figure #1 new-wave elliott the foundational long count...
TRANSCRIPT
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September 19, 2014 (revised March 23, 2016) ^Ctrl+ to fill the page
New-Wave Elliott™ Part 1 is a synthesis of Elliott, Mandelbrot & Shiller
New-Wave Elliott™ is a highly-evolved version of the Elliott Wave Principle - a radical
departure from the establishment’s version, advanced & refined over the course of 26 years by
Eduardo Mirahyes, Founder & President of Exceptional Bear - Timer Digest’s 2015 Timer of the
Year.”
New-Wave Elliott™ is a fusion of RN Elliott’s chronicled price patterns, reconciled within the
context of Robert Shiller’s Nobel Prize-winning “Century of Market Valuations” and Benoit
Mandelbrot’s Market fractal discoveries. Substantiated by Elliott’s previously hypothetical
Channel to prove its veracity, New-Wave Elliott™ is the first, major advancement of RN Elliott’s
legacy.
Figure #1 New-Wave Elliott™ - the foundational long count 1900 - 2016
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Executive Summary: Despite being highly distorted by buybacks, current P/E ratios are
dangerously high on the historical basis chronicled by Nobelist, Robert Shiller. Historically,
each time stocks have reached such lofty valuations, they swiftly plunge to result in
catastrophic losses. Obviously a limited upside, versus a black hole downside, imply the
current risk/return ratio is highly skewed in favor of the bearish camp, yet if you persist
in a “Buy & Hold” strategy in a Bear Market, wild gyrations will still have you down-sizing
your lifestyle before long.
In order to survive and prosper in a Bear Market, you need to adapt your investment
strategy to the long-term, volatile conditions. Such is optimally executed via expertly-
timed swing-trading, to scale-in and out of inverse ETFs and long commodities. If you are
unwilling or unable, to swing-trade, you would be wise to bail out of all stocks now, and
allocate your wealth into temporary “safe havens”: the unlevered Euro & Gold for the
next 12-18 months –for the most advantageous timing, wait until the dollar peaks and gold
pulls back near the low. For anyone with a portfolio worth in excess of $50,000, getting this
timing right is worth far more than the cost of a subscription, and with the 30-day risk-free
trial, it could potentially cost you nothing to time the reversal into gold and the Euro near the
low – just this one action could save your skin.
The essence - The Wave Principle pictorially depicts the collective unconsciousness through a
series of nested impulse/corrective market cycles. Such cycles are the product of linear
projection by the vestigial, limbic brain, to result in emotionally–driven behavior, exemplified by
herding in the Market, from extreme over-valuation to extreme under-valuation and back again.
Investors habitually buy stocks at the top of the Market based on (linear) momentum, just
before the downturn. This time, the stakes are likely higher than they have ever been.
At Cycle degree and higher, waves I & III (depicted in the map in figure #1) describe
expansions and capital creation, while waves II & IV are capital-destructive Bear Markets, to
describe a lesser Boom/Bust cycle. Wave II corrects wave I, and wave IV corrects wave III
while the 5th impulse wave, transcends magnitude to complete Supercycle (III). Impulse waves
are annotated with numbers, and corrections with letters, in a hierarchy that is easiest
assimilated via color. Supercycle degree is 4x the magnitude of Cycle degree, which in turn is
twice the magnitude of Primary. Labeling is found at the end of each segment, whose
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subdivisions are annotated one degree of trend lower. For now, this is all you need to
understand this piece.
Although RN Elliott hypothesized the channel via lower-degree fractals, he was never able to
reconstruct it at higher magnitudes. Just as the New-Wave Elliott™ channel in figure #1 fits
neatly between two parallel lines, Robert Prechter’s forced channel compared in Part 2, reveals
the his count for a blunder, to explain why the wave principle has taken bad rap over the years.
Obviously, an erroneous, foundational count, which fails to identify where we are in the Big
Picture, cannot possibly serve to forecast where we’re going.
From my own experience, the blunder count’s bearish bias in a roaring Bull Market cost me
small fortune. That’s when I realized that I could forecast better, and cancelled my EWI
subscriptions. Years later, well into the Bear Market, and ecstatic from having seen my first Diag
II, I fell back on thinking that the experts at EWI must know more than I. So before buying
calls, I sought a second opinion from my Advanced Elliott Wave Tutorial teacher 12 years prior.
