You’ve surely heard of the disparaging term “Idiot Wave” applied to “Elliott Wave.” It seems rude and dismissive, although I’ve got to say, very few techniques have had more to do with me prematurely thinking the top was in than good ol’ EW, so I don’t bristle too much at the put-down. As I’ve mentioned, I’ve found EW to be very helpful in bear markets, but in bull markets, it’s been pretty much a disaster.
Below are a few charts from the good folks at EWI, and I’ve got some remarks about these charts as a whole.
You’ll notice that every single one of these charts represents a top. The thing is, they’re different kinds of tops. The first, for the Dow Industrials, shows that the market’s peak was way back in December, and we’re at a wave 2 counter-trend bounce. The same can be said for the Russell 2000.
The S&P 500, however, is shown as wave 3 of (5) meaning that, yes, it’ll fall right about now, but new lifetime highs are on the way. And, just to illustrate anything can happen, the exact same index is shown in the midst of an A-B-C wave.
Taken by itself, these charts are all very reasonable. Here’s the problem, though: they’re at the top. They’re ALWAYS at a top. Day to day, week to week, month to month, the goalposts keep moving, and yet every single time………….we’re at the top. It’s kind of maddening.
I don’t think there’s been a single time where they’ve said they got it wrong. Instead, the issue shows up with completely redrawn definitions of each wave and, lo and behold, we’re at or very, very close, to a top.
Every. Single. Time.
The thing is, if you provide me a finite but reasonable diverse set of patterns, I, too, can fit it to just about anything. The magic of Elliott Wave is supposed to be that you just match one of the pre-defined patterns to the market and, voila, you can see what’s next.
There are about eight billion humans on Earth. You might provide me with a template of, let’s say, 80 different personality types. That’s quite a diverse assortment. You might go on to tell me that any human on the planet fits one of those types, and I can do a good job predicting their behavior based on their type. Therefore, if the types were evenly distributed, I could characterize the nature of about 100 million people at a time by way of this handy-dandy personality typification. Neat!
Look, I’ve been charting since I was a teenager, and it isn’t astrology. The kind of charting I do is anchored to the premise that human behavior tends to repeat, that zones of support and resistance have importance, and simple patterns can be helpful guides in determining the start and end of trends. I will cheerfully defend charting to my dying breath.
The EW stuff, though, is kinda hocus-pocus. EW tends to be persistently bearish, so they obviously strike a very sympathetic chord with me, but, I dunno, it would be nice just once to read them declare, “Wow, we sure missed the boat on this one.”
