Sunday, May 04, 2008 11:18:29 PM
Elliott Wave Supremacy
David Waggoner Apr 28, 2008 8:45 am
Principle has held true for 1000 years.
Ralph Nelson Elliott originally published his stock market behavior theory in a series of articles written for The Financial World magazine in 1939. This was a very popular investor publication at the time and the articles were very well received. The editors introduced the articles with the following statement:
“During the past seven or eight years, publishers of financial magazines and organizations in the investment advisory field have been virtually flooded with “systems” for which their proponents have claimed great accuracy in forecasting stock market movements. Some of them appeared to work for awhile. It was immediately obvious that others had no value whatever. All have been looked upon by The Financial World with great skepticism. But after investigation, we became convinced that a series of articles on this subject would be interesting and instructive to our subscribers. We leave to the individual reader a determination of the value of Mr. Elliott’s principle as a basis for market forecasting, but believe that it is likely to prove at least a useful check on conclusions based upon economic considerations.”
In 1946 he integrated those articles into his seminal work, Natures Law-The Secret of the Universe. Here, he extrapolated his observed market behavior into a universal law of behavior that encompassed all of man’s activities
I use the word seminal somewhat in jest here, because twenty odd years later, Robert Prechter attempted to locate a copy of the original manuscript for his research, and he was only able to locate one photo-copied version of it in the New York Public Library. A copy did not even exist in the Library of Congress.
Did Elliott commit professional establishment suicide by tying a credible stock market system to a seemingly incredible theory? Was this the equivalent of Nicola Tesla claiming to have spoken with Aliens?
The pragmatist will argue that the manuscript was relegated to the dust bin of history because that's where it belonged. After all, if it were true, everyone would use it, and then, it would stop working anyway. This Catch-22 type of logic is used repeatedly to dispel technical analysis.
Admittedly, even most technical analysts don’t believe a pattern can last forever. Robert Prechter wrote that when he decided to write about and publish the Elliott Wave Principle for larger public consideration, he was in fact approached numerous times with an appeal to keep it secret. “Those who understood its value and used it successfully feared that if too many people started using the wave principle in their investment timing, it would dilute its utility.”
In the book Cycles: The Mysterious Forces That Trigger Events, Edward R. Dewy tells us that in 1912 information was leaked to a group of New York Investors that the Rothschilds had identified, and were profiting from, a series of repeating cycles in British bonds.
The investors hired a mathematician to discover the secret formula of the Rothschilds who - working with the Dow Jones railroad average - discovered a repeating forty-one month cycle, and three lesser period cycles which the New York investors then used to invest in the market with great success for many years.
These cycles did not garner any attention until they were discovered by Professor Kitchin, of Harvard in 1922. Even then, they remained relatively obscure and only gained public attention when they were discovered yet a third time, by Chapin Hoskins in 1935. After discovering them, he prepared studies about the cycles for the investment brokerage community. This rhythm, named the Kitchin cycle, continued to work flawlessly until 1945, then stopped working as mysteriously as it had started. The cycle had worked continuously, without interruption from 1868 until 1945.
Some attributed the change to public awareness. Students of cycle theory accept that short term cycles don’t last, or work consistently. The Kitchin cycle reappeared later in an inverted pattern, somewhat less reliably.
The Kitchin cycle (sink) lasted 78 years before it was thrown out. It operated independent of the other cycles as a stand-alone repeating pattern, and yielded great profits for its followers.
The Elliott wave principle’s largest recognizable patterns were identified by Frost and Prechter in their book, The Elliott Wave Principle. The first was formed by splicing a chart of seven centuries of consumable prices (Economica, New Series Vol.23, No.92 (Nov.,1956), pp.296-314), to industrial stock prices, for which recorded history started in 1789. This formed a one thousand year (5-3-5-3-5) Elliott impulse wave pattern. Think of this as the largest Russian nesting doll. The subsequent dolls in descending succession, are the Grand Supercycle (1789-2000), and the Supercycle (1932-2000).
Millennium Cycle
Grand Supercycle
Supercycle
Why Do The Markets Do What They Do?
