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Bewilderingly complex Elliott Wave Theory

Thursday, July 02, 2009

Peter Brimelow at MarketWatch comments on the latest prognostications from the group of perma-deflationists over at Elliott Wave International.

The good news: One successful survivor of the Crash of 2008 thinks the bear-market rally has further to go. The bad news: It's still a bear market, and it will end in devastating deflation.
Elliott Wave Theory can be bewilderingly complex. One reason it tends to leave investors incensed is that they believe EWFF's overlapping waves constitute a sort of bait-and-switch, always leaving the forecaster with an out.

Right now, for example, EWFF is showing what it calls the "intermediate" trend as down. But the somewhat longer "primary" trend, which began in March, is intact and is projected to reach 9,000-10,000 on the Dow.

EWFF writes: "The probabilities favor a second phase of advance that carries the rally off the March lows to new recovery highs later."

For the record, EWFF also shows a "grand supercycle," beginning in January 2000 and ending at 400. Yes, that was FOUR HUNDRED.
Like many others, Elliott Wave Theory has always been bewildering to me, but that may have something to do with the fact that I have a degree in engineering and worked as a hardware/software designer for more than twenty years.

Absent that background, maybe it would make a whole lot more sense...

Here's a simplified version of the five waves.
IMAGE Don't ask me to explain it but, from my limited exposure to it, there always seems to be a debate between wave 3 and wave 5. There's more from Wikipedia here.

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Anonymous said...

The "Grand Supercycle" didn't 'begin in 2000' as the author alleges.

All the author had to do to find out when the Grand Supercycle did begin, was use 'the Google' and Wikipedia:

In Elliott wave theory the term Grand Supercycle is used to describe the longest Elliott wave that was proposed by Ralph Nelson Elliott. Elliott speculated that a Grand Supercycle advance had started around the time that the United States declared independence from mother-England on July 4, 1776.

It appears so far that Wave 4 of the Grand Supercycle began in 2000, but that is subject to change.

Anonymous said...

Only a "Grand Poobah" can declare the beginning or end to a "Grand Supercyle"

getyourselfconnected said...

Any technical analysis (whatever model) has always been suspect to me. If some lines and if/then questiosn could answer every market question, then the world would be awash in Billionaires. Alas, it is not. Do the lines and levels make the market, or does random events that gather around a mean eventually fit the lines? Who can say and who cares.

My prediction: the market will go up, unless it goes down. That is unless the down is followed by some up, then maybe up then down. trade on that my friends!

Nuno Branco said...

It is true that the Elliott Wave principle is subject to sometimes different interpretations when you show the same picture to different analysts but like any kind of technical analysis it is only probabilistic.

You take a shot, define where your stop loss will be for the case your wrong and hope that the odds work in your favour.

Is Elliott Waves the ultimate tool to prosperity? No. Is it a good way to study the markets? Sure, add one or two indicators and you have a good toolbox to navigate the market.

Nothing will ever work 100% though, not while we are allowed some free will at least.

Bruno T said...

I prefer the more reliable and down to earth crystal ball method.

Aaron Krowne said...

Tim I sympathize; I studied math and computer science and I haven't found any technical analysis that strikes me as credible.

The only potentially-useful methods I've seen involve smoking out what insiders are doing, such as with oddball options activity or bid/ask data that doesn't necessarily show up in prices (a huge flaw of most T.E. in my opinion is the use of primarily price series data, which is only a small part of the story).

Tim said...

About a week ago, I spent the afternoon with a local guy here who trades S&P500 futures (Matt Davio of MissTrade) and he showed me a bunch of things about moving averages, etc. that, if you're good enough (and disciplined enough), you can make a pretty decent living at after many years of "on the job" training.

I have a new appreciation for this sort of thing now, but I'm still pretty skeptical of other technical analysis where the rules are much more ambiguous.

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