pattern, but the net result will be that we are unlikely to witness a meaningful and sustainable break abovethe peaks in the Dow Jones Industrial Average or S&P 500 for potentially a very very long time.
Now I should make it very clear, I don’t know what is going to happen in the future, no one does, neither
do the analysts at Elliott Wave International. But where Elliott Wave analysis is useful is in the ability of atechnician to map where a market might be within the context of its degrees of trend to help increase thechances of making the right investment decisions. So while it has been mentioned that this is a possibility,
I’m also not p
rofessing that the above waves are a fait accompli by any stretch of the imagination.However, if you are a long term reader of Chartered, you will know that I still view markets to be in a verylarge degree secular bear market, which has not yet completed.The fundamental reasons as to why the above labelling is possibly correct are many, but in a nut shell,
Wave 3’s should be the strongest rallies within any Elliott Wave pattern, they are the most likely to extend
and are most often the longest rallies within the Elliott Wave pattern. All these characteristics are present
in the above chart. Furthermore, Wave 3’s are usually backed by significant new strength in economic,
financial and social optimism. Consider the fact that Wave 3 (as labelled above) was accompanied by theindustrial revolution and to a lesser extent, the more recent technological revolution. When consideringthese facts, labelling the advance from the 1780s to 2000 as a Wave 3 of Grand Supercycle Degree seemslike a reasonable proposition.Given that the above labelling suggests that Wave 3 ended in 2000 (or perhaps 2007 as shown below), thiswould mean that we are now due for or have most likely commenced Wave 4 (a corrective pattern) of Grand Supercycle Degree.Now consider also how the fundamentals of the current macroeconomic environment have significantly
deteriorated to the point where you can’t look at a western economy without wondering how the current
level of private and public debt and deficits are going to be mended without some pain, and all of a suddena Wave 4 decline of a very large degree becomes a possibility. It is also useful to consider that largedeclines similar to that purported above have happened before, from both a time and price perspective,but thankfully they are rare.So before we look at the current markets, I provide below the basic Elliott Wave Principals so that we canapply our analysis to the current market patterns and you can follow along.
Basic Elliott Wave Theory:
Markets are patternedThose markets subdivide into fractals (self-similar patterns appearing at every degree of trend) andare reflective of changes in social mood.Markets are the best indicator of an impending change in social mood through the analysis of thewave subdivisions.Social mood can be measured in waves, 3 waves up with 2 countertrend waves between.Social mood and changes in social mood dictate economic changes and not the other way around.Extremes in optimism indicate a change in social mood to pessimism is likely and vice versa.
3 Basic Rules
Wave 2 never retraces more than 100% of Wave 1.Wave 3 is never the shortest wave.Wave 4 never overlaps the price territory of Wave 1.
3 Basic Guidelines
Corrective waves following a 5 wave impulse move tend to terminate within the price territory of the previous 4
wave.Alternation usually occurs between Wave 2 and Wave 4 i.e. if Wave 2 is a sharp and steepcorrection then Wave 4 is usually a sideways correction.