Elliott Wave 5.0 "Reboot"

Saturday, December 26, 2015

Cycle Degree "Reboot": DJIA 1929-2015 Review, With Idealized Charts And Other Commentary!

 This is an important review as I am bringing back my Cycle degree position in stocks and many commodities. Over the years I have tried all of the degrees that are used in the little blue book (EWP) and frankly, I had to drop down one degree after another because the wave patterns were not sensitive enough.  I ran Supercycle degree wave counts for years and even ran a blog by that name, but I still had many waves left that had to be labeled with too high of a degree.

In SC degree you could end up counting 5 waves at Intermediate degree when they should be 1-2 degrees lower like in Minute degree. GSC degree is even worse as they will create throw-over trend lines, forcing the wave count to stay in line with their opinion. This is especially true when drawing trend lines in SC degree. Change the degree and all forced trend lines become worthless information.

Folks, what I would like to say is that from 2015 forward I will draw only parallel trend lines and not shift them to force a subjective trend. These trend lines will always be touched by a minimum of two points each and should never produce a throw-over or throw-under. When the trend does breakout then this a  pretty good sign that the trend was over some time ago already. Besides diagonal waves don't follow pretty trend lines and three wave patterns are even worse. Megaphone and triangle patterns are basically the same thing, and they do help in projecting a potential "C" wave.

In short, I want to stop myself from drawing any trend lines that produce throw-overs or throw-under lines.  A prime example of a forced trend line was the 2007-2009 crash. You don't have to be a rocket scientist to see that trend, but they drew the two lines, forcing you to think it was an impulse. Impulse waves do not drop that steep of an angle, yet that had everybody convinced that they do.

All the wave counting in the world is a waste of time if we do not construct the idealized pattern that we need to follow. As crazy as it sounds think of the idealized pattern as blueprints and that a wave count is just a huge building. It was impossible to build the Empire State building without a set of detailed blueprints.  Without blueprints it is impossible to know what to build next. The exact same thing applies to the idealized charts. I have many of them drawn up and posted but most of them are in SC or GSC degree, but I have drawn or adjusted wave counts to be Cycle degree specific.

Before we get into the real world wave count it is important to understand 5 waves up in Cycle degree. With stocks the wave three is never the shortest wave and below is a very normal extended wave three. More than a normal extension, would add another set of 5 waves in Minor degree.
This would produce a count like 1-2, 1-2, 1-2, 1-2. I only show 3 sets drawn out below.  After the last wave 1-2 is completed, then the market will only produce waves 3-4-5.

If we look up to the peak and find Cycle degree wave three, then this would be the same as my real world 2000 peak. Then a triangle 4th wave would still be in progress with a potential "D" wave in Primary degree still to finish.  I have many detailed idealized triangle posted online already, but now I have updated the degrees.  Notice my wave 3 in the SC degree way up top above Cycle degree wave 5.  This still means we are years away before we enter any SC degree world. From my perspective SC and GSC degree is just a myth. I have talked about the reasons why, many times, but I have to use the exact same rules now, but several degrees lower.  My largest corrective letter cannot and must not be any higher than Primary degree. I cannot stress this enough, as it is so easy to slide into a higher degree when we have no business being there in the first place.  

As I have mentioned, I have many of these idealized triangle posted online already, but not in a degree low enough.  These triangles can form all sorts of different ways as they will always alternate with each other and alternate from the next one beside each other. The leading 5 waves will always be different then the trailing 5 waves.  Chances are slim you will ever see a pure flat correction in a triangle, but you will see plenty of bad zigzags.  We can have running triangles going up and triangles going down with each corrective wave trying to out do the previous corrective wave. This is also one wave pattern where the previous "ABC" crash may not always get retraced right away, but they will always get retraced with the "Thrust" of the 5th wave in Cycle degree.

This thrust must be 5 waves up in Primary degree and that will not happen until after the next big bear market ends,  with my Cycle degree 4th wave bottom.  A big triangle definitely would help to explain away the choppy 2009-2015 rally and the solar cycle #24 would explain why the "D" wave was so strong and powerful.  The 2009 combination may not happen again until the 2021 time frame, but I am sure the big wave degrees will get smashed again. 

Elliott Wave Theory has a big disadvantage because people use it mostly for short term trading and they don't use any contrarian indicators. It is also impossible to take positions when we have no warning that a major trend reversal is near.  None of the big degree wave counters had the confidence to take bullish positions in early 2009 even though all the insiders were buying their own stocks. Warren Buffet was screaming to buy stocks yet wave counts were oblivious to the mood. 

Any wave count in sympathy with the crowd will never work and the markets will deal with them without mercy. 

Any "B" wave and any "D" wave top in Primary degree,  will have the same bullish mood as any wave 1 would have, and the only way to tell the difference is how this "B or "D" wave structures behave. I have tried many different wave counts from the 2009 bottom up and with a triangle this would now remain to be a big bear market rally and not a diagonal 5th wave. 

Any major decline into the 2021 time period should not contain any pure since 5 waves down as there should be a "B" wave counter rally in there somewhere. This "B" wave should be an Intermediate degree "B" wave, with the entire move containing no higher than Minor degree 5 wave sequences. 

In short you will not see my wave count as 5 waves down in Intermediated degree and the last wave count you will see from my blog is 5 waves down in Primary degree. 

Real world wave counting is not about counting waves of what they look like, it's all about staying in sequence keeping wave 3 as the longest wave structure.  

In the real world the Elliott Wave books have the 1929-1932 crash and bear market as SC degree wave 3-4.  In my world this is no longer a viable position as it was only 3 years long.  A 3 year long SC degree 4th wave correction? Yeah, right! Not on planet earth! :)  I also do not believe that 4th wave bottoms produce depressions, the likes we had in the 30's, but that wave two crashes can. Wave two crash depressions sets up the major bull market after to come.  Even the dirty 1950's were mentioned, but the bull market charged right through that era.


You have seen this chart many times on this blog, but this is the most recent I could find. It is also in "Log" format and my single top trend line touches only two peaks without producing any throw-over, which should also produce no throw-under.   My wave count now has a Cycle degree wave 1-2 for 1929-1932 lasting only 3 years with a long Primary degree 5 waves up to the peak in 2000. 

My bottom trend lines will always be as parallel as I can make it and at times I will add a third center line if need be. Otherwise, I like to stay as clean as possible.  By dropping my degrees down the waves from 1932 to 1937 are now Intermediate degree and not Primary degree, as all other wave counters have.   This keeps the physical part of the wave counts more in line with reality and the 1932-1942 pattern matches our present Primary degree wave sizes much better as well.   

This makes wave three in Cycle degree the longest wave and nowhere near any SC or GSC degree wave counts.  Now if we fast forward to next year we may have a "D" wave in place, but we should see another low by the time solar cycle #24 hits its bottom in 2021. A 2021 bottom would be a Fibonacci 89 years from 1932 and about 13 years from the early 2009 bottom. The potential 2021 bottom does not have to scream much past the 2009 bottom but it could produce a double bottom or just go low enough to piss off all those high degree wave counters.  They will be screaming that DJIA 6000 or 5500 is not low enough to confirm a SC or GSC degree bottom and I am sure they will leave you holding the bag of wooden nickels again.  Price will never confirm a wave count as only patterns can do that, besides, if the next bear market creates any type of an "ABC" then you can bet that the market will roar back up, and exceed any high we presently have or will still get.  This would be the thrust I have talked about and it must contain 5 waves up in Primary Degree. 

We have a long way to go before we get to the Cycle degree 4th wave bottom and it all could backfire, but at this time it will take a long time before I remove my wave three again.