The Elliott Wave theory has been around for nearly three quarters of a century. In recent years, many market pundits have actually believed they had mastered it, until the stock market itself humbled them. The theory is a simple mathematical relationship of major to minor swings in investor confidence, graphically displayed. It is a measurement, in time and price, of all the financial information offered every single day and how it relates to all the information previously received. It is ironic that the tool that measures investor confidence can stiffle the very one who is interpreting it, when they themselves get too confident, or pessimistic. The best approach, from my twenty year plus experience, is to interpret what it displays only, with an open mind and no preconceived notions about the economy etc., because that is already filtered into the equation.
Personally, I started studying the EW in the early 1980’s, when Robert Prechter made it popular, and while living near Boston. I subsequently moved near Washington DC and spent hundreds of hours gathering stock market information at the Library of Congress. I’ve always enjoyed digging into something, and peeling away the layers until I find the very core of what makes it tick. My conclusion, in the mid 1980’s, was that the EW actually worked! However, it does not exactly function the way it was presented by it’s discoverer Ralph Elliott. I believe he left the finer points out of his transcripts so that he would remain the sole authority.
In my opinion, which has worked far more often than not, apply only closing prices and look at the markets from the bigger to smaller picture. This is exactly the opposite of what Mr. Elliott suggested.
In June 1987, I forwarded a study of the market to Robert Prechter, forecasting a potential crash if the DJ Industrials exceeded 2500 before the end of the year. Barron’s took excepts from that study and published an article in my name. The stock market crashed in October after exceeding 2700 in August!
In late 1988, I forwarded a study to the Financial News Network (FNN), forecasting that the stock market would exceed the highs of 1987 in the following year. In 1989, I was named Stock Market Technician of the Year by Jeff Bower, their resident market technician on Stocks and Gold. And, I appeared numerous times on their network, including a full half hour show in which I presented my market forecasts on Gold, US Stocks and the Nikkei in Japan, which was at record highs at the time.
In July 1990, while working with Eli Tullis (famed futures trader), we pinpointed the exact top of the stock market within the exact hour of its occurance. This top preceeded a sharp 30% decline into the Gulf War lows. Also that year, we pinpointed the exact top in the Japan Nikkei, which fell over 80% thereafter.
Recently, to sum things up, in October 2002 I forecasted the end of the cyclical bear market of 2000-2002. And the beginning of a new super cyclical bull market in stocks. I believe the Nasdaq (compx) is acting exactly like the DJIA did between 1932 – 1937. Between 1929 and 1932 the DJIA declined nearly 90%. Very similar to the decline in the COMPX between 2000 – 2002. However, regardless of the similar decline, the progress of this index since the 2002 bottom, is extremely similar to that of the progress in the DJIA from the 1932 bottom. Thus, it appears history is repeating itself again!
In the future, I will be updating my observations of the what the EW theory is forecasting as this bull market unfolds. Good investing!