The Value of Forecasting with the Wave Principle
With the caveat of immense specific variability within the known aspects of the Wave Principle, it is still the
case that the practical value of all we know about it is immense. The first fantastic value that the Wave Principle provides is an amazing perspective. The second value is an occasionally remarkable accuracy, as you can see in Chapter 6. The third great value is that it provides a basis for assessing the past and analyzing the present in a consistent context, to which all the predictive literature on the subject attests. Finally, the Wave Principle indicates in advance the relative magnitude of the next period of social progress or regress.With all these gifts, we have a basis for informed, truly rational decision-making with regard to anticipating the tenor of future events. Its very nature forces us to look at the big picture, elevating our perceptions above the cacophony of daily news and providing the opportunity to make sense of great social trend changes and the dramatic events that accompany them. As a result, the Wave Principle provides a basis for achieving a great sense of calm about the future, which no longer appears as a black cloud of unknowable chaos (sometimes just a grey cloud of partly knowable chaos). The general results of social mood, i.e., economic trends, political trends, peace and war, etc., are fairly easy to predict, as they follow what has already occurred in social mood. Predicting social mood trends themselves, and their immediate reflectors such as stock index trends, fashion and entertainment trends, etc, is more difficult, but the Wave Principle at least provides a basis for doing so. With knowledge of how the pattern unfold, to the extent of our ability, effort and emotional detachment, we can enjoy success even at that daunting task. Because the Wave Principle describes patterns of collective behavior, the accuracy of any resulting forecast depends upon (1) the reliability of the investing’s crowd behavioral patterns and (2) the ability of an analyst to identify the relevant ones properly.
In fact, the patterns, while varied, are more than reliable, within the bounds of their definitions, they are inviolate,
a characteristic that makes wave analysis incalculable superior to other methods.An analyst’s ability to identify the relevant patterns, interpret them properly and anticipate the ones to follow is another matter. That task is exceedingly difficult. Nevertheless, even on that score, the Wave Principle provides some advantages that most forecasting methods lack. For instance, it provides a method of conceiving and then ranking alternative scenarios. Perhaps most important, the Wave Principle provides a built-in mechanism for changing one’s mind. The ultimate determinant of the objective analyst’s opinion is the market itself, not a presumption about outside causes.This approach provides an objective basis for staying in tune with the developing trends and for changing one’s opinion when necessary. Social forecasting is an ability that has deftly eluded man throughout his existence and indeed has been considered as impossible as a perpetual-motion machine. The Wave Principle changes all that. Because of it, we finally have a way to forecast much about our social future, not with magic or revelation or astrology or sorcery or voodoo or mindless linear extrapolation, but with science. Convey and Highfield assert, quite generously given the state of conventional economics, that “economics straddles the divide between science and the humanities.” With the Wave Principle, economics is now science, and with socionomics, even the humanities are tools of science. (The Wave Principle Of Human Social Behavior And The New Science of Socionomics, Robert R. Prechter, 1999 ) Read more
Moment of Truth
NASDAQ Composite Index
© ELLIOTT today, June 14,2007
2647?
Weekly update
© ELLIOTT today, July 15, 2006Below there is the chart of the Nasdaq Composite Index of May 12, 2006 just in the time window when both
the Dow and the S&P 500 were topping. One important test of a scientific hypothesis is its ability to predict outcomes. Although the Wave Principle hypothesis is difficult to quantify on the basis of predictability because
it forecasts only probabilistically, there is nevertheless substantial evidence of its unique value. while reviewing the following excerpts, it is important that you honestly consider the utter uncertainty that exists in real-time forecasting. Psychological experiments show that most people who review events in retrospect consider them to have been obviously implied at the time. As Lee Simonson once said, "Any event, once it has occurred,
can be made to appear inevitable by a competent historian."
Forecast of May 12, 2006
NASDAQ Composite Index
Figure 1
...and here is the outcome so far
Nasdaq Composite Index
© ELLIOTT today, July 15, 2006
Figure 2
Below the chart I plotted the 14-day RSI. Since the RSI reached its high late November the relative strength
of the upward move in the market steadily lost momentum implying that indeed a fifth wave was in force.
