Saturday, November 20, 2010

EWI's DOW 400 Call

After R.N. Elliott passed away in 1948, the Wave Principle was used by Gould, Schaefer and Bolton in one form or the other. The Wave Principle was renewed with the publication of Frost and Prechter's 1978 book, Elliott Wave Principle.

"In April 1979, I left my position as Market Specialist with Merrill Lynch and began publishing The Elliott Wave Theorist, which I hope will track the fifth wave in the current Supercycle as well as Elliott tracked the first and second, Bolton tracked the third and Frost the fourth (and as Collins has tracked them all)."
-Robert R. Prechter, Jr., 1980

The above quote is from page 78 of  the "R. N. Elliott's Masterworks" , Edited by Prechter.
After having marked what he thinks are P1, P2, P3 & P4 on the chart, Prechter would have been trying to find the top of P5. The following chart chronicles Prechter's wave count and how he might have rationalised the market's advance in the nineties.

The 1987 crash, he labeled it as P4, which he did forecast correctly and earned the fame which has carried him through this day. He then started looking for the P5 top. But The stock market kept marching higher and higher throughout the nineties and a top was eventually reached in March 2000. So he labeled it as P5.

He probably expected the next leg down to take the DOW to 400. But stocks bottomed yet again in Oct 2002, and made a new high in Oct 2007.  Oct 2002 became cycle a, Oct 2007 became cycle b, and an expanded flat was born to explain away the new 2007 high in DOW.

Till date he appears reluctant to review the counts he proposed in the Eighties. Even though the wave structure has become a lot more clearer in the last 20 years.

I think Prechter was predisposed to finding an end to the fifth cycle wave since he got into this business, and reaching the DOW 400 target in the subsequent crash. To me it looks like Prechter has spent the last 20 years trying to end the fifth wave, instead of tracking it.

Prechter is now forecasting for a DOW 400 to materialise in 2016.

I think a DOW 400 is coming, can't say if it will be in 2016. Year 2022 looks more probable to me. But we may get it in 2016.

The chart below is my Super Cycle (V) count along with Prechter's counts with label "EWI".


  1. With respect, if one were to check the actual record, one would find that your charts somewhat misrepresent Prechter's actual "real time" position between the 1974 bottom and the post-87 crash period. Among other things, although he had in mind a P4 wave, he did not expect a crash, only a 10% correction. And afterward immediately began looking for P3 down: advising institutional investors to sell out near what eventually turned out to be the low.

    That aside, it is a mystery to me why you don't rate more highly the most obvious interpretation: that March 2009 marked the end of an ordinary flat from 2000.

    The Dow 400 count also has subsumed within it a great deal of acceptance that the 1929 top has been correctly understood. Given the irregularity of the data, it is also a mystery why anyone would accept this as anything other than highly speculative. Sort of in the Ripley's Believe It or Not realm.

    Prechter's analysis always holds a great deal of Amero-centrisim and ours-is-the-end-of days-time bias. This is good for selling newsletters but not so good for otherwise creating wealth.

    He is also wrong about the Earl of Oxford. Any discerning critic can see that Christopher Marlowe was Shakespeare.

  2. This post is not supposed to be a chronicle of each and every count Prechter may have proposed prior to arriving to his current count.

    This is an attempt to understand the psychology behind what he is proposing now.