Elliott Wave Feedback

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I recently did a post about my odd relationship with Elliott Wave. A Sloper sent a very thoughtful email which I thought you’d find of interest. He has given me permission to publish it:

I’m a long time Slope reader, but rarely read comments and have never contributed (I just don’t have the time). Your recent post, My Odd Relationship with EW, really struck a cord so I thought you might find my experience somewhat interesting.

I was an Elliott Wave Theorist subscriber for years, roughly 1983-1990. While I was too late for the 1982 market blast off, subsequently read back issues verified that the EWT had nailed it. My live time experience for the first 4 years was exceptional. As you said in your post I was “stunned at its prescience”. The EWT called the temporary top in late 83 (best recollection on dates) and then the bottom in 84. And was preaching coming explosion higher.

I made some money in 84 and then in 85-86 I made ridiculous returns (unfortunately relatively small time money) following the EWT. OEX calls were cheap back then. Two and three months out near the money calls could be had for low $100s. I bought and held relentlessly. My broker used to call and beg me to take profits, but unless expiration was close I just held, all per the EWT. Later my broker would tell me I was the talk of the office. He said at first they all thought I was crazy for risking over sized profits and then just amazed as those profits doubled and tripled by the time the position was closed. Some days I would come home from work and have made more money in a day on paper than my meager monthly salary. That kind of action really makes for true believers.

The EWT warned in 87 the market was overextended and due for a pullback. The timing wasn’t great for a trade but it was very helpful advice. But the 87 crash is where things started to unravel. The crash convinced Prechter the bull market was over. For years as the market climbed higher he remained bearish. He caught some bounces but they were always predicted to be just that, bounces, before a relentless bear market would reassert itself. Eventually my true belief was broken.

So to a large degree my experience was a mirror image of yours. You experienced the prescience wonderment in a bear market while I experienced it in a bull market. I grew to refer to the EWT derailment as the grand super cycle wave fallacy. Being on the wrong side of the major trend and refusing to recognize it because it didn’t fit the grand super cycle vision just killed them.

So after the crash of 87 Prechter was convinced the a super cycle bear market was in force and there would be massive (once in many generations type) selling. Instead the market went on too massive gains. The same thing has happened since the crash of 08-09. Again Prechter is looking for that grand super cycle collapse. Sure there can be a bounce, even a big one since it’s super cycle degree, but the culmination is a massive bear market, the likes of which none of us has ever seen and the end is nigh.

Having said all that and despite my eviscerated true believer status, I can’t shake the belief that there is some predictive information in Elliott Waves. I’m a pretty skeptical type guy but what I experienced with the EWT when they were on defied statistical luck. It was too detailed, too relentless, too prescient. Until it wasn’t.

If you made it this far, I hope it wasn’t a waste of time. Don’t know why I felt like I had to write this, but I did.

Best regards