EWT, the Great Phenomenological Enterprise
Elliott Wave read as description rather than prophecy, and what it is actually good for.
Elliott Wave Theory (EWT) is a great way to describe the market in retrospect; it is not known for its high win rate or ability to forecast well enough to build a good strategy around it. Well, you can build one, but the risk of letting the market tell you are wrong based on EWT contains more risk that any trader is willing to assume.
It is good to know where you have been and EWT gives you a nice way of understanding that.
EWT also gives you a framework around which you can visualize the ideal movement of a forecast.
What I do know from an EWT point of view is that the stock market’s break to new highs by all the major indices, the break above the 2007 peaks, became a bullish event when it exceeded 1.382 of the length of the 2007 to 2009 bear.
Therefore, a cyclical peak cannot be in place from the lows posted in March 2009 until a five wave movement is completed. As they say, when the 5th of the 5th of the 5th wave is completed.
If you take a look at the monthly bar of the Dow Jones, you should see from the March 09 low the kickoff wave 1 and two followed by wave I and ii which ended in October 2011. What just ended in 2015 was wave iii, which puts the market either in wave iv or the correction ended at the end of January 2016 and the next cycle up of the big bull market has kicked off.
If I were going to base this forecast on anything outside EWT, it would be contrary opinion. The current list of negative media and marketing focus is way too bearish supports a bullish outlook.
A vast majority of the market Public Relations machine is still looking for a repeat of 08-09 or worse. Every, I do mean every, market forecaster or want a be guru is catering to a base human emotion, it is called Revenge.
From Shakespeare to Quentin Tarantino, playwrights have been taking advantage of human emotion to sell audiences their performances for ages! The list of modern-day movies is endless. From “Kill Bill” to “Gladiator” to “Inglorious Basters.”
But it’s not too late for investor and trader to remind them “it is only a movie!”
Where this breaks down
- [Draft , Jack to add failure modes and conditions under which this framework breaks down]
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