In what appeared in retrospect to have been a bout of professional jealousy, he convinced me
that I was “all wet”, that what I had seen was in fact a Diag >, to indicate an impending dramatic
reversal and advised to “buy puts up to my eyeballs”. Well, that Bear Market Rally persisted for
another 5 years, and the $80,000 I had speculated in staggered puts, was a total loss. The
same amount in calls would have netted well over $1m. That time, I learned my lesson.
For those who persist, nothing teaches faster than losses. If you can learn from my
experience, and “unlearn” nearly everything you know about the wave principle, you will be far
ahead of the pack. That’s why the aggregate refinements found in New-Wave Elliott™ and the
integral long wave count are major milestones in the evolution of the Wave Principle, which
reveal how the market really works. In the hands of a capable analyst, New-Wave Elliott™ will
produce in a quantum leap in the percentage of winning trades to compound market wealth like
never before. The long count in figure #1 is a solid foundation from which to forecast, and of
great advantage to anyone who wishes to Master the Market, as opposed to knowing about it
superficially.
Below in figure #2 you see two examples of the a-b-(a); a-b-(b) magnitude-transcending
pattern in monthly candlesticks. The first occurred in Cycle Wave IV’s d-wave, which culminated
1973 in an irregular top, to gear up Bearish magnitude 2x for the e-wave plunge. Only this final
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e-wave within the Diag II A-wave, unfurled entirely at Cycle degree. In Bear Markets, magnitude
gears up to the highest degree in the final Bear Market Rally before the plunge. Apparent as
an irregular top, wave e reached substantially higher price than the previous Bull Market’s
orthodox top. After reversal, Cycle magnitude was swiftly recalled in the echoing Diag II (1973-
1974), to confirm, and follow-through in a mini crash, tempered only by its lower magnitude.
Since the Market is a fractal, where the whole is echoed in its parts and sub-parts, in the
absence of Fed Manipulation, Cycle Wave IV provides a 25% scale preview of the current
Supercycle (IV) Bear Market.
Figure #2 Magnitude Transcending in Bearish Cycle & Bullish Supercycle
The second example of magnitude gearing in figure #2 arose in Bullish mode, to herald the
great Bull Market ended 2000. Right after the conclusion of Cycle Wave IV, between 1978 &
1982, magnitude geared up three times, as a fractal within a fractal. Each Diag^ relates a
semi-log (200%) magnitude increment. From Primary degree baseline, three were required to
ascend Supercycle magnitude, to be later recalled in the Bullish Diag II, after Primary wave 4.
At the tail-end of the Great Bull Market beginning 1996, the same structure geared magnitude
back down to Cycle degree, to become the new baseline, just prior to the 2000 Bull Market Top.
This discovery is a major milestone in the advancement of the Wave Principle, and restores RN
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Elliott’s “A-B Base”, rechristened as the a-b transition. Not only to signal every reversal, but
also to reveal magnitude via the number of its visible repetitions on a monthly scale.
AJ Frost and Robert Prechter’s rejection of the pattern in the Elliott Wave Principle clearly
demonstrates the lack of pattern recognition aptitude. While Robert Prechter is a brilliant
orator and a master of public image, his highly-publicized genius, does not extend to pattern
recognition, which is the only genius that’s relevant to mastery of the Wave Principle.
In the current Supercycle (IV), the magnitude gearing achieved in wave D, ended 2014 as an
irregular top, and is currently being recalled via an echoing Diag II, to gear magnitude back up
for the Crash to follow. See the magnified structure in figure #3. Take special notice that the
47% plunge of the e-wave of Cycle degree equates proportionately to an 89% plummet at
Supercycle degree, while a Grand Supercycle plummet, resulting from Fed manipulation, would
mean a ~97.7% plunge to the trough.
Figure #3 Magnitude Transcended down twice
near the end of the Bull Market (1997-2000)
Within the colossal Diag II in Figure #3, wave A plunged at Cycle Degree, wave C dove at Supercycle
Magnitude, and wave E will most likely plummet at Grand Supercycle Degree. Meanwhile, magnitude
transcended higher with each Bear Market Rally, as above, higher magnitude was recalled via a Diag II
fractal near the beginning of each plunge. Wave B augmented 2 Diag ^s to Supercycle Magnitude,
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Wave D augmented via 4 Diag ^s to Grand Supercycle Degree. In my work, the Diag ^ signifies
transcending magnitude, beyond the Diag > which RN Elliott’s took to mean dramatic reversal ahead.
New-Wave Elliott™ -differs from previous versions of the Wave Principle in critical ways.