(fifth waves are weaker than third waves..) I do not counting the structure from August 2004 to October 2005
as a triangle because the pattern following wave 4 wasn't "swift and short" as the description of the Wave Principle used to say. The structure is best counted as a "three" with a expanding triangle in wave b and an expanding diagonal triangle in wave c. The overall picture supports the case I pointed out in several reports before: the pattern in the Nasdaq Composite Index is an ending pattern, a diagonal triangle, the most bearish pattern the EWP has to offer. Minor wave 1 down stopped right at the level of the previous fourth wave and a simple a-b-c countertrend move completed wave 2. This week the Nasdaq Composite was off 4.35% the worst performance of the three major indexes. Thanks to the wave form this behavior was anticipated well before the fact. Short term, the sentiment is outright bearish, showing only 10% bulls, which is the lowest reading since
the August 2004 bottom. The Nasdaq Composite may fall a bit further early next week but a bounce is due. Longer term, the Nasdaq Composite will retrace the DT which means a move to or below the 1800s is
warranted. Short term support provides the rising 3x1 FiboFan line.
...another "great Chart"
Price & Time in the DJIA
In the 1990s, Donald Vodopich teached me how to use the FiboFan lines and for him those lines where the real support and resistance levels. The most important line however was what he called the "0-line." (Zero-line). The "Zero-line" is an almost horizontal line where prices often fluctuate to and fro and finally break through. Classic technical analysis calls it support and resistance. But it is more: Once the line is broken more often than not a short term pullback occurs but finally prices will move powerful in direction of the preceeding move, which in this case is down. The 0-line often indicates a sudden swift in sentiment from complacency to fear and panic. Since my prefered count calls for a third wave down the point of recognation is not far away. With regard to the ML-2 the market broke the lower channel line already in May but pulled back in June. The latest break of that line caught many analysts and the media with "surprise". Friday the Dow made it to the previous low and is now back where it was in December 2005 and January 2006. Near term the Dow is testing not only the previous low but the important ML-1. Short term, the market may hold the near term support for some time but also a gap-down on Monday will indicate a more severe decline into late July.
On July 17, 1990 the DJIA made an important top. For the first time the DJIA reached 3000 with an hourly reading of 3025. On July 15, 2006 the DJIA reached 11,670 a hairsbreath from the closing price of 11,723 on January 14, 2000. Now consider this, from July 17, 1990 to July 2006 the distance is 16 years or 5760 days
(1 year = 360 days, 1 month = 30 days).
5760 x 1.618 = 9,319.68.
11,670 - 9,319.68 = 2,350.32.
The low of October 11,1990 was 2,345 (+/-5).
Weekly Update, May 13, 2006
Special Report: Gigantic Double Top In The Dow !
© ELLIOTT today
A clear cut five-wave structure from the low of October 2005 was completed on May 10, 2006.The
ending pattern, a expanding diagonal triangle spells trouble ahead for the bulls. At minimum, the
whole pattern will be retraced which in this case means a drop to the 10,800 area, a drop of 870
points or 7.45 percent and probably more. A drop to the low of August 2004 in the S&P or October
2004 in the Dow would call for a drop of about 14% and as the long term chart of the Dow reveals,
that level of 10,000 lies at the long term lower trend channel line.
Elliott Wave Analysis, Outcome & Forecast
© ELLIOTT today
I don't know if the journalist has any knowledge of the Elliott Wave Principle or maybe even some thoughts about the complex, but the words "gone up too far too fast" pointing exactly to the description Ralph Nelson Elliott used to explain one of the most bearish patterns the Elliott Wave Principle has to offer: Diagonal Triangles. (EWP, page 31). "A diagonal triangle is a special type of wave which occurs primarily in the fifth wave position at times when the preceding move has gone "too far too fast."Here we are. The pattern in the DJIA is an expanding diagonal triangle. It is the same 3-3-3-3-3 pattern of overlapping waves that defines a wedge, but the lines do not converge, they diverge. In other words, it is a
newly observed pattern variation.According to EWI, "The major stock averages declined between 9% and 12% from their May highs, erasing (or worse) any gains for the year thus far. But in the face of this sell-off, sentiment seemed downright complacent -- how else to explain one of the headlines I included yesterday which actually claimed, "Tumbling Markets May
Be Reflection Of Strong Growth"?"
"Mind you, that appeared on page one of the nation's largest financial paper -- which barely a month ago
(May 11) had run a page one story under the headline, "Behind Surging Stock Market: Old-Fashioned Economic Boom." Up, down, what's the difference? It all means the same thing, don'tcha know…"Says CNBC Market Dispatches on 6/15/2006: "Dow up 198 as Bernanke soothes Bernanke touts economy's capacity to deal with higher energy prices. Dow up more than 198 points. Hewlett-Packard, Boeing, Caterpillar lead the Dow. Bear Stearns tops profit expectations."
...and on June 16, 2006:"With stocks fresh off an impressive two-day rally, another round of hawkish Fed speak sparked some concern that stocks may have gone up too far too fast, prompting investors to lock in some profits. Stocks soared this afternoon after Federal Reserve Chairman Ben Bernanke offered soothing remarks about the economy's ability to weather rising energy costs and interest rates."
