Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia and Best AI Tech Stocks ETF - 26th Oct 21
Food Prices & Farm Inputs Getting Hard to Stomach - 26th Oct 21
Has Zillow’s Collapse Signaled A Warning For The Capital Markets? - 26th Oct 21
Dave Antrobus Welcomes Caribou to Award-Winning Group Inc & Co - 26th Oct 21
Stock Market New Intermediate uptrend - 26th Oct 21
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

THE EWI ARGUMENT: A Critical Analysis of Robert Prechter and Elliott Wave International (March 2009-Present)

Stock-Markets / Elliott Wave Theory Jan 10, 2011 - 02:33 AM GMT

By: Steven_Vincent

Stock-Markets

Best Financial Markets Analysis ArticleSUMMARY

In this article I analyze the recent work of Robert Prechter’s “Elliott Wave International”, evaluating it in terms of the quality of epistemology, methodology, data integrity, interpretation, conclusions, recommendations and results. The analysis is limited in scope to the equities markets since March of 2009. Because of time constraints, counterpoints to much of the EWI argument can only be partially developed here, but I hope to give them a much fuller treatment in my forthcoming book, tentatively entitled, "Apocalypse Not Yet: Wave V and the End of Financialism".


The source material for this study is the Elliott Wave Theorist (EWT) and Elliott Wave Financial Forecast (EWFF) as well as numerous writings and audio and video interviews with Robert Prechter and Steve Hochberg. For the sake of simplicity this body of work will be referred to as "EWI". The author had access to only the following issues for inclusion in this review: EWT issues 09/05, 09/07, 09/11-12, 04/10-12/10 and EWFF issues 09/10-01/11. I have tried to represent the record faithfully from all available sources.

This report will be delivered in approximately 5 parts with one part released each week. It's a work in progress so this will be subject to revision along the way.

Outline of presentation:

1.Elliott Wave Analysis
2.Epistemological Methodology
3.Data: Integrity and Interpretation
4.Market Timing
5.Alternatives and Conclusions

General Summary:

EWI's Elliott Wave counts are based on an assumption that markets must have peaked at a Grand Supercyle top in 2000 or 2007. There is no consideration of an alternate bullish or bearish scenario on any time frame. It's epistemology and methodology do not qualify as analysis since all material begins with a predetermined and inviolable conclusion: deflationary depression. Rather than analysis, EWI's narrative falls under the category of an advocational argument on behalf of a conclusion. In spite of claims that EWI is a technical market analysis service, its reports are comprised primarily of conclusions about the fundamental environment. Assumptions about economic and social fundamentals drive the search for data supportive of the Grand Supercycle and deflationary depression conclusions. Data cited in support of the argument for imminent deflationary depression are in each case highly debatable in terms of relevance or validity and are frequently offset and contradicted entirely by stronger data supportive of an entirely contrary conclusion. All data points are presented to support the base deflationary depression and Grand Supercycle Top assumptions only. The result of a non-analytical, biased and advocational methodology has been consistently erroneous market timing during the period under review. EWI may ultimately be proven right in its argument for the deflationary depression model. There is a viable technical and fundamental argument in support of that view. However, sound analysis must be driven by an objective search for knowledge, understanding and truth. Within the context of a very long term bearish view, the Grand Supercycle Top may yet come but in a time frame far removed from the present and at a much higher price level.

I. Elliott Wave Analysis

EWI argues that Elliott Wave patterns in US stock indices indicate a long term top is in place:

Elliott Wave Analysis: Last month’s "Bottom Line" said, “The rally’s end should come after one more recovery high.” That push is mostly played out as we go to press; when complete, it should lead to a historic downside reversal. Minor wave 5 of Intermediate wave (C) started on November 9 at 10,929.30 in the DJIA. Fifth waves are ending waves, which means that wave 5 will complete the rally from 9614.30, the July low. And the end of the advance from July will mark the top of wave 2, the entire Primary-degree bear market rally that began in March 2009. A top of this magnitude would be entirely consistent with the multi-year extremes in sentiment and the waning upside momentum. (01/11 EWFF)

Here's a chart which replicates the most recent long term count from EWI:

Here the March 2009 low is counted as a Major Wave 1 down and the current high is counted as a partial retracement of that move for a Major Wave 2 high.

