Learn the Why, What and How of Elliott Wave Analysis

By: EWI

You Asked, We Answered in our Latest "Video Mailbag"
March 2017 Episode

In our latest "Video Mailbag," Robert Kelley and Steve Craig, two of our global analysts, sit down to answer questions submitted by viewers like you.

[Editor's Note: The text version of the video is below.]

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Questions answered in this episode:

• "What is the World Stock Index?" @ 0:13
• "Usually people are familiar with Elliott Waves on an individual country index. I'm wondering if Elliott Wave patterns are as clear and compelling on a basket such as the World Stock Index?" @ 0:40
• "After a fourth wave triangle, how do I estimate the length of a potential fifth wave extension?" @ 1:31
• "Can wave 3 be more than 2.618 times the length of wave 1?" @ 2:08
• "Is there a limit to the number of subwaves?" @ 3:11

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Alexandra Lienhard: Welcome to this month's episode of ElliottWaveTV Viewer Mailbag. Robert Kelley, who edits Elliott Wave International's US Intraday Stocks Pro Service with Robert Kelley sat down with us this month to answer a couple of questions. The first one comes from Benjamin from St. Louis, Missouri, who asks, what is the world's stock index?

Robert Kelley: Well, the Dow Jones Global World Stock Index is made up of 47 different country stock indexes. And it allows-- it represents 95% of what's available to invest in around the world. So it's a really broad measure of world equity prices.

AL: Stan from Geneva, Switzerland has a follow-up question. Usually people are familiar with Elliott Waves on an individual country index. I'm wondering if Elliott Wave Patterns are as clear and compelling on a basket such as the world's stock index?

RK: Actually, yes, it's surprisingly very good representation of mass psychology. It's probably the ultimate mass psychology, considering what it's covering. And these patterns definitely have very clear Elliott structures. It counts pretty well, and it kind of smooths out-- because it's so a large basket, it kind of smooths out some of the noise that might occur in a day-to-day situation in a particular market.

AL: Steve Craig, Elliott Wave International's Chief Energy Analyst and editor of EWI's Energy Pro Services also took some time to answer a couple of mailbag questions. Next we have Lynn from San Francisco, California, who'd like to know, after a fourth wave triangle, how do I estimate the length of a potential fifth wave extension?

Steve Craig: Fifth wave extensions are often in Fibonacci proportion to the net distance traveled of waves one through three. For example, multiples of 1.618, 2.0, 2.618. Now, in commodities, bull markets at the larger degree of trend-- for example, primary or cycle-- fourth wave triangles can often precede extended blowoffs.

AL: Our next question is from Sameer from Mumbai who asks, can wave 3 be more than 2.618 times the length of wave 1?

SC: Within impulse waves and expanding diagonals, it is possible for wave 3 to be more than 2.618 times the length of wave 1. There's no set limit on the length of wave 3 relative to wave 1 in those situations, as long as none of the Elliott wave rules are broken. In impulse waves, when wave 3 is extended, you should expect wave 5 to be related to wave 1 by equality, or the Fibonacci ratio 0.618. In contracting diagonals, wave 3 is always shorter than wave 1. And in expanding diagonals, wave 3 is always longer than wave 1. In all cases, wave 3 can never be the shortest wave.

AL: And today's last question comes from John from Pensacola, Florida, who asks, is there a limit to the number of subwaves?

SC: There is no set limit on the number of subwaves. From a measurement standpoint, your only limitation will be the extent to which you are able to identify waves in smaller timeframes given the data that's available.

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