(Classic Example of "The Potent Director's Presumption")Elliott Wave Analysis:
Figure 1 displays the DJIA from the low of October 2005 instead of bars with closing prices only. As can be seen, the first leg up from the low of October 2006 traced out what looks like a three-wave structure. Several times in the past I pointed out that this behavior is not the start of a new bull leg - it is rather part of a more complex pattern as the five-wave up move from the low of October 2005 is part - wave c - of an a-b-c structure which ended wave 3 on May 5, 2006. The recent a-b-c formation may not be the whole pattern the market needs to complete wave 4. An a-b-c x a-b-c double three may be unfolding with one more lower prices ahead and surprising the "bulls". Nevertheless, a powerful rally is expected thereafter most likely into the early September time zone.
Weekly Update
December 16, 2006, © ELLIOTT today
"The prefered count for the Dow indicates that a high of major importance has been achieved on May 10, 2006 but I won't let the "impossible" ruled out, so we are prepared for what could happen.
"The majority believes a downward wave into October of 2006, but what will they say if the market holds up and rallies till the end of the year?"
A famous example back in 1990 was the Nikkey, when it topped on the first day of that year."
Weekly update, July 22, 2006, © ELLIOTT todayElliott Wave Analysis:
The pattern in the Dow is best counted as either an (a)-(b)-(c) (x) (a)-(b)-(c) double zigzag with wave (c) of the second (a)-(b)-(c) an expanding diagonal triangle. This is the most bearish pattern the EWP has to offer. Reversals following the completion of such a formation are dramatic and will shock the majority. The Dow is approaching the limit of the terminal pattern, in fact, the "last gasp" rally produced a slight "overthrow" of the upper trendline. The fifth swing has moved right into Fibonacci wave length relationship since the fifth wave now has traveled 16.87%, the same length as waves 1 through 3. 10,000 - 11,670 = +1670 or 16.7%.
Because markets are patterned, the concept of near-perfect collective forecasting must be false. Otherwise, future events would have to be patterned according to the Wave Principle, and the collective would have to anticipate each nuance perfectly. This is an untenable position. (The Wave Principle of Human Social Behavior, 1999 by Robert R. Prechter)
4 Months after ELLIOTT today forecasted another powerful wave up
the media suddenly realized the fact:Börsenrekord:
Historischer Tag an der Wall StreetDer wichtigste US-Börsenindex knackte die Marke zum erstenmal in seiner Geschichte. Für die letzten tausend Punkte hat der Dow Jones mehr als sieben Jahre gebraucht. Doch der Allzeit-Rekord könnte
schon bald Geschichte sein.Die Autoren lieferen auch gleich die Begründung "für den neu entfachten Optimismus der Anleger"
mit: Der auf unter 59 US-Dollar gesunkene Ölpreis und ein Bericht des Handelsministeriums, "der auf nachlassenden Inflationsdruck hindeutet."Weiter heisst es: "An den Aktienbörsen wird derzeit ein Idealszenario aus niedriger Inflation und robuster Konjunktur- und Gewinnentwicklung gespielt." Gespielt? "Börsianer nennen dies ein Goldlöckchen-Szenario." Die Welt online, 19.10.2006
The socionomic hypothesis explains the data. Changes in the stock market immediately reflect the changes in endogenous social mood. As social mood becomes increasingly positive, productive activity increases; as social mood becomes increasingly negative, productive activity decreases. These results show up in lagging economic statistics as expansions and recessions. The standard presumption has no explanation for the relative timing of these two phenomena.
(The Wave Principle of Human Social Behavior, 1999 by Robert R. Prechter) Read more
Forecasting Price Extremes on the Basis of
Typical Wave RelationshipsSPX, May 13, 2006
(c) ELLIOTT today
On April 1, 2006, ELLtoday said, "One more push up is likely in the SPX, probably into the $1320 area +/- as outlined before." Internal wave structure can be counted as complete together with a classic parallel trend channel. Up site momentum is waning dramatically (Rate of Change) and a break of the small rising trend line points to more intensive decline most probably to about 1250, which marks the previous fourth wave. This, on the other hand, may be only a temporary halt. Based on typical wave length relationships the entire move from 1168 to 1326 (+158)
provides equality with the move from 1060 to 1217 (+157).
Forecasting Pattern on the Basis of Pattern
As L.F.Richardson pointed out, the length of a seacoast is dependent upon your method of measuring and your scale. A ruler placed on a globe will give one answer; the same ruler applied to every indentation as one traverses the coast itself will give a vastly different one. Similarly, when people ask me where the stock market is going or even what its trend has been, I have to ask, "What degree of trend are you talking about?"
