a diminishing consumer demand for goods continues to
mount. The most recent proof is a dramatic decline in
Black Friday sales. According to ShopperTrak, a retail
47
Economy & Culture
its still early. As a bear market broadens to eventually

include all financial assets, saving rates will return to
double digits for an extended period of time.
than in this current survey. Notice that the series of

descending peak readings since 2000 is the opposite of
the ascending lows that preceded the bull market of the
1980s. Consumers also seem to be more squeamish on a
short-term basis. In 2000, consumer confidence peaked
with stocks in January. In 2007, confidence peaked in
July, three months ahead of the peak in stocks. This year,
the surveys January high was four months ahead of the
Dows May high.
In the meantime, its not hard to track the frontline of

deflations advance. Just watch for the increasing number
of places where governments are attempting to hold it at
bay. In China, for instance, the Nonferrous Metals Industry
petitioned the Development and Reform Commission to
buy nickel, aluminum and other metals on the open market.
Chinese copper smelters also urged Chinas government to
buy up excessive supply, saying the market price has
detached from the industrial fundamentals. In Tehran,
Venezuelas president met with Russias president to
discuss how they can work together on oil prices. We
cannot allow the market [to] continue controlling the
price, said Venezuelas oil minister. The machinations and
manipulations are spreading because deflation is growing
stronger. Just check out Japan, where the effort to stop
deflation started more than two decades ago. The latest
chapter goes back to May 2013, when an unprecedented
mix of fiscal and monetary stimulus called Abenomics
was unleashed. Two and a half years later, Japans economy
remains mired in a slump. In the third quarter of 2015,
Japans real GDP contracted by 0.8%. It was the second
straight quarterly decline. So, its official: Japan is back in
recession. Japanese authorities responded with still more
Personal savings is another measure that embodies the

publics emerging conservatism. In October, the U.S.
personal savings rate as a percentage of disposable income
rose to 5.6%, its highest level in almost three years.
As Reuters reported, the increase came in conjunction
with rising income levels. Rather than spend though,
Americans decided to put away more money. Back
in 1999, by contrast, households were emptying their
piggy banks to jump into stocks and other assets. The
trend continued until July 2005, when the savings rate
hit a low of 1.9%. Naturally, the percentage rose as the
2007-2009 bear market grabbed hold, but over the course
of the subsequent rally in stocks, a critical divergence has
developed, as the chart shows. It suggests that the Federal
Reserve is failing in its effort to flush people into riskier
financial assets. Despite paltry interest rates on savings
accounts, households are stashing away cash. Of course,
48
Economy & Culture
stimulus. New proposals call for outright cash handouts

to retirees. It is also jawboning corporations to raise wages,
increase hiring and invest at home instead of abroad to
ensure a positive economic cycle led by private-sector
demand. It will not work. Japans latest slump confirms
deflations strength. While Japans deflationary pressures
remain out front, the chart of global commodity prices
shows the world economy is close behind. It will catch up
fast to the contractionary trend.
defend their enforcement as the next step forward in

the countrys long, slow march toward greater equality
and understanding. Somehow, however, targeting the
micro is producing macro tensions and discord. The
New York Times reports that the intense focus on racial
misunderstanding ignited heated protests on many
campuses across the country. At Yale, students became so
upset and consumed by recent events that many asked for
extensions on papers and exams. Among the hotly debated
questions was whether it is appropriate to call leaders of
its residential colleges masters, due to connotations
of slavery. A Dartmouth anti-racism demonstration
turned ugly when students who refused to join in were
harassed and cursed at by protesters. At the University of
Missouri, protests against alleged racial attacks resulted in
the departure of the universitys president. In the wake of
their success, protesters segregated themselves by race,
having white students leave a gathering in order to create
a black-only healing space. Princeton protesters were
similarly inspired. After occupying the presidents office,
they demanded, among other things, a minorities-only safe
space. Comparisons are being drawn to the civil rights
demonstrations at the end of Cycle wave III in the mid1960s, but there is a more-than-subtle difference. At this
larger degree top, there is more emphasis on separation
instead of integration.
U.S. CULTURAL TRENDS

Inclusionism is one of the most memorable mood traits of a
major bull market, as it has the power to knit whole nations
and peoples together. Prechters Perspective described it
this way: Inclusion is a sense of community and goodwill
that gathers with a bull market, while exclusion is the rise
of factions and intolerance. Back in the 1990s, when the
bull market was still undiluted by emerging bear market
influences, a host of inclusionary milestones expressed an
unprecedented level of cooperation and unification. For
instance, the Berlin Wall came down, and Israel signed a
series of peace agreements with former enemies. In late
1997, The Elliott Wave Theorist noted that multitudes
were even flocking to Washington, not to protest but
to show Strength. Unity. Atonement. Harmony. At
a Grand Supercycle top, EWT explained, there is not
really anything to protest. Yet the urge to join together is
so strong, The March Becomes the Thing. When the
Million Women March followed the Million Man March
in 1997, EWT captured the spirit of the events in a quote
from one of the marchers: The point is all of us coming
together, which was exactly our point. Bull markets
bring homogeneity; bear markets bring polarity. This is
a historic extreme of the former.
November also brought two mass demonstrations that

