Wednesday, April 29, 2009

TRADING ALERT - Full Wave 2 Retrace

This is a perfect second opportunity to short the market if you missed the short entry at the 8192 peak of the diagonal.

Also a fractal diagonal peak.


  1. what happens when the retracement breaches the previous top? it seems like we are back to irrational exhuberance.

  2. FDR,

    With all due respect, but your Elliot Wave analysis has been way-off since December. Perhaps it is time to call it quits on EW? I appreciate your other insightful comments, but honestly the EW is not adding value.

    All the best,

  3. the patent holder of tamiflu (swine flu vaccine) is a company called Gilead Sciences. They license it to Roche Laboraties. Guess who is the chair of the board of directors and also a significant shareholder......Donald Rumsfeld!

  4. Why is teh market going up with all teh swine flu scare? Also the fed said this.....

    "The Federal Reserve suggested Wednesday the worst of the recession may finally be over and, as a result, policymakers did not to make any changes to their monetary policy stance."

  5. I don't know anything about Elliot Wave, I've only just started reading. However, I do know, things happen when you least expect them to.
    I really appreciate the effort that you've given in this blog, along with your comments on MW. I hope you continue.

  6. No comments to this post in 2 days sure means it too bullish out there :)

  7. Perhaps this is just showing my ignorance, but I have a question. If inflation is to become the new reality, would the value of the DOW not reflect inflation as well? In other words, if the DOW is at 8,000 and inflation went up say 20%, would the DOW, all other things being equal, not be at 10,000 at that point therefore making market investing an inflation hedge? I understand the "value" would be no different.

  8. "what happens when the retracement breaches the previous top? it seems like we are back to irrational exhuberance."

    The market hasn't actually breached the top if you are using a daily resolution. You can have two people trade the Dow at 50,000 at any given moment, the volume will be low enough that it pops right back.

    No changes to my outlook on PMs or stocks.

  9. I value the EW analysis. Please keep it coming. Thanks!

  10. "I value the EW analysis. Please keep it coming. Thanks!"

    The thing most don't understand, or cannot accept about EW analysis is that it boils down to execution of genetic programming.

    Essentially you are a biologist. Yes, a biologist. You are examining a sample with a known genetic makeup and growth drivers, drawing conclusions about how it should grow, and betting on it with a great advantage over those who think the growth is random.

    To those who think markets are random, and not programitically driven by the participants, I paraphrase RNE's opening concept in "The Wave Principle: The Secret of the Universe"

    ...if markets were random, every stock would move it a different direction every minute of the day...

    It is an absolute given that programmatic herding behavior is in full force at every moment.

    That said, to gain an advantage you have to (1) properly identify the genetic patterns of the sample and (2) nature has to develop as it normal does.

    The are an enormous potential for pitfalls in both areas. (1) is obvious, and with regard to (2), even if biological identification was technically perfect, occasionally an Apple tree won't branch as programmed due to any number of internal or external reasons.

    And THAT said, you still have to be crazy not to bet that an Apple tree will sprout apples instead of some random fruit or none at all.

  11. EW analysis models the behaviour of organic beings acting in groups.

    But how well does it work when a large number of the participants are *in*organic?

    Many of the trades made on the market today are made automatically by computers. Yes, people programmed the computers, but the resulting computer program isn't a direct expression of a person's genes, but is instead a codification of the rules the person (or, in may cases, persons) intends the computer to follow.

    Those rules can be (and, in fact, usually are) very un-fractal-like in their expression. That's not necessarily true of the programs on the automatic trading systems in use today, but I think it's likely.

    One more thing: if EW analysis really is as predictive as has been suggested here, then it follows that he who writes a computer program that properly performs EW analysis on the market will make a huge killing. It therefore follows that you would see a lot of such programs acting in the market, and this would tend to disturb the EW cycles and cause the resulting predictions to be off. It also follows that an individual who also attempts to use EW analysis as a predictive tool will find his efforts frustrated as a result of the actions of these programs in the market.

    I've no idea to what degree EW analysis is used in the truly automatic trading systems, but expect that it *is* used and automatically acted upon when the market appears to be following that pattern (the nice thing about computers is that you can program them to recognize various conditions and to change their behaviour depending on those conditions).

