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Elliott Wave Principle: Mad Pseudoscience?


Breaking down the often-maligned concept.


Not many believe in the Elliott Wave Principle. The main reason is that it stands in polar contrast to the conventional teachings of academic finance and the dominance of the efficient market and "random walk" hypotheses. Even among those who meander slightly past equilibrium to find their way to basic technical analysis, there are very few who venture 180 degrees from accepted wisdom to subscribe to the Elliott Wave Principle and its hypothesis that markets are deterministic.

When you travel this far into the polar regions away from conventional academic wisdom, your work is labeled pseudoscience, quackery, or worse.

Pseudoscience is defined as a body of knowledge, methodology, belief, or practice that is claimed to be scientific or made to appear scientific, but does not adhere to the scientific method. I suppose being labeled pseudoscience is anathema to a scientist, but the American people don't seem to pay much mind. For example, despite scientific evidence to the contrary, 48% of the U.S. population believes in ghosts, according to a CBS News poll.

Spiritual beliefs cannot be proven by scientific method. Nevertheless, 85% of Americans believe in heaven, 82% believe in miracles, and 92% believe in God, according to a Fox News poll. The 92% figure suggests that while we live by the scientific method to ensure progress, we are not willing to die by it.

Is the U.S. a nation of fools, or do we intuitively sense that there is something behind the curtain, even if we don't know what it is or can't prove it with the scientific method (yet)? Perhaps unexplained phenomenon is just that: Unexplained.

As someone who believes in the Elliott Wave Principle, I have no problem rubbing shoulders with UFOlogists and ghost hunters. I have not seen either phenomenon, but I know credible people who claim they have. I don't believe in horoscopes, but I have read some mind-boggling Kabbalistic interpretations of astrology.

When economic circumstances go south, I don't get bitter. I attempt to consistently apply spirituality across all aspects of my life and I realize that economic cycles are a natural outgrowth of capitalism.

How we react to these economic cycles of capitalism raise a few interesting questions, however.

  • Is it unnatural to use fiscal policy to manipulate observed economic cycles or is that human nature? Does the observation/manipulation cause a quantum leap to a state (bubble) which is followed by a collapse and then the system evolves again, but differently?

  • Does this sound like the Kitchin cycle that I have previously described and, more generally, all cycle theory?

  • Is it a coincidence that I am using terminology of quantum mechanics to describe this process?

  • If sufficient numbers start to observe the natural cycle of human nature (Elliott Wave Principle) will we cause a collapse of that system?

  • Do politicians view us as pockets of collective consciousness or chaotic random voters?

  • Can technical analysis of financial markets in general, and the Elliott Wave Principle, link the social sciences to modern physics and the Theory of Everything?

  • If you don't listen to much music, can themed articles like "Answers I Really Want to Know…" by Todd Harrison get stuck in your head?

Let's look at the charts. The first chart is a 60 minute chart of the DOW Industrials, the second chart is a daily chart of the DOW, and the third is a five-minute chart of the boxed area on the 60 min chart. I show the enhancement of the boxed area on a five-minute chart to demonstrate to you the fractal nature of the Elliott Wave Principle I have described in previous articles. The five minute chart is one of the smallest nesting dolls. It also shows a clean interpretation of five waves down that I was unable to achieve with the S&P without breaking a rule. Something to consider if we continue to move down..

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No positions in stocks mentioned.

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