invoked a name from the 1990s, though in our view
they are consistent with an emerging bear market. The
lofty goal of the Million Student March, which was
actually groups of 100 or more people gathered at about
100 colleges across the U.S., was the cancellation of
all student debt and free tuition at public colleges.
Participation fell well short of the million mark, however,
by 99%. On the bullish side, the demonstrations were nonviolent for the most part. But the burgeoning imposition
At the tail end of the Great Peaking Process, however, the

inclusionary trend appears to be stretched to its breaking
point. Consider the new face of racism, which the Los
Angeles Times describes as a phenomenon known as
micro-aggressioneveryday slights and snubs that are
sometimes unintentional. According to the new thinking
on campus, the transgressions include the assertion that
America is a melting pot. Apparently, this belief, which
was a central tenet of Supercycle waves (III) and (V),
now denies the significance of a persons racial or ethnic
experiences. Faculty at the University of California
are trained to recognize and correct such slights. Many
49
Economy & Culture
of bear-market psychology is evident by the expression

of a mass desire to destroy debt obligations that were
freely entered into during the bull market. At the end of
the bull market in 2000, no such intolerance for market
forces existed. The Million Mask March, another series
of marches organized by the hacking/activist group
Anonymous, featured an even more pronounced antimarket streak. The Anti-Capitalists March took place
in various cities around the world. In London, where
thousands of anti-capitalists campaigners gathered, the
protest descended into violence. Police cars were set on
fire, three officers were hurt and 50 were arrested. All in
all, it was a light skirmish. Still, it was far more serious
than the carnival-type protests that appeared outside the
International Monetary Fund meetings in 2000. At this

point, the underlying, anti-capitalist ideology is more
developed. In Great Britain, Canada and many parts of
Europe, liberal politicians calling for anti-free-market
initiatives recently gained power. In the U.S., presidential
candidate Bernie Sanders has captured the imagination
of some voters as well as newspaper editors. Why
NOT Socialism? says an editorial in a Salem, Oregon
newspaper. Bear markets are breeding grounds for
collectivist ideas. Ready or not, here they come.
THREE LOVELIEST THINGS:
MOONLIGHT...CHERRY-BLOOM...NOW I GO
SEEKING SILENT SNOW
RIPPO
50
December 2015
The Wave Principle is Ralph Nelson Elliotts 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 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:
51
Capsule Summary
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 investors backup plan.
Fibonacci Relationships
One of Elliotts most significant discoveries is that because markets unfold in sequences of five and three waves, the
number of waves that exist in the stock markets 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.
52
Capsule Summary
What the Wave Principle says, then, is that mankinds 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.
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, Dont 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 Comprehensive Course on the Wave Principle on the Elliott Wave
International website at www.elliottwave.com.
53
Capsule Summary
GLOSSARY OF TERMS
Alternation (guideline of) If wave two is a sharp
correction, wave four will usually be a sideways
correction, and vice versa.
Irregular Flat See Expanded Flat.

One-two, one-two The initial development in a
five-wave pattern, just prior to acceleration at the center
of wave three.
Apex Intersection of the two boundary lines of a

contracting triangle.
Overlap The entrance by wave four into the price terri-
Corrective Wave A three-wave pattern, or combination
tory of wave one. Not permitted in impulse waves.
of three wave patterns, that moves in the opposite

direction of the trend of one larger degree.
Previous Fourth Wave The fourth wave within the
Diagonal Triangle (Ending) A wedge-shaped pattern
preceding impulse wave of the same degree. Corrective

patterns typically terminate in this area.
containing overlap that occurs only in fifth or C waves.

Subdivides 3-3-3-3-3.
Sharp Correction Any corrective pattern that does not

contain a price extreme meeting or exceeding that of the
ending level of the prior impulse wave; alternates with
sideways correction.
Diagonal Triangle (Leading) A wedge-shaped pattern

containing overlap that occurs only in first or A waves.
Subdivides 5-3-5-3-5.
Sideways Correction Any corrective pattern that
Double Three Combination of two simple sideways
contains a price extreme meeting or exceeding that of

the prior impulse wave; alternates with sharp correction.
corrective patterns, labeled W and Y, separated by a

corrective wave labeled X.
Third of a Third Powerful middle section within an
Double Zigzag Combination of two zigzags, labeled
impulse wave.
W and Y, separated by a corrective wave labeled X.
Thrust Impulsive wave following completion of a
Equality (guideline of) In a five-wave sequence, when
triangle.
wave three is the longest, waves five and one tend to be

equal in price length.
Triangle (contracting, barrier) Corrective pattern,

subdividing 3-3-3-3-3 and labeled A-B-C-D-E. Occurs
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 wave.
Triangle (expanding) Same as other triangles, but
Failure See Truncated Fifth.
trendlines diverge as pattern progresses.
Flat Sideways correction labeled A-B-C. Subdivides
Triple Zigzag Combination of three zigzags, labeled
3-3-5.
W, Y and Z, each separated by a corrective wave

