Harmonic Analysis of Time & Price
Dow Jones Industrial Average (DJIA)
© ELLIOTT today, April 15, 2009
Elliott Wave Theory
Fibonacci
Median Line
S&P 500 Index (Weekly Chart)
© ELLIOTT today, May 30, 2010
open window: S&P,05/30/2010
Elliott Wave Analysis & Fibonacci
We already observed that the DJIA from the low of March 6,2009 to the recent high retraced
a Fibonacci 0.618 of its preceding decline. The same happened in the S&P, as the market
retraced 554 points of the preceding decline (-910pts.). The ratio is 60.879%, very close to 61.8.
(See DJIA, May 15, 2010 below). But what is more amazing with respect to wave form, it is
possible to count the wave (c) of [2] as an expanding diagonal triangle, (EWP p.32), indicating
that Primary wave [2] indeed reached completion at the April 2010 high at 1220. The following
sharp declines in waves 3 and 5 followed the description of the aftermath of such an ending
pattern. As EWP states, a Diagonal Triangle is a bearish wedge and usually followed by a sharp decline retracing at least back to the level where the diagonal triangle began. The actual pattern
is a ending pattern, an expanding DT. Diagonal triangles are the only five-pattern in the direction
of the main trend within which wave four moves into the price territory of wave one.We can clearly see, that wave 1 is smaller than wave 3, and wave 3 is smaller than wave 5. The pattern started at 1020 and it ended at 1220, a range of 200 points. Now let's make some research, how the components of that structure behaved:
The length of wave 1 is 40.5% of the Expanding Wedge.
The length of wave 3 is 60.5% of the Expanding Wedge.
The length of wave 5 is 88.0% of the Expanding Wedge.In other words, wave 3 is 1.50 of wave 1 and wave 5 is 1.45 of wave 3,
nearly equal.
Wave 2 retraced 88.8% of wave 1
Wave 4 retraced 87.6% of wave 3Within the Expanding Diagonal, upwaves were in progress 177 days,
which correspondents with the last upwave, which gained 176 points.
In time, wave 1 lasted 19 days, wave 3 was underway 77 days and
wave 5 lasted 81 days. The time length of the first and the last wave
taken together, the result is 100, so in time, wave 3 was 0.786 in time
of 1 and 5 combined. In other words, waves 1 and 5 took approximately
1.273 (root phi) of wave 3 in time.Volume tends to diminish as a diagonal triangle progresses, although
the pattern occasionally ends with a spike of relative high volume on the
final day or hour.The Expanding DT fits the description, as Robert R. Prechter jr. writes on
page 47 Elliott Wave Principle, 1990:
"Notice that while impulse waves have a total count of 5, 9, 13 or 17 waves,
and so on, corrective waves have a count of 3, 7, or 11 waves."Alternately, the correction in Primary wave [2] can be counted as a triple zigzag,
but the very outcome will be the same.
Market prices & ROC Indicator:
Chart: quote.com
Fifth wave extensions, truncated fifths and diagonal triangles all imply
the same thing: dramatic reversal ahead. That is exactly what happened,
recently.While the trend of the 10-day ROC (Rate of Change) continued down while
the market trend was rising, the 14-day RSI (Relative Strength Indicator) kept
rising, especially in the 5th wave. The 10-day Rate of Change indicator clearly
displays a picture of losening momentum, i.e., relative strength through all of
the uptrending prices. The underlying weakness, despite rising prices was
clearly visible.The very center of the wave structure, the most volatile point in an impulse,
should occur when the market reaches wave iii of (iii) of 3 of (3) of [3].
In a bull market, this point in the wave structure marks the time at which
investors in the aggregate stop worrying about downside risk and
begin projecting ever-higher levels (Dow 100,000).In a declining impulse wave, such as the market is in now, the same point marks
the time at which investors in the aggregate stop focusing on the market's upside
potential and start worrying about how far down it will go. This is a very rare event
at Cycle degree, and its upcoming occurrence will be stunning enough to set records
for financial panics.
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Trading with the Andrew's Pitchfork
Traders should use the same methods for trading trend lines with the andrew's pitchfork. A big advantage
of the andrew's pitchfork over traditional trend lines, is that it allows the construction of a trading channel,
prior to multiple pivot points at support and resistance lines. When the market is trending strongly, the price
will stay primarily near the respective parallel line and gravitate to the median line on minor corrections.
Traders can use the pullback to the median line as an opportunity to jump on board of the current trend.
When prices fall through the median line, the assumption is that the price will move towards the opposite
parallel line. If the second parallel line is broken , this is an early sign that the primary trend is in jeopardy.
Conversely, if the price breaks out of the parallel line that is at the extreme of the range in the direction of
the trend, then the security is said to be overbought or oversold. Traders should wait for the price to come
back inside of the pitchfork, prior to attempting to take on new positions. Dr. Andrews believed that the price
action will move to themedian line 80% of the time while the primary trend is intact. (to continue>>>)
Examples
on mouse over see figure 2:
Chart: quote.com
Dr. Alan Andrews developed a technical market analysis tool called the Median Line and taught the
method in the 1960's and 1970's. He determined there was a high probability price returned to the
Median Line - a line drawn on a stock or futures price chart - after making three alternative price pivots.