Which brings us to cycle degree (1978-2000) that I discussed in Riding the Elliott Wave.
The thousand year reign of the Elliott Wave Principle (OK, probably not the most appropriate idiom to paraphrase) would make it one of the longest running cycles to date. That is, if, it was just a stock market cycle like the Kitchin cycle.
But it's much more than a stock market cycle. These nesting dolls repeat without fail in a descending sequence to a level of degree smaller than the letter Z in Dr. Seuss’s The Cat in the Hat Comes Back. They're discernible at every level to the trained eye, presenting even on one minute charts with only minor rule breaches.
They're the basic building blocks of the market, and in all probability, as proposed by Ralph Nelson Elliott in Natures Law-The Secret of the Universe, and greatly improved and expanded upon in The Wave Principle of Human Social Behavior and the New Science of Socionomics, by Robert Prechter, all of man’s activities.
In all of technical analysis, The Elliott wave principle is totally unique. No cycle exhibits these characteristics. No other chart pattern in technical analysis presents with the consistency or predictability of the Elliott wave principle. All other forms of technical analysis eventually fail, everything but the Elliott wave.
Let’s review the status of the S&P 500. You will notice I've changed the labeling of the correction from last week. This is normal. Ellioticians are always revising and updating the labels on their charts as the market unfolds. You always predict from the current known situation, much like a meteorologist.
Focus on the move up from (1) to Y. Two probable outcomes exist. 1) We have either completed a double combination and are due for a retracement, or, even the turn preceding the next impulse wave down. 2) We will experience a breakout at 1404 and extend to 1415 or 1433.
Supporting evidence of a turn is a technically completed double combination pattern, a Fibonacci confluence including the 1:1 ratio of the a-b-c up from X immediately overhead, and the extreme reading on the stochastic, my favorite companion to the Elliott wave (a future story).
If this happens, the structure of the move down will need to be examined to determine whether it is impulsive or corrective. A 0.500 retracement would bring price down to the trend line so that is the most probable place for a bounce or turn back up.
The second option is that the recent move will be extended. Probable targets for an extended move are 1415/16, or, 1433/36 before we retrace or turn down. 1433/36 has a triple confluence of a Fibonacci target, the 200 day moving average, and the top of the channel all working for it. That is powerful.
In the stock market strength begets strength, and vice versa. If we extend here, it increases the probability that the next move down will also be a retracement, and increases the likelihood of our ultimate target of the Fibonacci confluence at 1454.
If we turn here at (1404), that denotes weakness in Elliott analysis, and favors a resumption of the down-trend. This is corroborated by a tendency in channel analysis, that when price does not reach the top of a channel, the probability of a breach on the downside increases.
1404-1406 is very solid resistance. A clean break of this area will validate the extension and my focus will turn to 1433-1436 with a probable pause at 1415/16.
Despite the appeals not to publish information about the Elliott wave Principle, Robert Prechter has produced at least 13 books on the subject. He said in the end he was persuaded by the nobler words of Elliott who said what is important above all else is the search for truth.
I agree. This is bigger than making money (but we can do that too). The Elliott wave principle is an astounding breakthrough with mind boggling implications for the social sciences. Once the curtain goes up, and you see it, you will also say, “of course it is true, how can anyone doubt it.” And when enough of us see it, and enough of us say it, social science will make a quantum leap forward. In the same manner the market jumps from one Fibonacci level to the next.
Reference: R.N. Elliott’s Masterworks: Edited by Robert Prechter
David Waggoner is a private trader and investor. He is obsessed with the Elliott wave principle. Check out his Minyanville Exchange blog here.
Minyanville staff and contributors may trade or hold securities that are discussed in an article. Staff and contributors will indicate whether they have a position in any security discussed, but will not indicate size or direction. The information on this site is not intended as individualized investment advice and all investment decisions by a reader must in all cases be made by the reader either individually or together with his/her investment professional. The views expressed in articles appearing on this site are solely those of the staff and contributors and should not be attributed to any other person or entity except where expressly stated. Minyanville staff and contributors will not respond to requests for investment advice.
Copyright 2008 Minyanville Publishing and Multimedia, LLC. All Rights Reserved.