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  13. "One more thing: if EW analysis really is as predictive as has been suggested here, then it follows that he who writes a computer program that properly performs EW analysis on the market will make a huge killing."

    I do not think EWs are necessarily "predictive" but they certainly are patterned.

    I won't argue that some stocks trace beautiful EW patterns at intermediate and lower degrees, and some do not, and some do for a while, then don't. But that doesn't mean that all aren't essential building blocks of EWs.

    Waves span all degrees, including degrees our minds cannot, because they are both bigger and slower and/or smaller and faster, together, at the same time. Oddly, our minds still form those waves by interacting with other minds, forming harmonics, or what ever you want to label more complexly synchronizing fractals.

    To use your example of computer trading, perhaps the entire era of computer trading is an Elliott wave.

    Many have noted 3 three waves of human advance:

    Intellectuals and futurist are all out there hunting for the fourth wave. "What is the 4th wave," they muse, "I want to be the first to discover it."

    Guess what guys?

    The next wave is probably "A." And that wave will, most likely, retrace our societal advance right back to the EW guideline of about the wave 4 termination point. That is, to about the time when we first completed a transition into the Information Age.

    Then, we will probably progress back to the peak of the Information Age, or, the B wave.

    Then, completely predictably and unstoppably from an individual actor's point of view, we will probably acutely collapse back into another Agrarian Age, perhaps for a few millennia.

    After that, we'll probably be ready to start a march much, much higher.

    My point is that computers probably can't change nature, because they are part of nature. EWs are always tracing at all degrees, even if the theory is pooh poohed by Lexus-driving Wall St bankers who might be destined to chip flint arrowheads and tie them to sticks.

  14. FDR wrote: "I do not think EWs are necessarily "predictive" but they certainly are patterned."

    If they are not predictive then of what use can they possibly be? Something which is not predictive yields no insight into that which it attempts to explain. Religion is such a thing.

    "Then, completely predictably and unstoppably from an individual actor's point of view, we will probably acutely collapse back into another Agrarian Age, perhaps for a few millennia."

    While this is possible, I'm not at all sure of this.

    In terms of technological advancement, humankind as a whole has never (as far as I know, anyway) significantly retraced backwards, at least after the invention of writing.

    That's not to say that it's impossible for that to happen -- it most certainly is. But for wave analysis to be valid when applied to human technological progress, it follows that human technology almost certainly *must* have regressed at some points during recorded history. As far as I know, it never did, though the rate of advancement did change over time, sometimes slowing to an apparent crawl.

    I basically don't regard wave analysis any differently than I would any other explanatory mechanism -- if the mechanism itself has no predictive power then it is essentially useless as an explanatory mechanism, because explanatory mechanisms which lack predictive power yield no real insight into that which they explain. As I mentioned before, religion is an excellent example of such a thing: it is entirely lacking in predictive power and therefore yields no true insight into that which it attempts to explain. This is why the domain to which religion is applied has tended to shrink over time -- originally it was used to "explain" everything, but today much of that is explained by other truly predictive means.

    If the mechanism proclaims to be predictive, then the validity of the method is directly related to the accuracy and repeatability of its predictions -- if the mechanism tends to be inaccurate then its validity is rightly questionable. The same is true if the predictions made by the mechanism are vague (though the way in which they are vague matters: quantum mechanical predictions are vague in that they're probabilistic, but the nature of the probabilistic prediction is very exact).

    There's no question that humans and human technology must follow the laws of nature, since those laws essentially govern universally. But that is a very, very different thing than stating that the laws of nature always yield recursive wavelike patterns over both space and time. While there are many things in nature for which that appears to be true, there are also many things in nature for which it does not (planetary orbits, to name just one example).

    As with any predictive mechanism, one must be careful in the application of recursive wave theory to various natural processes.

  15. I have to give credit to FDRAOA for introducing me to the concept of EW. There is plenty of debate about Ellioticians at the moment; here is a guy who thrives in it:

    Keep up the good work FDR.

    Leonidas from MW

  16. Things have gotten a little quiet around here following today's blowout. That said, i think it is a prefect time to go short.


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