1) RN Elliott’s “A-B Base”, long discarded by Robert Prechter, has been reinstated as a key
structure, and re-christened the a-b transition, to precede every reversal, regardless of
direction. This transcending structure was long relegated to the “garbage heap”, of mere noise
for decades. The Diag ^ relates the wave’s post-reversal magnitude. In figure #3 you see
magnitude gears-up in Bullish mode after the IVth Cycle Wave, and morphs back down after the
subsequent IVth Cycle Wave, essentially framing the Supercycle segment.
2) While RN Elliott discovered & termed the “degrees of trend”, which describe augmenting
magnitude. Elliott neither identified their location, after the 4th wave, nor recognized the a-b-A; a-
b-B pattern by which magnitude transcends.
3) Below Cycle degree, magnitude augments in a single semi-log increment (200%), while above
Cycle degree two semi-log increments gear-up magnitude 400%. With the exception of Hamilton
Bolton’s Bullish Diag II discovery in the 1950's, by forsaking of this indispensable pattern, the
establishment degenerated Elliott’s legacy.
4) In Bull Markets, once Supercycle magnitude is recalled via the Diag II, corrective waves drop to
Primary magnitude, 1/8 the degree of Supercycle impulses to explain why Bull Markets appear
so smooth. The identical smoothness in Supercycle Bear Markets, manifests as mere pauses, to
replace upside corrections, in waves (A) and (C) of an (A)-(B)-(C) Bear Market. Such
unanticipated 4x leap in magnitude, compounded by the vast disparity between impulses and
corrections, highlight the predominant emotion of fear in Bear Markets, as a far more powerful
emotion on the collective unconsciousness than the greed, which prevails in Bull Markets. Fear is
analogous to gravity, which accelerates plunges, and acts like a head-wind to temper impulse
progressions. As described in Newtonian Mechanics Supercycle Bear Markets Crash as a result
of 4x higher magnitude, accelerating into free-fall, the product of Mass x Acceleration. Where
acceleration is defined as velocity squared, and Mass by peak Market Capitalization.
5) The highest volatility corrections in Supercycle Bull Markets are concentrated within the Diag II’s
where the magnitude disparity described above is temporarily suspended. As you see, the
highest volatility in Supercycle (III) was the 1987 Crash, a wave ii within the Diag II, as the
higher magnitude was being recalled to result in growing pains. A similar volatility spike shook
Markets, as Supercycle magnitude geared back down to Cycle degree between 1996 and 1998,
to include the demise of Long Term Capital Management, a hedge fund packed with four Nobel
Laureates. Like the Titanic, LTCM was thought to be unsinkable.
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6) The 1929 Crash occurred in wave 1 of the echoing Diag II, before magnitude was fully recalled
in 1931, and therefore was less severe, than it otherwise might have been. However, once the
Diag II completed, the plunge resumed. From the high of the 1930 bounce, the subsequent
trajectory to the trough was 3x greater than the Crash. But since the initial 10% plunge wiped-out
the majority of speculators on 90% margin, the collective consciousness remains fixated in the
Crash. Note below the same two Diag ^s in the (B) wave as recently geared-up magnitude in a
Bear Market Rally, before the plunge.
Figure #4 Supercycle Wave (II) Bear Market 1906-1932
7) The Diagonal Triangle type 2 (Diag II), is virtually ubiquitous at the inception of complex Bull &
Bear Markets above Cycle Degree, to confirm their extended duration, here is one exception to
market fractals, resulting uniquely from higher magnitude. I have not witnessed the pattern at
lower degrees.
Rather than the “extremely rare” pattern described in Frost & Prechter, the Diag II is
foundational to the long wave count, and heralds the start of a long trajectory, proportional to its
physical dimensions in severity & duration, regardless of bullish or bearish.
Just compare the dimensions of the 3-year Bullish Diag II in 1987, with its Bearish reciprocal
spanning 14 years in Figure #3. In arithmetic scale, the distortions of log scale are backed-out to
reveal a real eye-opener. A rough estimate of the disparity communicates the Bull Market
appreciated nearly 15x to the 2000 orthodox top in Supercycle (III). Observe its parabolic ascent
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only took hold after the Diag II, when Supercycle magnitude was recalled. Obviously a relative
colossus, the Bearish Diag II presages cataclysm.
Once these insights were reconciled with Nobel Laureate, Robert Shiller's Research on Market
Valuations compiled by Andrew Smithers, along with Benoit Mandelbrot’s reciprocal fractal
perceptions; the radical New-Wave Elliott™ count in figure #1 emerged.
