THE GROUND WORK: What Does the Theory Furnish the Technician? The Elliott Wave
Theory furnishes a framework within which to organize a market’s price action into
specic formations over any time period. All market action under the Wave Theory breaks
down into two major categories:
1. Action with the larger trend.
2. Action against the larger trend.
1. The majority of price movement in the direction of the trend will be constructed of ve
smaller phases or segments (see Figure la). Broadly speaking, this type of price action is
dened as Impulsive (in nature). If a pattern on the largest scale possible is Impulsive, it
cannot be completely retraced until at least one more comparable Impulse wave (in the
same direction as the rst) is completed.
2. Price action that moves in the opposite direction of the next larger trend is usually constructed
of three smaller segments (see Figure lb). This type of action is classied as Corrective
(in nature). When price action is correctively constructed, future price action will usually
retrace the Correction completely.
History demonstrates that man’s progress is dynamic and logarithmic, not static or
linear. Look at the historical,
Logarithmic chart on the U.S. stock market dating back to 1789 (see Figure 2, courtesy
Foundation for the Study of Cycles). Sometimes advances occur in spurts, followed by
consolidation phases that last for long periods of time. Then again, occasionally the reverse
happens. This reveals the market’s dynamic behavior. The relatively consistent advance
on a log scale for the last 200-plus years demonstrates the logarithmic nature of economic
PRICE ACTION LIMITATIONS
Elliott Wave price patterns force the analyst into specic conclusions. The conclusions are
not based on emotion or opinion, but are forced upon the analyst through objective and detailed
study. Predictions are derived from the highest probability outcome founded on historical
precedent. When applied correctly, the Theory can help the analyst produce short- and long-term
forecasts which are, occasionally, pinpoint accurate.
A quick overview of the long-term price activity (Figure 2) immediately brings to bear
one important fact. The start of the advance, which has been in progress for at least 200
years, cannot be coincident with the beginning of the cur-rently available long-term data
series. Remember, the Wave Theory is a natural law of progression. Its reections of societal
development are present whether someone is around to register them or not. It is only logical
to assume that the recording of data would not necessarily coincide with the advent of a
DETERMINING AN HISTORICAL LOW FOR
THE LONG-TERM DATA SERIES
The data we are working with starts in 1789. Obviously, this country was inhabited and
growing before that time, so there was economic activity taking place, albeit unrecorded. A quick
glance at the start of the data series reveals that the price action was initially drifting sideways
for several decades. This is not the way a trend (Impulsive action) begins. The commencement
of a trend (under the Wave Theory) must begin with Figure 1
Impulsive action—action that is only minimally retraced by later activity. You can see
that the market drifted back and forth many times before nally advancing in the early 1800s.
This implies the 20-plus-year consolidation must have been a Corrective phase following
an Impulse (trending) pattern.
Methodically administering a host of subtle Elliott Wave techniques, I deduced that the best
point of inception for the last 200-plus year advance was 030 (iR., 30 cents). The market was
most likely at that level around the year 1765 + 10 years. The
The inherent power of a IlS-year “Running Double-Three Correction” (SuperCycle wave
(II), 1949) has astounding implications for the future. This allows us to arrive at a resolution on
the most probable market and economic activity for the next 70 years:
1. The economic contraction which started in October 1987 will be of ONE LOWER magnitude in
severity than the Depression of 1932. Why? The Cycle 2-wave currently in progress is of one
lower degree than the correction in 1932. As the market moves sideward for the next 13 years,
economic conditions should gradually improve as they did from 1932 to 1949.
2. SuperCycle wave (III) is going to be the Extended wave of the Impulse pattern (see Figure
6). In other words, SuperCycle wave (III) will be much longer than SuperCycle wave (I). This
means the U.S. market, right after the turn of this century, should begin to advance again.
This advance should last for decades, creating the biggest bull market of all time (see Figure
6). The minimum expectation for an Extended wave is 161.8% of the previous Impulse wave
of the same degree. Measuring the length of SuperCycle wave (I), calculating the above ratio,
and adding the product to the end of Super
Cycle wave (II) (1949) produces the incredible, minimum target of (you’d better sit down)
over 100,000 basis the Dow. By applying time techniques to the Wave structure, that price level
should not be achieved any earlier than the year 2020, and no later than 2060!