Monday, April 27, 2009


Most traders think Elliott Waves are bunk. I thank God for that every day. Those with an open mind quickly learn that EWs are not only an undeniably correct accounting of how nature operates, but an indispensable trading tool.

Here is a little varsity level analysis that illustrates the power of the EW insight. EWs are not magic, but rather a graphical recording of how groups behave (assimilate and divide) in similar fashion from large to small sample sizes, and from small to large sample sizes.

In early 2009, I called the beginning of wave 5 to the day largely based on an EW fractal equivalency. Wave 1 and 2 of that wave could now be appear complete. Here they are and why I think that could be the case:

2009 (Daily Chart)

All Wave 1 "personalities" should be self-similar at all degrees (sample sizes) within a wave. So whenever I expect a new leg to begin shortly, I am always scouring the daily chart for a fractal equivalency to the first leg in the larger fractal pattern.

Today, we got it.

From today's high around Noon EST, we probably saw the first minute (as in minuteness, not clock minute) wave 1 of 3 and the completion of wave 2. Do we have Wave 1 self-similarity at different degrees? I say, yes we do:

Monday, April 27 (1 Minute Chart)

One way to confirm an EW insight like this one is that the wave of lesser degree ALWAYS ends the day at the same spot that the larger picture ends end the day. They sync up, exactly, at close, to deny one "certainty" of the future. That is the case here.

By watching what happens on a smaller sample stage tomorrow, we will gain insight that we may apply to the larger picture.

Today's strong fractal equivalency implies that the proper labeling of this tricky little leg is 1 & 2 of wave 5 now complete, with a wave 3 of 5 beginning. Let's not get too caught up in the precise labeling, as it will resolve in the future. Rather, by any label, it appears that a new leg down has begun.


  1. FDR

    Thanks for the heads up, and the hard work.

  2. FDR,

    In your most recent thumbnail, you were comparing the fractal equivalency of wave 1 that started in Oct. 2007 to wave 5 that started in January of this year. In the above, you are comparing today's apparent wave 1 & 2 to the larger scale version of the wave that started in January. So, just trying to follow, is this somehow related to the rule of alternation? Also, does the "scaled-up" version of wave 3 that started last May imply that the final big leg down will also be scaled up even further, thus your prediction of a "distrastrous" leg down?

    Related to all of this, and considering that the government continues to push losses into the future or onto the taxpayer, what makes you think that your option of bouncing from 7500 to a multi month rally to then a longer developing disastrous leg down (years) is nto more prevalent than your peferred count of a re-test of 6500 after bouncing to 8100?

    Thanks for all of your effort in this blog by the way.

  3. To say that the appearance of a fractal equivalent minute wave 1/2 is determinative would be stretching it. The options I've laid out previously remain in play, though this info actually presents a slight twist on one of them.

    Certainly it is possible that a leg down (which I think is likely beginning) could fit into a larger corrective pattern that takes stocks down first, then higher in the medium term.

    That's why I say let's not get too caught up in the labeling, but take what is being given for now (probable leg to 7500).

    During the short term leg down, hopefully we'll be able to buy a few vowels. Today is a good example of "getting a vowel", a little more info materializing to clarify the picture.

  4. To answer your other question, yes, our wave 3 of C should be disastrous. But I think we are probably still only working on a really big "A." Then, a many-year B. Then another disastrous C.

    I say that because we clearly have an 80 year (minimum) 5 wave leading into this correction, a quick ABC-complete is probably not enough (unless, perhaps, it takes us right to the target of Dow 800). The ABC should be a decade or two to scale well against 80 years leading in.

    More generically...

    Yes, the extended wave within any wave pattern will often repeat fractally. That is, the same wave will extend at varying degrees, and all waves will often reveal self-similarity that is suitable for trading.

    Unfortunately, experience tells me that the stocks/indexes that trade like EW fractal clockwork (and there are some) generally play out in impulsive bull markets. Bear markets, or the corrective side of bull market moves, are definitely more ragged. Just the way it is.

  5. What happened to gold yesterday afternoon? Is this how it begins?


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