Dr. Andrews stated in his Action-Reaction course:
“…drawing a single line will enable you to know where the price of any stock or any future is now headed
and the probable time it will reach there.”
AND, the method would,
“…enable the user to be one of the few who can tell where the prices are headed, and the place they will
reach about 80% of the time, and when approximately that place will be reached.”
DJIA & Mid-Lines
(10minute chart)© ELLIOTT today, May 22, 2010
DJIA & Mid-Lines
(daily chart)
© ELLIOTT today, May 18, 2010
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Examples of Fibonacci 61.8% Retracements
EUR/CHF
© ELLIOTT today, May 17, 2010
chart: futuresource.com
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Harmonic Analysis of Time & Price
Dow Jones Industrial Average (DJIA)
© ELLIOTT today, April 15, 2009
on mouse over Chart#2
chart: futuresource.com
Using closing prices the recent high of 4/14/2010 established a wonderful expample not only of a classic Fibonacci retracement. In fact, the 0.618 Fibonacci retracement is classified as the most famous number used by Traders and Elliott Wave analysts.
14,164.50 close on 10/09/2007
6,547.05 close on 3/9/2009
11,123.10 close on 4/14/2010
The decline (some call it a crash) from the high of 10/09/2007 to the close of 3/9/2009 was -7617 points and the recovery so far was 4576 points. Numbers only won't tell the story, but a little math gives a ratio between these numbers of 0.60, which is close to 0.618, the number known as the "Golden Section".
On March 5,2010, I published on my SP500 TradingDESK:
For over a year ago, I published the most likely targets of the countertrend move. The market nears or has just retraced more than 51% of the preceding decline. A Fibonnaci 61.8% retracement is awaited at 1,228 +/-.
On April 15, I continued my warning of at least a turning point directly ahead:
Day's high: 1,213.95. Just as forecasted yesterday, the market pushed higher completing the wave structure from April 14,2010 (wave b on the chart).Five small waves down can be seen from the high and a three-wave up signals caution ahead. A recent adademic paper (Batchelor and Ramyar, 2005) investigated the frequency of price and time ratios attending movements in the DJIA ("retracements") as well as same-direction movements separated by an intervening movement ("projections").
The study is valuable in demonstrating that price-filtered movements in the stock market do not generally relate by
a Fibonacci multiple either to price retracements or to projections. It supports an observation dating from the first edition
of Elliott Wave Principle (Frost & Prechter) in 1978:
In discerning the working of the Golden Ratio in the five up and three down movement of the stock market cycle, one
might anticipate that on completion of any bull phase, the ensuing correction would be three-fifths of the previous rise
in both time and amplitude. Such simplicity is seldom seen. (1978/2005,p.133)
The 1998 edition expanded upon this point:
Retracements come in all sizes. Occasionally, a correction retraces a Fibonacci percentage of the preceding wave.
(But these) ratios...are merely tendencies. Unfortunable,that is where most analysts place an inordinate focus because
measuring retracements is easy. (1998/2005, p.135) Source: Elliottwave International)
I did a little work on wave lenght proportion and time length proportion
regarding the great topping process in the DJIA from 1998 to 2010.
The pattern is not a Gartley pattern, as some would argue. The website
Harmonic Trader provides a list of similar pattern and the one that comes
near to the recent chart, is the 5-0 pattern.Here I listed price relationships, time relationships and combined price/time
relationships. It's a kind of fine art.
Price:
cd = 0.618 bc
ab = 0.618 0c
ox = 0.618 0b
xb = 0.618 xb
xa = cd
Time/Price:
0x = 1.618 xb
0a = 4.236 ab
0c = 0.786 xa
0c = 0.500 ab
ab = 2.000 0c
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Fibonacci Real Action
DJIA, May 15, 2010
chart: futuresource.com
DAX-XET, April 24,2010
chart: futuresource.com
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SPX, July 16,2008
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J.P.Morgan, Dec 9,2007
S&P 500, April 14, 2006
S&P 500, January 27,2007
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DJIA, January 5, 2008
Chart: futuresource.com
Chart#2
Change - Echo Bubble (2)
"Von woher soll denn eine Krise kommen?"
© ELLIOTT today, 15. März 2010
Der Niedergang dauerte 17 Monate und rein spekulativ, eine Fibonacci 0.618 Zeitproportion
zu diesem Niedergang würde bedeuten, daß die "Erholung" der folgenden Korrekturwelle
ca. 10 Monate andauern könnte. Das bedeutet, daß der DJIA im Januar 2010 diese Gegen-
bewegung abschließen könnte. (Change - Echo Bubble (1), Januar 2010)
For more on Fibonacci please visit
March Socionomist:
Golden Ratio: A Guiding Constant of the Universesocionomics.net/pdf/Fibo_Statistics.pdf
More Fibonacci:
http://harmonictrader.com/fibonacci.htmwww.environmentalgraffiti.com/
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