Smithers’ Values Research confirms New-Wave Elliott™
Below is the Smithers’ Values Chart annotated with Exceptional Bear’s New-Wave Elliott™
count, to show historical market valuations by two metrics: Tobin’s q-ratio, of replacement costs
& Nobel Laureate, Robert Shiller’s P/E 10 (a 10-year moving average Price/Earnings ratio).
Since the Market is a fractal, Supercycle Waves (II) & (IV) equate to waves 2 & 4 of the 5-wave
Grand Supercycle [III] progression since 1900, analogous to Cycle Waves II & IV within
Supercycle (III)’s 5-wave progression from 1932 to 2000. In both cases, only the final segment
unfurls entirely at the higher magnitude in practice, yet in principle, its entire length bears RN
Elliott’s original magnitude classification.
The historical Market Values found in figure #5 merit careful study. On the y-axis you find the
valuation scale, where zero infers fully-valued, plotted against time on the horizontal axis. While
Shiller’s 10-year average P/E in blue is analogous to a film clip, Tobin’s q-ratio represents to a
snapshot valuation.
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Figure #5
The lower orange line at -0.9 (90% discount) is the likely minimum Supercycle trough
consistent with Deflationary Depression. While the dashed red/yellow line at a 60% discount
marks the lesser of two Supercycle troughs in the absence of deflation, and both Cycle degree
troughs. These observations concur with Russell Napier’s The Anatomy of the Bear. His
conclusion: the 2009 trough did not suffice to end the Bear Market, having only reached
“fair value”. From Napier’s perspective, the Pendulum swing to undervaluation will not
be complete until it reaches the minimum 60% discount. Although Napier did not delve
into Elliott’s magnitude classifications, a simple annotation of the chart, consistent with the long-
term channel in figure #1, reveals far more than Napier’s conclusions. Moreover, reconciliation
of the Wave Count with Shiller’s Values, made it obvious that the lowest valuations of a Century
could not possibly exist within the confines of any Bull Market. Yet everyone before me
considered the entire Bear Market ended in 1932, to have popped out of nowhere in 1929. Even
by Robert Prechter’s count, Cycle Wave IV, despite being incorrectly classified, lasted 12 years.
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It does not take a genius to deduce that a Supercyle Bear Market of 4x the magnitude, could
possibly conclude in one-quarter of the time as a Cycle Bear market. It’s comparable to
conceiving that a giant could have hands & feet ¼ the size of a dwarf’s.
At a valuation of -0.9 in 1920, stocks sold for ten cents on the dollar of replacement cost, and
less than a single quarter’s earnings, vs. the long-term average price equal to 12 years (60
quarters) earnings. As you may surmise, a Grand Supercycle trough would result in valuations
approximating three cents on the dollar. Consistent with a dramatic shrinking of the money
supply, deflation would serve to dramatically increase the purchasing power of the fewer
dollars remaining. It goes without saying that the aggregate of Quantitative Easing must be
withdrawn in the aftermath of the Crash. Such deflation would threaten default of Government
debt, since deflation is much more difficult to tax and requires debts be repaid in higher value
dollars.
Note in Figure #4, that despite the Crash in Wave (C), the lowest valuations of the century
occurred in 1920, shortly after completion of a truncated Wave (A), to suggest Fed
manipulation even then. As a result of massive Deflation, the Consumer Price Index in 1920 had
reverted to the level of the American Civil War, 70 years earlier.
Figure #6 Historical Consumer Price Index, Gold Standard & the Fed’s heavy hand
The Fed was instituted in 1913, with the purpose to avoiding another Panic of 1907. Such
intervention was not just hinted in the truncated (A)-Wave of 1918, but also by the gargantuan
(B) wave, known as the Roaring Twenties that followed. A Bear Market Rally very similar to our
Wave D ended 2014.
We still have not learned the lessons of previous interventions. In recent history, Ben Bernanke
despite his distinction as Depression-era Scholar, made the identical mistakes to force a
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monstrous Bear Market upon us. Just as the First Great Depression was all the more bitter and
enduring because of Fed intervention, so too will our economy crater once more to a greater
extent. With the exception of the bounce into 1930, after the crash, the Market continued to fall
freely into 1932. The repetition of these events, with only minor variations, is a certainty. This
time, there may not be a bounce, since we have already progressed far beyond wave 1 of the
Diag II, where the 1929 crash occurred. This time, it would appear that Grand Supercycle
magnitude will be fully replicated in the Crash of 2016. If S&P 2100 is reached in the current
trajectory, it will suffice to complete wave 4 and imply the possibility of an imminent Crash,
without further pullback to precede it.
