Foreigners make their biggest commitments when major trends are about to reverse.
For decades, heavy foreign buying in the U.S. stock market has served as an excellent indicator of major tops. Over the years, this observation has served The Elliott Wave Theorist well. In the late 1980s, for instance, after years of disinterest, foreigners became net buyers of Japanese stocks, and EWT used the inflow of foreign money to identify the termination phase of one of the biggest bull markets in history. This chart of the Dow and foreigners' net purchases of U.S. equities illustrates how beautifully the pattern has held through the U.S. bull market of the 1990s. The solid lines show the flood of foreign buyers within a month of each high, and the dotted lines show them rushing back out again on the months of the big lows.