labeled X.
Impulse Wave A five-wave pattern that subdivides
Truncated Fifth The fifth wave in an impulsive pattern
5-3-5-3-5 and contains no overlap.
that fails to exceed the price extreme of the third wave.
Impulsive Wave A five-wave pattern that makes
Zigzag Sharp correction, labeled A-B-C. Subdivides
progress, i.e., any impulse or diagonal triangle.
5-3-5.
54
Capsule Summary
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 Internationals 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.
Prechters GLOBAL MARKET PERSPECTIVE is published by Elliott Wave International, P.O. Box 1618, Gainesville,
Georgia, 30503, USA. Phone: 770-536-0309. Fax: 770-536-2514. E-Mail: customercare@elliottwave.com. All
contents copyright 2015 Elliott Wave International. All rights reserved. Reproduction is illegal and strictly forbidden.
Otherwise, feel free to quote, cite or review if full credit is given. GMP is published usually at the beginning of each
month, although the schedule can vary to allow publication to occur when the analysts judge their thoughts to be most
timely and/or conclusive. Subscription rate: $49/month.
55
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
MTAs 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.
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, Barrons, 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.
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 EWIs 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.
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.
56
Brian Whitmer
Brian Whitmers 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-millionplus 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.
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 Prechters Elliott Wave Theorist before joining EWIs Global Market Perspective team covering Asian
stock indexes. For six years during the 1990s he lived in Japan, where he observed that countrys 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.
Peter DeSario
Peter DeSario has been actively involved in the futures markets for over 30 years. Peter earned an MBA
from Kent State University. For 14 years, Peter managed a brokerage office for the countrys largest futures
firm, during which time he became the firms Senior Technical Analyst. Beginning in December 1990, Peter
edited the monthly letter The Elliott Wave Currency and Commodity Forecast for EWI, and later, Commodity
Pro Service. Today, he is in charge of EWIs Interest Rates Pro Service.
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 EWIs 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 Global Market
Perspective and provides full coverage of dollar rates and major cross rates in EWIs online Pro Services
currencies coverage.
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. Steves 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 EWIs online Pro Services energy coverage, and his crude
oil and natural gas views are featured each month in Global Market Perspective.
Acknowledgments
Our production team is indispensible in getting out each issue of GMP. For this issue, Angela Hall, Pam
Greenwood, Cari Dobbins, and Sally Webb handled charts, fact-checking, proofreading, layout and other
details.
57

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DECEMBER 2015

Global Market Perspective December 4, 2015

GLOBAL MARKET PERSPECTIVE

Time to start planning your 2016 calendar! We have

Both private and institutional investors need analysis

Last Chance to Register: Jeffrey Kennedys online

In contrast, analysis of market behavior delivers what

Join Senior Currency Strategist Jim Martens in New York

The sixth annual Social Mood Conference, hosted by

Happy Holidays from

Global Market Perspective December 4, 2015

competitors, but Thursdays collapse out of an ending

Metals & Energy

The European stock market rally since August/September

Crude and Natural Gas should both be moving towards

The evidence increasingly suggests that the correction

Global Interest Rates. . . . . . . . . . . . . . . . . 27

World Stock Index. . . . . . . . . . . . . . . . . 4

Debt Mans Curve . . . . . . . . . . . . . . . .

Only the 10-year Australian bond appears clearly to have

Gold & Silver. . . . . . . . . . . . . . . . . . . . 44

Economic, Monetary and

The dollar finds itself at a critical juncture as 2015 comes

WORLD STOCK INDEX

Global Market Perspective December 4, 2015

THE UNITED STATES

Elliott Wave Analysis

Global Market Perspective December 4, 2015

indicators carried him. Besides popularizing Dow Theory,

issuance has stalled as prices have plunged (see bond

A Bloomberg article, Unnerved Investors Pull Shutters

One by one, numerous highly celebrated offerings have

Global Market Perspective December 4, 2015

Back in December 2000, GMP noted that discussions

Many of the most heavily hyped offerings since 2011 are

But the dissipating interest in IPOs actually fits perfectly

The response of technology gurus seems perfect for such

Stock Buyback Deals Can Be Stinkers

The Stock Market Has a Buyback Problem

Global Market Perspective December 4, 2015

Surge In Stock Buybacks Good or Evil?

While the total number of deals has been falling, the

The Wall Street Journal, Nov. 22, 2015

As the chart shows, through the first three quarters of

A June 2000 Special Report included a series of charts

Corporate mergers are another peak-market metric that

Global Market Perspective December 4, 2015

EUROPEAN STOCK MARKETS

Elliott Wave Analysis

Global Market Perspective December 4, 2015

left shoulder peaked in September 2014 at 6,800, the

A Brief Note on Market Technicals

This Years Hottest ETF Now Luring

Global Market Perspective December 4, 2015

According to the article, the darling of the ETF world is

rally. Today, in contrast, the lopsided focus on the bullish

A New-York based derivatives strategist correctly

Global Market Perspective December 4, 2015

When buyer affordability hit 69.6% in the fourth quarter