Insights into This “Old Faithful” Indicator of Financial Peaks

By Elliott Wave International

Some stock market indicators have proven themselves market cycle after market cycle.

For example, one indicator which has stood the test of time is a jump in the level of foreign buying near or at a stock market top — and that can be in any country. Right now, we’re talking about the U.S., but looking back a few decades, it also occurred in Japan at the end of the 1980s.

Another Old Faithful indicator of financial peaks is an extreme in the zeal with which corporations buy back their own shares.

The April 2022 Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets, noted:

Companies usually buy back their own shares at a record pace near major market peaks.

As historical examples, new extremes in quarterly S&P buybacks occurred around the time of the stock market peaks in the first quarter of 2000 and the third quarter of 2007. Another extreme accompanied the Dow and S&P tops in the first quarter of 2022.

The just-published March Elliott Wave Financial Forecast provides an update with this chart and commentary:

[Here’s an] Old Faithful indicator … a new monthly record of $131.5 billion of announced buybacks in January. This total is even higher than that of January 2021 and January 2022. It was also close to half of the record three-month total in the first quarter of 2022. As the Elliott Wave Financial Forecast said in April, “At the end of the greatest stock market advances, supposedly informed corporate officers take the bait.”

Financial optimism is running so high that even a new tax has not slowed corporate officers from buying back shares. Here’s a March 2 news item from the Wall Street Journal:

Executives largely shrugged off a new 1% tax on stock buybacks as the cost of doing business.

Keep in mind that the level of corporate buybacks is not a short-term timing tool for the stock market.

It’s best to consult the market’s Elliott wave pattern for insights into specific and important price junctures.

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This article was syndicated by Elliott Wave International and was originally published under the headline Insights into This “Old Faithful” Indicator of Financial Peaks. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.