Sunday, March 8, 2009

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.


  1. Thanks for the trading alert FDR. Your insights are greatly appreciated.

  2. What is the probability of this upward event?

    Also, is there a downside number that will void the 4th wave retracement?


  3. Thanks again FDR. More food for thought.

    Would like to hear your impressions of China sometime and where you think their economy might be headed.

  4. Thanks for the heads up FDR .

  5. Collective stupidity, lol. ain't that the truth!

    I like the way you have been drawing human nature into the equation lately. You really do have some interesting insights and that makes for a unique blogging experience.

  6. I agree with the post above, human nature factor. I will pull the rip cord on my parachute at 7900. LOL

    I just wish i could parachute out of bernanke's chopper ! that would be awesome !

  7. There's order in chaos

  8. A study of ants is very helpful here. ANTS should be called "ant" as each colony is better understood as one animal. As individuals, they do not make sense. As a group, we can comprehend. They are not not separate creatures. That is a trickery of the human eye, a belief in that what we see must ACTUALLY be. We wonder how ants communicate between each other, but that is a human perspective, seeing separate animals, when there is only one.

    We wonder how the ants do this, but the truth is that they are doing nothing, and that all they are doing is being ants. Which is in fact, just one ant. Predictable, consistent, relentless.

    Once you understand this, you realize, psychologically, how "hard wired" FDR's comment really is, and it is better read as something commented upon, as opposed to something you can change.

    I may have been responsible for an earlier harsh comment. My sincere apologies. The blood was up. I could say that these are difficult and stressfull times, but that is making excuses, and really, I have none.

    Thank you.

  9. FDR, when you wrote "sharp zig-zag to the upside", are you saying there will be a sharp downturn first then an upturn or there will be a sharp downturn after the sharp upturn?

    Thank you.

  10. "FDR, when you wrote "sharp zig-zag to the upside", are you saying there will be a sharp downturn first then an upturn or there will be a sharp downturn after the sharp upturn?"

    I mean a sharp A-wave up (started today), then a more minor B-wave down (soon), then C wave up most likely into higher territory than the A wave reached. The overall time required for the ABC zig zag should be roughly commensurate with our last wave 2.

    BSince this is a wave 4, by genetic rule the ABC can go as high as the previous wave 1 (7,900), but no higher.

    From a trading perspective, the ideal situation would be to hit 7900, so we can go all-in to the downside.

  11. Do you plan to post a confirming alert when wave 4 is in?

  12. Thanks again FDR. I made some nice money today. Every little bit counts in this market.

  13. Hey FDR...appreciate your posts. I guess I differ from you, or at least on the fence about, is the true direction of this market, if it is controllable by the money trusts, and the blatant disregard for the prosperity of the people that are affected by the antics of the Fed. If, in fact, the plan is to crash this inflated environment, and acquire assets to lend out again, why would the Fed crash it completely? Why wouldn't they just stop it at a not so drastic level, save some hardship and potentially a WWIII, and still profit from acquisition and re-inflation?

  14. "if it is controllable by the money trusts, and the blatant disregard for the prosperity of the people that are affected by the antics of the Fed. If, in fact, the plan is to crash this inflated environment, and acquire assets to lend out again, why would the Fed crash it completely?"

    Exercising control and being controllable are two different things.

    Central banks, like the private Federal Reserve, have exercised control since the days of Caesar, but they have failed to control or demolished the system they sought to control without exception.

    Think of central banks more like economic cancers than money making machines, the more they thrive the faster they die.

    You are at the mercy of some of the dumbest people on the planet, not the least of which form your own government.

    Throughout this blog I tend to use the terms "evil" and "stupid" interchangeably. In fact "evil" is a subset of "stupid." It is within this subset that these people reside.

  15. FDRAoA - How do you personally play the downside? Thanks!


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