Elliott Wave Principle: Mad Pseudoscience?
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..
Intra-day S&P charts were less clear this past week. It happens. It doesn’t seem that long ago that the major indices were out of sync, but now they all move in complete unity. What is that statistic, 90% of stocks move in unison in a bear market, 75% in a bull market?
The 60 minute chart shows my preferred forecast based on the rules and operations of wave patterns and Fibonacci mathematics as well as interpretations of other indicators. I have to choose between a combination motive/impulse wave of (5-3-5-3-5), which I have drawn a completed path for, or two zigzag possibilities (5-3-5), for a total of 3 probable outcomes at this juncture in price.
Zigzag option one has already completed: 5 waves down from the top to 1 (outside the box) being the first half of the zigzag, and the two sets of (1)-(5) would be the second half, making it a combination zigzag. This is technically a completed zigzag pattern. It also completed in the area of a 1:1 ratio, very common for zigzags. Supporting this outcome on the daily chart is the bottom of the trend channel, and the .500 retracement level of the move up from B.
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The old saying "those who forget the past are doomed to repeat it" is very apropos for the stock market. Short term thought really pervades the industry and the longest memory is something like 10-15 years. As a result the "last" meltdown of any significance, or the "last" boom of any significance is either forgotten or remembered, depending on where one is in the timeline.
Elliott Wave is therefore NOT based on a market determinism, but on the cycles of random activity that typically repeat over time. The larger scale waves, such as Kondratieff, are less reliable and more likely to be pseudoscience. The short term waves (on a daily basis to about a 1 year span) are more reliable because human nature, while random, is often repetitive. A select few individuals never repeat the same errors over and over...but the vast majority of people do. Similarly, when successes occur, the behaviors are almost always repeated.
I don't subscribe to any theory in total, but if it's working, you stick with it. It will have failures from time to time, like any other system. But it will have successes. It's that 60% success rate (gotta bake in the vig) that will keep you in business.
I hope that when you say something has gone south, that you mean it has improved. Because I get very bitter about hearing that term being used to mean taken a turn for the worse!
fundamentals vs technicals
European perspective:
materialism vs idealism
Chinese perspective:
chi vs li
Thought perspective:
measured data vs intuitive data
universal historical precedent:
institutionalized enforcement of the
fundamentals, materialism, or chi over the
alternative is a paradox resulting in the
dumbing down and reduction of society's
potential by attempting to rule out
uncertainty by focusing on only the obvious
when certainty itself is an oxymorn.
scary future analogy:
result of 20th century Neo-Confucianism =
result of 21st century USA financial policy
STOP dumbing down the people
start teaching monetary policy in grade school
now, having admitted my obvious neophytness in regard to, actually, any technical analysis ( i could've swore the other day i saw a sample head and shoulders in a book alternately pulse into a a 5-3-5-3-5 ) i also gotta say that it doesn't seem impossible to recognize that life, the markets, love, and baseball games, all are unknown determinisms determined to remain unknown until known
i know that's a bit glib and tongue-in-check, but i also believe it to be true
so what i like so far about ew, is it's recognition that there are definitely patterns permeating the universe, from the most nano participant to the gestalt we can only sense from our own minute perspective - with - an equal recognition that the unfoldings within the repetitive patterned unfolding, is itself infinitely varied, and thus incapable of 100% accurate prediction in real time (at least that's my take so are :-)
we are determined to act and think within the bounds of being human; left to make risk / reward decisions within unknowns we know exist but can only see the patterns of, sorta
if a system of patterns works for us (as per mr monihan's comments above) then i'll be glad if it does; there's plenty of slap-whip-sneak-turns and twists to remind us we're just dancing, trying to see the patterns
what worries/bothers me most in conjunction with trying to learn/work with patterns that may turn out to be of real financial use, is sorta g p's concern above, in the first comment: that the perceived patterns are just as often used against our recognition of the patterns (if one is shorting) or to embellish that same recognition (if one is long) - but, in a way to help the persons or group with the most ability to manipulate, against those with less cumulative or organized financial input into the pattern
it sometimes seems, watching the days unfold, the pulse of the patterns will dance counter step with the patterns of perceptions verbalized on the various financial blogs and sites :-) only to revert to those initial perceptions, but only after a little two-step whips the hips wide enough to take a few bystanders out :-)
is that part of the dance?