There can be mulitply answers, as in, "The Minor trend is down within a sideways Intermediate trend within
a rising Primary trend."
One important test of scientific hypothesis is its ability to predict outcomes. Although the Wave Principle hypothesis is difficult to quantify on the basis of predictability because it forecasts only probabilistically, there
is nevertheless substantial evidence of its unique value. While reviewing the following example excerpts, it is important that you honestly consider the utter uncertainty that exists in real-time forecasting. Psychological experiments show that most people who review events in retrospect consider them to have been obviously implied at the time. I think that after you read these statements and consider them in the proper light, you will agree that the author's accuracy in describing the future is due to his knowing something useful.
ELLIOTT today's Forecast of November 20, 2006
The Fibonacci ratio recurs in certain price relationships among waves. This fact provides a basis for creating guidelines applicable to very specific price forecasting. On November 20, 2006, I presented a study entitled "Fibonacci in the S&P 500 Index" and I said, "at 1406 a remarkable web of Fibonacci wave lengths relationship would be achieved and due to the completion of the second (a)-(b)-(c) of a double zigzag correction since
the low of July 2002, from an Elliott point of view, the probability is high that an important top is at hand."On November 21,2006 I prepared a bar chart (10min.) labeled according to the rules and guidelines of the Wave Principle and put in a red-line pointing to the near-future course of the market. In reaching the Fibonacci target, the SPX traced out an impeccable pattern. The chart illustrates how the Wave Principle operates even on a smaller time frame. Notice that all waves within the boundary lines are constructred of three-waves, as required for a diagonal triangle. Diagonal triangles take a wedge shape within two converging lines, with each subwave, including the impulse waves, subdividing into a "three," as illustrated in The Wave Principle. A rising wedge is usually followed by a sharp decline retracing at least back to where the diagonal triangle began. (EWP, p.31).
S&P 500 Index
(SPX), 10min.
November 22,2006, (c) ELLtoday
Figure 1
The pattern in the S&P 500 is best counted as an ending diagonal triangle (EWP, p.31) and needs only waves iii, iv and v to completion. The upper boundary line of the diagonal triangle points to prices in the 1406s area supporting my analysis of November 20, 2006.
(Weekly Update)
The next day, Wednesday, November 22, 2006 the S&P 500 rallied to an intra-day high of 1407, reversed
on a dime" and slumped to prices levels the index was the day before. (See Figure 2 below.)
S&P 500 Index
(SPX), 10min.
November 23,2006, (c) ELLtoday
Figure 2
The S&P finally made it. However, confirmation is needed, i.e., a clear five wave down. Note how the ML "catched" the top of the day right to the minute.
The fifth wave of the diagonal triangle exceded the upper boundary line but stalled at the Median Line (red-dotted line). As can be seen on the chart, after plunging through the lower boundary line, the S&P 500 Index bounced off the lows but never reached the lower ML channel line. The description of the most bearish pattern the Wave Principle has to offer, clearly tells us that "a rising wedge is bearish and is usually followed by a sharp decline retracing at least back to the level where the diagonal triangle began." Now lets figure it out.
OUTCOME
S&P 500 Index
(SPX), 10min.
November 27,2006, (c) ELLtoday
Fibonacci calculations outlined before the fact pointed to 1406 (+/-1) for a reasonable target of the upmove since June/July 2006. One day before the SPX finally reached the recent high, ELLtoday had this to say:
"The pattern in the S&P 500 is best counted as an ending diagonal triangle (EWP, p.31) and needs only waves iii, iv and v to completion. The upper boundary line of the dt points to prices in the 1406s area supporting my analysis of November 20, 2006."
Short term, a bounce is possible, most likely to the area of the falling 1x1 Fibo Fanline at 1385. That is also the point where the previous fourth wave comes in.
The market gapped down the next tradingday but recovered almost all of the losses of the day.
The following Monday, November 27, 2006 the S&P 500 tanked and registered a loss of -19 points
(one point in the S&P 500 = $250). What a deal !
Summary
The point that matters with respect to the above quotations are as follows:
No other approach to market forecasting has allowed anyone even to adopt
a perspective such as these forecasts reflect. Only a valid theory of market
behavior could do such things.
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The Wave Principle of Human Social Behavior
And The New Science of Socionomics
by Robert R.Prechter, 1999
The Science of History and Social Prediction Best-selling author Robert Prechter’s revolutionary two-book set, Socionomics: The Science of History and Social Prediction spells out a historical correlation between patterned shifts in social mood and their most sensitive register, the stock market.It also presents engaging essays -- representing over 20 years worth of research correlating social mood trends to music, sports, corporate culture, peace, war and macroeconomic trends.More about Socionomics