Figure #7 Where we are today, relative to the 1929 Crash
Note how closely this Values Chart in figure #5 illustrates Elliott’s observation that Market
prices perpetually swinging from highly overvalued, to highly undervalued, from any time
perspective. From a 60% premium ($1.6x) replacement costs in 1906, to a 90% discount
($0.10x) by 1920 describes such a valuation swing, beyond imagination then, as now.
Obviously those who sold in 1906 and 1929 to go short, like Jesse Livermore, made fortunes.
While those who held plummeting stocks in 1929, would have waited 8 years to recover
perhaps half their market wealth. If they happened to miss that window of opportunity in 1937,
they would have to wait another 33 years before they would get another chance to recover half
their previous net worth. Their real net worth, measured by purchasing power, would only have
been surpassed until the late 1990’s - but anyone who withdrew funds during the Depression, or
held stock of companies that went bankrupt, like the New York Central Railroad, WorldCom or
Bear Streams, likely never recovered. As John Maynard Keynes quipped, “In the long-run we
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will all be dead” – when would now be a good time for those conditioned to Buy & Hold to let
this warning to sink-in. Fail to adapt, and you too will go the way of the dinosaur.
History repeats itself most often in the Market
From the 1906 high labeled Wave (I) in Figure #4, values plummeted soon after the values
chart Diag II to trough in 1920. A very similar Diag II leading from the 2000, Bull Market top,
labeled Wave (III) has the identical implications. Once more, market valuation will plunge to
levels beyond imagination.
Benoit Mandelbrot’s Fractal Logic
To Benoit Mandelbrot, we owe the basic premise that every bullish structure must have a
reciprocal, bearish fractal, and vice-versa. In other words, just as the Bullish Diag II heralds the
start of a long bullish move proportional to its “magnitude”, in a similar vein, the Bearish Diag II
signals a Bearish move of relational size. I applied Mandelbrot’s logic to invert Hamilton Bolton’s
Bullish Diag II, to result in the Bearish Diag II, which still remains unrecognized by the Elliott
establishment as a corrective pattern. Attempts to rationalize the Bearish Diag II by Elliott Wave
International (EWI) include the imaginary labeling of Cycle Wave IV as an imaginary “running
correction,” a count later modified to A-B-C-X-A-B-C, both attempts entirely missed its
impulse wave subdivisions, assuming they must be 3-wave, as opposed to meticulously
counting them.
From my own empirical observations, I had been counting the a-b reversals for some time
before I recalled RN Elliott’s description in his Masterworks, together with their condemnation by
Robert Prechter, its editor, from years earlier.
Like everyone else, I assumed Robert Prechter was infallible for at least ten years after I
completed the Advanced Tutorial. On one occasion, he gave such a brilliant discourse that left
me mesmerized by his brilliance, like never before or since. In that speech, he described
ancient history in terms of the Wave Principle: The rise of the Roman Empire and the
Renaissance were two Great Bull Markets, while the Dark Ages between them was an enduring
Bear Market.
Along the same lines of Mandelbrot logic, what RN Elliott termed the “A-B Base”, not only
marks the beginning of an upside reversal, but rather a reversal regardless of direction. For this
reason, the term A-B Reversal describes this structure more accurately. What’s more, after the
4th wave, magnitude gears-up in a transcending A-B structure - a subset of the A-B Reversal, &
the key to correctly identifying magnitude and arriving at the correct count.
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Supercycle Wave (IV), which has already transcended Grand Supercycle degree, will break
through the lower channel boundary, to the trough. In other words, when the bottom falls out of
the market, the Channel will widen exclusively at its lower boundary. As Elliott stipulated, the
channel must be widened by redrawing the lower parallel to intersect 4th wave’s trough.
Economically & pictorially the widening of the channel represents a severe, enduring economic
contraction - euphemized as Recession since FDR’s presidency during the first Great
Depression, a Recession is an economic Depression by any other name.
New-Wave Elliott™ Guidelines
1) After magnitude transcends in Bull Markets, the 5th wave is always the longest of 1, 3
& 5 due to its higher magnitude. Up to now, 5th waves have been called extensions
since Elliott’s time. The only extension results from the b wave of the a-b transition
which often repeats 3x at major market reversals, like the present. Similar to all b waves
it is a diversionary move, or smoke screen fueled by intractable suckers.
