Saturday, November 12, 2016

Say it Ain't So!

No, not that President Obama and Donald Trump shook hands after the things they have said about each other (I would have been much more in the Howie Mandel fist-bumping category on that one!), but, rather, on Friday noted Elliotician and author Robert Prechter published a count which he said could be terminal for the stock indexes.

The count looks like this.

DJIA Weekly - Robert Prechter Terminal Count
Now many of you know, I have spent literally months debunking the stock market calls made by the so-called OEW method of market analysis. (Using the chart, below, not the one above). I called for a decline at Primary 3 (circle 3) when OEW called for a massive new rally to 2500, or more, I called for a Primary 5th wave up at the Primary 4, low, when OEW called for a massive bear market to begin, etc. The work was done - not out of malice of any type - but to help the everyday person appreciate the true nature of wave counting, and to call out as a possible scam the huge fees being charged to learn the proprietary OEW material - which I viewed as essentially worthless. There is better material you can get elsewhere for a lot less, or even free.

But, now, unfortunately, it is time to turn a critical eye to the popularizer of Elliott's method, himself. Many people are critical of Robert Prechter for making many, many bad calls from 1987 to 2015. Let's see if we can catch him in the act, too, shall we?

So what is wrong with the above chart? The fact is that the chart is not constructed as Robert Prechter teaches in his own book!

Students of Elliott Wave can quickly point out that Prechter's guidelines say that minor Wave 1 of a diagonal should crest above that prior Intermediate wave (3), "in order to shows its motive character." And, clearly, the way Prechter has it drawn, it does not. Now, to be fair, waves 3 & 5, do crest above the prior wave (3), and Prechter also says this is the minimum structure for a turn. Yet, a further criticism of this count is that in the futures, his wave 2 would be an undisputed FLAT, and waves 2 and 4 of a diagonal must be zigzags, not flats.

Prechter publishes this count in a critical Interim Bulletin, with alarming comments like, "Is the Dow at top tick?" And my question is, why would he do this now?

As you know, if a diagonal is involved, my view appears in the chart below, and the Fibonacci ratios shown in the chart are offered as evidence to support the count. Wave (2) is almost precisely at a 0.236 x Wave (1) relationship.

DJIA Weekly - Most Likely Diagonal

Further, to support the count is the fact that the most recent up gap now appears in a wave (3) - just as one would expect.

So, while I think Prechter may be close, and one might ask, "why quibble?" The answer has to be that either Elliott Wave works the way that Prechter teaches in his book, or it works the way that he uses to sell his newsletters and other products currently. His newsletter calls are different than his own methodology. Certainly his recent "newsletter methods" did not work to call the ultimate top in 2000, or again in 2007, whereas his published book methods worked for us just fine!

But there is another reason yet. We have said that we simply can not rule out that this wave will be an upward impulse - rather than a diagonal. And, to this day, we do not have confirmation that a diagonal is in progress. Neither does anyone else. We likely won't get that until we see only three waves up in a zigzag for wave Intermediate (3), and a zigzag down for an overlapping wave (4). Until that occurs, we might also just get that impulse up.

Yet, it is true, what the impulse currently has working against it, is a lagging advance-decline line,  and a fractured market - with the Dow having made new highs but the S&P500 not. It's our experience that these conditions do eventually make a top, but the divergences with the advance-decline line can go on for months. And, recently, the Dow Transports are getting quite frisky again.

So, why rush a call? Yes, it could be that he needs to tell institutional clients well before the turn so they can quietly scale-out of positions. But, that could be phrased much, much differently in a newsletter than by screaming "top tick?!"

Have a good weekend all. You - especially the Veterans among you - deserve it!


  1. Thanks Joe, great work again. You are a real teacher, while the other guys just want to make money!

    1. Thanks Wieb. The comment is appreciated.

  2. Joe . . .One can only truly appreciate your work . . . if one . .had at any point in time trusted Prechter. How he is still in business is beyond me. I have only stuck with Elliott because of your teachings. Thank you so much!!!

  3. ET, my calculation of .382 x (1) is in the area of 17465 which has not been touched yet. Did I miss something? Did you mean .382 x B to C?

    1. Thanks & good catch! Somehow when I took the Fibo ruler off the chart to publish it, my mind remembered the 0.382 instead of the 0.236, so the ruler is included on this chart to avoid confusion. Wave (2) = 0.236 x (1). Updated chart above. Thanks again, John.

  4. Good reflection. Prechter seems obsessed to see fulfilled the prophecies written in his books ' At the crest...' and ' Conquer...'. He want to be met as soon as possible, and he always choose the count more bearish.

    Neowave counts are potentially bearish for the next week. We will see what levels are broken.