The Theory and the Man

I've taken a lot of flak for many years about Elliott Wave. Nonetheless, I think it is a valid tool. I tend to use E-Wave when the patterns are clear. However, E-Wave isn't the be all or end all of anything. No tool is.

Here's a word of caution: If you're determined to find patterns of 3 and 5 you can easily find them, even when they are not really there. Much of this is subjective. However, if one just steps back without a goal of forcing patterns, the clear valid counts will scream right at you.

The charts above are screaming. Those are the charts you want to pay attention to.

Much of the malignment of E-Eave is on account of its founder, Robert Prechter. This is where it is important to separate the tool from the man. As many know, Prechter has been calling for a crash for decades. He has also called for gold to retest the lows near 250. Time and time again Prechter has given conditions in which he would proclaim a new bull market in gold. Time and time again he has failed to do so.

Prechter needs to come out and say "I was wrong about gold" and "I was hopelessly early on my crash call." Instead, his personal wave counts have frequently been convoluted. Many E-Wave practitioners don't pay attention to much of what he's saying.

However, that's a slam against the man, not a slam against the methodology.

Socioeconomic Theory

It is important to note that Prechter has led the way in aspects of socioeconomic theory such as attitudes change first and price follows. Prechter is correct and here is a prime example:

Think back to the Summer of 2005. People were camping out overnight hoping for the chance to buy a condo in Florida. Overnight sentiment changed. It was many months before there were significant price declines in housing. Yet, you still hear such ideas today, like "consumer sentiment is down because house prices are down." Such statements are clearly backwards.

Home prices will not go up until sentiment changes, not the other way around.

Right now, people are still walking away from homes. That is one reason why liquidity measures by the Fed and Treasury are doomed to fail. More philosophically, You Cannot Patch a Busted Dam With Water.

The Fed and the Treasury could probably learn a lot from Robert Prechter. There is almost no chance they will listen.