Bigger Picture
David Waggoner Apr 28, 2008 8:45 am
Principle has held true for 1000 years.
Ralph Nelson Elliott originally published his stock market behavior theory in a series of articles written for The Financial World magazine in 1939. This was a very popular investor publication at the time and the articles were very well received. The editors introduced the articles with the following statement:
“During the past seven or eight years, publishers of financial magazines and organizations in the investment advisory field have been virtually flooded with “systems” for which their proponents have claimed great accuracy in forecasting stock market movements. Some of them appeared to work for awhile. It was immediately obvious that others had no value whatever. All have been looked upon by The Financial World with great skepticism. But after investigation, we became convinced that a series of articles on this subject would be interesting and instructive to our subscribers. We leave to the individual reader a determination of the value of Mr. Elliott’s principle as a basis for market forecasting, but believe that it is likely to prove at least a useful check on conclusions based upon economic considerations.”
In 1946 he integrated those articles into his seminal work, Natures Law-The Secret of the Universe. Here, he extrapolated his observed market behavior into a universal law of behavior that encompassed all of man’s activities
I use the word seminal somewhat in jest here, because twenty odd years later, Robert Prechter attempted to locate a copy of the original manuscript for his research, and he was only able to locate one photo-copied version of it in the New York Public Library. A copy did not even exist in the Library of Congress.
Did Elliott commit professional establishment suicide by tying a credible stock market system to a seemingly incredible theory? Was this the equivalent of Nicola Tesla claiming to have spoken with Aliens?
The pragmatist will argue that the manuscript was relegated to the dust bin of history because that's where it belonged. After all, if it were true, everyone would use it, and then, it would stop working anyway. This Catch-22 type of logic is used repeatedly to dispel technical analysis.
Admittedly, even most technical analysts don’t believe a pattern can last forever. Robert Prechter wrote that when he decided to write about and publish the Elliott Wave Principle for larger public consideration, he was in fact approached numerous times with an appeal to keep it secret. “Those who understood its value and used it successfully feared that if too many people started using the wave principle in their investment timing, it would dilute its utility.”
In the book Cycles: The Mysterious Forces That Trigger Events, Edward R. Dewy tells us that in 1912 information was leaked to a group of New York Investors that the Rothschilds had identified, and were profiting from, a series of repeating cycles in British bonds.
The investors hired a mathematician to discover the secret formula of the Rothschilds who - working with the Dow Jones railroad average - discovered a repeating forty-one month cycle, and three lesser period cycles which the New York investors then used to invest in the market with great success for many years.
These cycles did not garner any attention until they were discovered by Professor Kitchin, of Harvard in 1922. Even then, they remained relatively obscure and only gained public attention when they were discovered yet a third time, by Chapin Hoskins in 1935. After discovering them, he prepared studies about the cycles for the investment brokerage community. This rhythm, named the Kitchin cycle, continued to work flawlessly until 1945, then stopped working as mysteriously as it had started. The cycle had worked continuously, without interruption from 1868 until 1945.
Some attributed the change to public awareness. Students of cycle theory accept that short term cycles don’t last, or work consistently. The Kitchin cycle reappeared later in an inverted pattern, somewhat less reliably.
The Kitchin cycle (sink) lasted 78 years before it was thrown out. It operated independent of the other cycles as a stand-alone repeating pattern, and yielded great profits for its followers.
The Elliott wave principle’s largest recognizable patterns were identified by Frost and Prechter in their book, The Elliott Wave Principle. The first was formed by splicing a chart of seven centuries of consumable prices (Economica, New Series Vol.23, No.92 (Nov.,1956), pp.296-314), to industrial stock prices, for which recorded history started in 1789. This formed a one thousand year (5-3-5-3-5) Elliott impulse wave pattern. Think of this as the largest Russian nesting doll. The subsequent dolls in descending succession, are the Grand Supercycle (1789-2000), and the Supercycle (1932-2000).
Millennium Cycle
Grand Supercycle
Supercycle
Why Do The Markets Do What They Do?
Which brings us to cycle degree (1978-2000) that I discussed in Riding the Elliott Wave.
