Ok, Mr. Elliott I get the part about the parallel channels. It is really helpful to draw those, and we definitely appreciate your observations regarding such. I do find them pretty easy to find & draw, and so they are great. Then, too, we also note those marvelous third waves where prices go berserk and make big gains in bull markets and big losses in bear markets. But something in the theory just doesn't make sense yet. Have a look at the chart below.
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| NVIDIA - Monthly - Log Channel |
Are you seriously telling me that something worth a buck (or its equivalent) in 2004, now should be worth $389, with many analysts calling for $500 or $600 near the top of the upper channel line? Ok, look, before you get dismayed with me, this is not a case of stock envy. Why? Because Look at the chart in 2008; the price decline from $10 to 1.50 is not pretty. There must have been some very worried bankers for the company and investors. I would have been one of them.
No, what I'm asking you to explain is the wave progression since 2013 in terms of degrees. If 2005 to 2008 is the "kick-off impulse", then that wave three is totally out of control. Let's call the kick-off-impulse Primary ① for the sake of argument. Then, I could see how five Minor Degree waves 1-5 are of smaller degree than the Primary degree wave. And they would make up the first Intermediate degree wave, shown as (1).
But Mr. Elliott (and Mr. Neely) that Intermediate wave is not smaller in size than that first Primary degree wave. And I've looked over this chart for a few hours now, and I just don't see how to label the internal waves differently for the third Primary wave ③. (As an aside, I even tried looking at the whole chart as if it is a diagonal or something other, but without overlaps it doesn't work). Mr. Elliott could you comment on this?
Smurgle, smurgle, sigh, groan under his breath. Dear Sir, the chart you are looking at is only of a single stock. I use averages in my work to smooth out the mania stocks and other outliers. And that way I get a better picture of the whole of the market and the psychology of all of the players and whether they sense progress or not. So, please don't just throw one chart at me and tell me my principle doesn't work.
No, I'm not saying the Principle doesn't work. You correctly described that log-growth could occur in markets. What I'm questioning is this "degree thing". Let me be blunt. There are a lot of stocks out there that are widely followed. This is one of them. There's a lot of investor psychology in this stock. Think of it like a sample from the market. It seems the degree principle should work on this stock - and that of others like Apple, and many others. In other words, it seems like the concept of degree should apply the same whether one is charting the whole market or an individual widely-followed stock.
But all I can say that it is true in this chart that the Intermediate degree waves are indeed smaller than Primary ③, and the Minor degree waves are smaller than the Intermediate degree waves. But you only know that after the fact. And, again, that first Intermediate degree wave, is larger than that first Primary degree wave, although it is smaller than that third Primary degree wave. Could please help me out more with this topic?
Sigh... You know I wish I could, but I only lived until 1948 before I got to see some additional explosive growth in the U.S. markets - like from 1948 until 1965, or from 1982 to 1987, or from 1987 to 2000, or from 2009 to 2023. I can tell you that some of the phenomenon is due to inflation. Some of it is due to changes in interest rates. Some of it is due to allowing companies to buy-back their stock. And some of it is due to the change in currency values. But, alas, I don't have a really good answer for you at this time, and I'm supposed to be resting now.
Yeah, I get it.
Have a good start to your holiday weekend if you are celebrating it.
TraderJoe
The Dow is in the weakest position having topped on December 13th 2022 and since then in a distribution triangle with the last gasp today before the thrust down out of this massive topping triangle. NDX exhausted trying to hit .618 retrace. Tuesday should be fun.
ReplyDeleteTJ excellent post. Thanks
ReplyDeleteThe most important thing in that post is the most important thing about EW. It is best AFTER THE FACT
ReplyDeleteyes, it is always true you can't label a wave until you have at least seen it. It's like anything else in life, you don't know if the car crashed until you hear the skid marks and the bang! Although the principle can tell you if there are more waves likely to go (see tomorrow's post when it is up), or if a reversal can be considered. TJ.
DeleteThat new post is up now. TJ.
DeleteHello TJ, Suppose circle one is circle A, circle 2 is circle B and Circle 3 is circle C. reason as you state = "Fed". Is that possible? thanks
ReplyDeleteBtw can't circle 1 to circle 2 be counted as a "B" triangle. Theoretically wouldn't a 3 wave have more power and be able to move faster in a time period because of irregular waves? Than a 5 wave sequence. Thanks
DeleteHi 458african. The A,B,C is certainly possible, but what tends to rule that out is the 30x multiple in price levels. 'Usually' a 'C' after an $10 increase from $3 would be to about $13, right C = A. This far, far exceeds that. Further, the A-B-C count tends to suggest that a currently successful business model was coming to an 'immediate' end, when the model is really on the next frontier of business, being the AI revolution. While anything is possible, that just does not seem likely at all. Rather, the overheated go-go stock pricing suggests a third wave nearing completion and then a fourth wave that could go back to the area of the prior fourth wave around $100. I would think many would consider that as completely terrible news as it hit the lower channel, and then started a fifth wave up as real earnings from AI become more apparent (i.e. self-driving cars and trucks actually hit the road, etc.). We are not there yet.
DeleteTJ
Nvidia used to be a consumer products company -- graphics cards for PC's. In the past 3 years, its data center business has become 2/3 to 3/4 of the company, and it is growing much faster than the GPU card business. So, now NVDA is a high-end hardware (H-100 boards, Grace-Hopper chips, Infiniband networking hardware, etc.) and software (CUDA library for AI) company. Looks like this business is just getting started and has room to run for the next 5 - 10 years. So maybe you use separate EW models for the two epochs of the company's history rather than trying to fit the entire history into one model. Also, keep in mind that EW is a model that you try to fit to a very complex reality for predictive purposes. Sometimes it will fit well; sometimes not. Market indexes smooth out a lot of company individual risk, so EW models should work better for them than for individual companies.
DeleteIn fact, there were three stages so far in Nvidia's history. The first was the graphics card business in the 1990's & 2000's. The second was serving as one of the main arms dealers supplying accelerator boards to the bitcoin mining industry in the 2010's. And now supplying pick & shovels to the emerging AI revolution. So maybe try three different EW models.
DeleteThat would make the run from 2019 to the $330 high in 2021 wave I, the pullback to $110 in the current bear market wave II, and now we have entered wave III and have pushed to an all-time high on heavy volume immediately after the latest earnings report.
Thanks TJ.
ReplyDeleteA new post is started for the next day.
ReplyDeleteTJ