The 1st Clue of Soaring Bond Yields and Commodities is Now Showing Up in Stocks Across the Sea
In 2020-early 2021, the “fundamental” future of bond yields and commodities looked “bleak. But then came the great “reflation.” Behold the “wonderous” reason why!
by Nico Isaac
Updated: August 17, 2022
This weekend, I finally crossed a long-desired hiking trip off my bucket list: the famous Tallulah Gorge in North Georgia. I arrived at 8 am sharp and was immediately handed a waiver to sign, promising not to sue in case of painful, cliff-plummeting death. Then, the very punny ranger said, "don't break a leg!" opened the door and led me to the bottom of the 1000-foot tall, vertical canyon floor.
I craned my neck to see the near imperceptible cliff edge above, shrouded in a thick rhododendron canopy and cascading waterfalls. I took in the cool, mountain air and began the grueling ascent over slick, river-worn boulders and 1,099 steel-enforced steps to the top.
And there, one hour and two very sore shins later, I beheld one of the most breathtaking views of my life, pictured here:
In Elliott wave analysis, this staggering and heart-pounding climb is the equivalent of the third wave of a five-wave impulse pattern. Described by Ralph Nelson Elliott himself as "wonders to behold," third waves are strong, broad, and unmistakable. They're often the most volatile point of strength in any wave sequence and can produce runaway price movements.
Here is an idealized diagram of the third wave:
Equal to their breadth, the clarity third waves provide into a market's trend is unmistakable. If you see one in a bullish configuration on a price chart, it's like standing at the bottom of that sheer rock face, awaiting a powerful advance to great heights.
(And conversely, if a bearish third wave appears, well, you know it's time to sign that waiver insuring against a precipitous fall!)
So, let's look at real-world examples of third waves in the recent price action of two important markets. First, the Bloomberg Barclays Global Aggregate Yield Index, a bellwether global bond index, in late 2020.
At the time, at the height of the global pandemic, a mass exodus from risk was underway and yields across the swath of global bond markets were plummeting to lifetime lows. Essentially, investors were paying banks to store their money. Wrote one March 6 CNBC:
"It's a brave new world of 0-handles and we've now taken to referencing 10-year yields in basis point terms. 1.0%, thanks for the memories."
On July 3, Reuters printed a column titled "The End of Bonds as Ballast" and wrote:
"The problem for many investors is the pandemic shock has finally sunken safe bond yields so close to zero that they have nowhere left to go performance-wise in another downturn over the next 5-10 years."
And as 2021 got underway, the Oracle of Omaha Warren Buffett himself issued this "lament" in his annual letter to investors:
"Fixed-income investors worldwide -- whether pension funds, insurance companies or retirees -- face a bleak future.
"Bonds are not the place to be these days... as the yield on 10-year Treasury bonds has fallen 94% since September 1981."
But instead of a "brave new world" of 0 handles, our late 2020 Global Market Perspective publications began adopting a radical counterclaim. In the December 2020 Global Market Perspective, our analysis identified a near complete five-wave impulsive decline in the Bloomberg Barclays Global Aggregate Bond Index and warned that a "hugely significant low" is close to forming.
By 2020's end, bond yields began a slow and steady climb. In the December 2021 Global Market Perspective, our analysis confirmed that five waves were, indeed, done and a new rising trend change in yields was underway. Specifically, the Bloomberg Global Aggregate Bond Index was at the floor of a third wave higher. From the December 2021 GMP:
"In terms of Elliott Wave analysis, our modus operandi is that the yield on the Bloomberg Barclays Global Aggregate Bond Index is just starting wave 3 higher. If this is correct, we can expect yields across all sectors of bond markets to continue to rise well into 2022."
And, this next chart captures the near-vertical ascent to multi-decade highs that followed as the third wave took on strength.
Now, let's look at another market that embodied the awesome power of third waves. We return to the December 2020 Global Market Perspective and see its analysis of the Invesco DB Commodity Fund. There, we identified a "third-of-a-third wave" underway and said this was a strong signal that commodities as a whole are "in the early stages of a long-term bull market."
A steep climb followed on cue. Then in the January 2022 Global Market Perspective, our analysis addressed the late 2021 consolidation in commodity prices, prompting mainstream experts to call the "end of the commodity boom."
Our analysis saw a different outcome: a new, third wave advance had begun within the Invesco DB Commodity Index's uptrend:
"'As 2022 dawns, there are growing doubts about how far commodities can keep rising as a projected slowdown in economic growth, especially in China, and a rebound in supplies will likely weigh on prices,' Bloomberg reported on December 31.
"Such doubts support our view that commodity prices will continue to surprise most observers to the upside."
And, this next chart plots both points of third-wave entry on the DBC's chart:
These two examples speak loudly and clearly for the "wonderous" nature of third waves. And now, in the August 2022 Global Market Perspective, we identify three dozen third-wave setups in a swath of global markets, including:
- S&P 500
- ChiNext Index
- Shenzhen Composite
- Shanghai Composite
- Straits Times Index
- Nikkei 225
- India's Nifty 50
- ASX All Ordinaries
- South Korean KOSPI
- Taiwan Index
- US Copper Index Fund
- WNS Holdings
- And more
So, strap on your figurative hiking boots and get ready for literal opportunities in our Global Market Perspective service.
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Global Market Perspective is a publication like no other, because it delivers forecasts you won't see or read elsewhere: Before the bullish reversal in commodities unfolded, subscribers to Global Market Perspective were ready.
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