The thousand year reign of the Elliott Wave Principle (OK, probably not the most appropriate idiom to paraphrase) would make it one of the longest running cycles to date. That is, if, it was just a stock market cycle like the Kitchin cycle.
But it's much more than a stock market cycle. These nesting dolls repeat without fail in a descending sequence to a level of degree smaller than the letter Z in Dr. Seuss’s The Cat in the Hat Comes Back. They're discernible at every level to the trained eye, presenting even on one minute charts with only minor rule breaches.
They're the basic building blocks of the market, and in all probability, as proposed by Ralph Nelson Elliott in Natures Law-The Secret of the Universe, and greatly improved and expanded upon in The Wave Principle of Human Social Behavior and the New Science of Socionomics, by Robert Prechter, all of man’s activities.
In all of technical analysis, The Elliott wave principle is totally unique. No cycle exhibits these characteristics. No other chart pattern in technical analysis presents with the consistency or predictability of the Elliott wave principle. All other forms of technical analysis eventually fail, everything but the Elliott wave.
Let’s review the status of the S&P 500. You will notice I've changed the labeling of the correction from last week. This is normal. Ellioticians are always revising and updating the labels on their charts as the market unfolds. You always predict from the current known situation, much like a meteorologist.
Focus on the move up from (1) to Y. Two probable outcomes exist. 1) We have either completed a double combination and are due for a retracement, or, even the turn preceding the next impulse wave down. 2) We will experience a breakout at 1404 and extend to 1415 or 1433.
Supporting evidence of a turn is a technically completed double combination pattern, a Fibonacci confluence including the 1:1 ratio of the a-b-c up from X immediately overhead, and the extreme reading on the stochastic, my favorite companion to the Elliott wave (a future story).
If this happens, the structure of the move down will need to be examined to determine whether it is impulsive or corrective. A 0.500 retracement would bring price down to the trend line so that is the most probable place for a bounce or turn back up.
The second option is that the recent move will be extended. Probable targets for an extended move are 1415/16, or, 1433/36 before we retrace or turn down. 1433/36 has a triple confluence of a Fibonacci target, the 200 day moving average, and the top of the channel all working for it. That is powerful.
In the stock market strength begets strength, and vice versa. If we extend here, it increases the probability that the next move down will also be a retracement, and increases the likelihood of our ultimate target of the Fibonacci confluence at 1454.
If we turn here at (1404), that denotes weakness in Elliott analysis, and favors a resumption of the down-trend. This is corroborated by a tendency in channel analysis, that when price does not reach the top of a channel, the probability of a breach on the downside increases.
1404-1406 is very solid resistance. A clean break of this area will validate the extension and my focus will turn to 1433-1436 with a probable pause at 1415/16.
Despite the appeals not to publish information about the Elliott wave Principle, Robert Prechter has produced at least 13 books on the subject. He said in the end he was persuaded by the nobler words of Elliott who said what is important above all else is the search for truth.
I agree. This is bigger than making money (but we can do that too). The Elliott wave principle is an astounding breakthrough with mind boggling implications for the social sciences. Once the curtain goes up, and you see it, you will also say, “of course it is true, how can anyone doubt it.” And when enough of us see it, and enough of us say it, social science will make a quantum leap forward. In the same manner the market jumps from one Fibonacci level to the next.
Reference: R.N. Elliott’s Masterworks: Edited by Robert Prechter
David Waggoner is a private trader and investor. He is obsessed with the Elliott wave principle. Check out his Minyanville Exchange blog here.
Minyanville staff and contributors may trade or hold securities that are discussed in an article. Staff and contributors will indicate whether they have a position in any security discussed, but will not indicate size or direction. The information on this site is not intended as individualized investment advice and all investment decisions by a reader must in all cases be made by the reader either individually or together with his/her investment professional. The views expressed in articles appearing on this site are solely those of the staff and contributors and should not be attributed to any other person or entity except where expressly stated. Minyanville staff and contributors will not respond to requests for investment advice.
Copyright 2008 Minyanville Publishing and Multimedia, LLC. All Rights Reserved.
Bigger Picture
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