This chart replicates EWI's count of the move from the April 2010 high:

Here EWI is calling the April high as the top of a five wave "A" wave, the July bottom as the trough of a three wave "B" wave and the current high as the peak of a 5 wave "C" wave to complete Major Wave 2. Both of these charts represent viable bearish interpretations. I can't say that they should be dismissed and in fact they should be given serious consideration and in the due course of time they may indeed be proven to reflect the correct market view.

Let's look at some equally viable alternative wave counts that any good Elliott Wave analyst should be considering at this juncture. There isn't time or space here to present the full analysis behind each of these scenarios. In the course of this piece I will introduce some of the background components that support these proposed views. But in this immediate context I merely want to illustrate that there are other, viable Elliott Wave counts which should be considered.

My current preferred wave count has SPX in a Wave iii of 3 of (3) position. I suspect a subminor ii correction to the zone of the April and November highs, the 61.8% Fibonnacci retracement level of the decline from the 2007 high and the uptrend from the September bottom. If that support does hold then the market is set up for a Wave 3 move four degrees deep. Note the "1-2" punches on at least three (and potentially four) levels of order setting up a Wave 3 combination move. This is just about the most bullish Elliott Wave setup possible. Also note that the 61.8% Fibonacci level of acted as resistance in April and November and was taken out decisively in December. Once that level has been surpassed on a weekly, monthly and yearly basis the chances of a full retracement are significantly enhanced.

I'll briefly note in support of the above scenario that SPX has just seen a bull cross of the weekly 50 EMA over the 200 placing the long term moving averages in full bull market alignment. It's not uncommon for a market to accelerate in a Wave 3 advance off such a flash point.

An alternative to the above scenario places SPX at the cusp of a Wave 2 correction within a 3 of (3) rally. Wave 2 could easily retrace 50% of the move off the July low and retest the June and August peaks. Recent action seems to make this view less probable.

An intermediate term bearish yet long term bullish scenario has SPX topping now into a wave B high with a final C leg down to come to complete a large ABC flat correction from the April high. The B wave is a bit unusual in structure and for that reason among others I don't favor this scenario, but it is worth contemplating.

In my view, Elliott Wave analysis should at all times contain both bullish and bearish wave counts on multiple time frames and then alternative bull and bear counts as well. The aim is to discover the present (and potentially the future) reality of the market through analysis of its wave structures. In this way the wave principle can be a powerful tool to keep the trader on the right side of the market. EWI apparently uses its wave counts to describe its conclusions about the market, rather than drawing conclusions about the market from an actual analysis of its wave structures. Although its current count calling for an imminent Wave 3 Grand Supercycle decline is definitely feasible there are bullish counts which need to be considered as well.

In the next segment in this series, I'll look at EWI's material in light of its epistemological methodology. What is EWI's approach to the acquisition and interpretation of knowledge?

Generally these reports as well as twice weekly video reports are prepared for BullBear Trading Service members and then released to the general public on a time delayed basis.  To get immediate access just become a member.  It's easy and currently free of charge.

Disclosure: No current positions.

By Steve Vincent

http://www.thebullbear.com

Steven Vincent has been studying and trading the markets since 1998 and is a member of the Market Technicians Association. He is proprietor of BullBear Trading which provides market analysis, timing and guidance to subscribers. He focuses intermediate to long term swing trading. When he is not charting and analyzing the markets he teaches yoga and meditation in Los Angeles.

© 2010 Copyright Steven Vincent - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

gideon
10 Jan 11, 18:17
not an impulse

The bullish count is wrong because the "first wave" as you have it labelled is definitely not impulsive, Its wave 2 retraced much less than 38%. Its "wave three" consisted of overlapping, messy waves, on diminishing volume, and at a lower slope than the wave 1 which preceded it. It is not in any way a proper impulse, and therefore this cannot be a new secular bull market. However, many corrective counts are possible, none of which you have discussed. I also do not think the EWI P2 scenario is accurate, but a complex corrective structure.


Mike Walsh
04 Apr 11, 20:57
Channeling

A major tenet of EWT is that channeling does not repeatedly hang onto channel lines. When they do, it might take some time. But it resolves as a corrective wave.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in