TRADING ALERT (Elliott Thumbnail, Con't)

Eighty years ago a man fell ill. To feed his mind, the businessman by trade devoted his final years on Earth to dissecting the stock market failure that maligned his world. He succeeded. But when he set the final piece of the grand puzzle in place, the solution to the riddle didn't seem very big anymore. The formidable task to which he put his mind was, at first, the size of a few city blocks in NY, but his solution was as old and deep as the Universe.

And so from between two sheets wrapping a pile of delicately branching feathers, upon which humans rest before they face their Sun, the sick man teetered and twirled along the faint slope of a gravity well on a remote manned outpost in Heaven. And by the light of a nearby star, Ralph Nelson Elliott bestowed upon himself by meticulous determination the honor of being the first secular being to catch the sleight of hand of God's Greatest Magician, Mother Nature.

In 1946, about year before he left, RNE published his life's work, Nature's Law: The Secret of the Universe.


Fractal patterns from interplay between a few simple equations.

"Yet somehow the actions of individual animals sum together in ways that researchers are only beginning to understand, creating patterns of motion so complex that they seem to have been choreographed from above. Flocks and schools have a distinctive style of behavior - with a fluidity and a seeming intelligence that far transcends the abilities of their members."
- James Gleick, NY Times, November 24, 1987

When I read misguided articles like the NY Times piece, above, I see dollar signs. The seeming fluidity of flocks and schools are nothing more than beautifully rendered examples of innate herding behavior. There is no miraculous communication, no real time choreography, there is a simple, instinctive, entirely individual, visceral execution of genetic programming.

We, as thinking humans, cannot fathom how a school of a thousand fish can turn right within a second, or how a species of birds sprawling a nation can collectively take flight southward all at the same time, so we attribute it to a mysterious form of super intelligence; to nature's magic. Perhaps we don't want to belittle our own place in the Universe, by entertaining the reality that intricate, beautiful and complex patterns of herding are not caused by hyper-intelligence, but rather by our collective stupidity.

Animal herding is not magic, it is the lack of magic. Humans are not immune to instinctive herding behavior, to the contrary, we do little more than execute our unchangeable genetic program during the majority, if not all of, our social and economic interactions. The key to making money in the stock market is understanding that the human herd is not a thinking body, no more than a school of individual darting fish navigate by collectively reasoning. We as individuals, and also as a group, simply execute our unchangeable genetic program in a probabilistically determinative way, every instant of our lives.

The essence of magic is uncommon knowledge, no matter how uncomplicated the underlying reality. The less common the knowledge, the more powerful the magic. In the stock market, the ability to perform magic = money. Complex fractal patterns are scratched into the ages when almost-identically programmed individuals move in herds. It is not magic, but understanding the innate behavior of the herd is magic indeed.

In our last Elliott Thumbnail, we left off with a 5th wave developing, and commentary as to why I expected it to subdivide and extend to the downside with an initial estimate of 6,500:



That 5th wave extension is now in progress:



Given our recent spike in volume, we can expect a 4th wave to develop upward shortly. A 4th wave retracement, by genetic rule, can go as high as the previous 1 (7,900). I do not expect that level of retracement in an extending 5th, but the guideline of alternation implies that since 2 was sideways, 4 will be an "unexpected" sharp zig-zag to the upside, before resuming its descent into uncharted depths.