Since 1932

Any number of people have asked how the conclusion was reached of having made a SuperCycle and Cycle Top in 2018. This conclusion was simply based on Elliott's requirements. The requirements are these: 1] that waves travel in parallel channels, as below, 2] that one of the waves will likely extend, 3] that, in general there will be alternation between waves two and wave four, and wave four will not overlap wave one; 4] that wave three will 'typically' represent the most dynamic wave, and 5] that wave three (or any impulsive wave) can extend only if the internal waves make progressively smaller degree sub-waves. 

DJIA - Quarterly - Wave Degrees

 

So with those requirements in mind, the conclusion is relatively straight forward. 1] When the parallel is drawn, only Cycle waves II and IV contact the parallel. 2] Within the Cycle waves, Primary ((3)) is the extended wave each time. And, for the Cycle waves, wave xV is the extended wave, both in price and time. Most people have not dealt with extended fifth waves. They usually occur with the momentum indicators "all green", and only after an extended wave base that provides sufficient support for such a dynamic rise. That long, drawn-out base is Cycle IV. 3] For alternation in the Cycle Waves, wave II is a simple sharp. Cycle wave IV is a complex or a non-limiting triangle, which both Prechter and Neely recognized. And within the Cycle waves, for Cycle III, Primary ((4)) is a Flat, while Primary ((2)) is a simple sharp. And within Cycle wave V, Primary ((2)) is a short sharp, and Primary ((4)) is the long-in-time flat. Cycle IV does not overlap Cycle I. Neither does Primary ((4)) overlap Primary ((1)) within Cycle V or Cycle III.  4] It should be relatively obvious that the third waves chosen represent the most dynamic growth in terms of the post-war boom to 1965, and the dawn of the Internet and Financial Engineering to the year 2000.

For item 5] the degree labeling, because Cycle IV is longer in time than Cycle II, the two waves must be of the same degree, or else Cycle IV is of one higher degree. The two waves are the same degree, and the internal subwaves of IV can be broken down into price segments which are log-shorter in price than Cycle II, and shorter in time. And, there is the possibility of a triangle, so there is no degree violation.

Then, counting  forward in time from Cycle II, Primary ((1)) is log-shorter in price than Cycle I, so it does qualify as a sub-wave. Further, each of the sub-waves of Primary x((3)) can be broken down into a log-shorter sub-wave than Primary ((1)), and so qualifies as an extension. In particular, the short choppy interior of Primary x((3)) is where these "shorter in price and shorter in time" extensions are occurring. This same situation exists in Primary ((3)) of Cycle V, so I will not belabor the point. Also note that Primary ((5)) = Primary ((1)) in log-price.  Readers will also note that Primary ((3)) of Cycle V is also shorter in log-price and time than all of Cycle III. If this were not the case, the entire count would have to be revised somehow. I didn't make the waves; they turned out that way. This requirement exists because of the nature of an extended fifth wave. In other words, while wave three of an extended fifth wave can be the extended wave, it can still not violate the definitions of degree already on the chart!

Now counting forward in time from Cycle IV, note that Primary ((1)) is shorter than Cycle III in log-price and time. It is also likely shorter in log-price than Cycle I, but is not required to be because we are counting waves forward in time only. Then, Primary ((2)) is definitely shorter in time than Cycle IV. It is also likely that Primary ((2)) of Cycle V is shorter in log-price than the largest internal segments of Cycle IV. It is also definitely shorter in log-price and time than Cycle II, but it is not required to be, again, because we are counting waves forward in time.

Primary ((4)) is clearly longer in time than Primary ((2)). That means that the waves must either be of the same degree or Primary ((4)) must be one degree higher. The two waves are of the same degree, and the net travel in Primary ((4)) is about the same as the deepest portion (or maximum excursion) within Cycle IV.  Further, Primary ((4)) is shorter in time than Cycle IV, which it is required to be.

From there to the 2018 top, the count has already been outlined, along with the rationale provided in the post called Trillions (at this LINK) back in June 2020.

Certain people may have objections to this count. I, however, can not disagree with Elliott. Where else will you find an analysis that covers both price and time? And, for free, no less. Further, I have stated Elliott's original principles in referring to this count, and merely attempt to live up to the definitions of degree labels.

Some people have tried to advance certain ideas regarding the time relationships among waves. For example, that wave two's must always be longer in time than their wave one's. To me, there are several wave two's in this very long term chart that disprove that hypothesis. Further, you will get all sorts of other counts on this wave because many people doing casual Elliott analysis will almost completely ignore which wave is the ended wave in the sequence. I think it is important to recognize that the extended fifth wave is a case not many have studied. In fact, there are few opportunities to study it.

Further, in my view it is completely economically justified to make Cycle V the extended wave based on the unprecedented easy interest rate policies and quantitative easing of FED Chairs Greenspan, Bernanke, Yellen and Powell. By doing so, they made the extension possible. This is completely distinct from the so-called 'heroic' Paul Volker efforts to tighten interest rates to 18%.

Please remember to count waves forward in time. You can not go back and say, "if I was alive in 1932, I would have been a buyer!" Wish though we might, it just doesn't work that way. On the other hand, we can endeavor to follow as many of Elliott's observations as possible.

Have an excellent rest of the weekend.

TraderJoe