2) In Bear Markets, the longest wave implies the Crash. Magnitude is geared up in either
the B wave of a simple A-B-C Bear Markets above Cycle degree, to Crash in Wave C. In
complex Bear Markets, magnitude gears up in the D wave of a Diag II sequenced by the
longest 5th wave which corresponds with wave E, where the Crash most often occurs.
3) In figure #1 the Diag II ended 1918 was a failure, which means that the E-wave was
truncated to end above wave C of the Diag II. Logically this implies Fed Manipulation.
Corrective waves C & E are analogous to impulse waves 3 & 5, except in extraordinary
circumstances, wave 5 should exceed wave 3, as Wave E of corrections exceeds C.
4) All Bear Markets “chunk down” to Simple or Complex A-B-C structures, where the Diag
II in the A-wave accounts entirely for its complexity. In this context, B-waves are always
Bear Market Rallies, sandwiched between two Bearish plunges in waves A & C, and
counts that artificially “create complexity” are merely the result of magnitude confusion,
to mean confusing the lower degree fractals with the larger structure.
5) All Supercycle Bear Markets include at least one Crash.
6) New-Wave Elliott™ defines Bear Markets as waves 2 & 4 of Intermediate degree and
higher where corrections endure two years or more. At Supercycle Degree, Bear
Markets can persist for 26 years, as witnessed from 1906 to 1932. By taking magnitude
into account, this description is far more accurate than the traditional 20% decline from
the 52-week high.
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7) Bull Markets extend organically in the 3rd of the 3rd wave by serially transcending down
magnitude after each second wave, and morphing back up after the subsequent fourth
wave. In figure #1 you see Cycle Waves I & II are followed by Primary waves 1 & 2,
which in turn are sequenced by intermediate waves i & ii. Whereupon the entire process
is reversed, Intermediate waves iii & iv are sequenced by Primary waves 3 & 4, as the
wave gears back up to Cycle Waves III to end at the same degree as it began.
8) Where are the 5th waves you ask? After ascending magnitude, Intermediate wave 5
is entirely replaced by Primary wave 3, and Primary wave 5 becomes Cycle Wave III at
the higher magnitude. Bottom line, these are not synonymous, as Elliott labeled them.
Following this insight to its logical conclusion, you see that Cycle Wave IV is sequenced
by Supercycle (III), once again to replace Cycle Wave V entirely. In a similar vein,
Suprecycle (V) will be replaced in its entirety by Grand Supercyle [III] and tag onto the
end of the progression, right after Supercycle (IV). The Fifth impulse wave always
transcends to higher magnitude, to become the first or third of the next higher
magnitude – in summary, 5th impulse waves do not exist.
9) The Diag II is a prelude to & integral part of the first impulse wave within a long
trajectory.
a. As you may surmise, although the Fed may successfully postpone the Crash in
an initial intervention, on the second attempt, it fails miserably, largely the result
of its own forcing magnitude higher in a Bear Market Rally.
b. As seen in figure #2, a complex, Cycle Wave IV of 13-year duration alternated
with a simple, Cycle Wave II lasting 5-years. Likewise, a complex, Supercycle
(II) enduring 26 years, should have alternated with a simple, Supercycle (IV) of
10-year duration. In no case can the Fed ever prevent a Bear Market. Fed
interventions merely postpone the onset of the crash, while magnifying and
prolonging the resulting economic Depression. In 2009 the Fed forced the
market higher, so rather than completing a simple, Bear Market in an orthodox
bottom in 2010. By forcing it higher via Open Market Operations, the result will
be a far more devastating and enduring Bear Market of Grand Supercycle
Degree, 4x the magnitude of the Supercycle degree which would have occurred,
if we had simply allowed the Market to self-correct.
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New-Wave Elliott™ requires some adjustments to Elliott’s 3 Rules & guidelines.
Elliott’s only 3 rules
1) Wave 2 cannot correct beyond the origin of wave 1
2) Wave 3 is never the shortest, and often the longest of waves 1, 3, & 5
3) Wave 4 cannot overlap wave 1
In New-Wave Elliott ™ Diag >s (Diagonal Triangles), Diag IIs (Diagonal 2’s), break all of
Elliott's rules. In these structures, waves 1 & 4 overlap by definition. What’s more, RN Elliott’s
a-b reversal, long discarded by the Elliott establishment, will often exceed the origin of wave 1,
as an irregular top or irregular bottom, once wave 2 completes, beyond the orthodox
termination. This is where extreme herding sentiment is expressed, as a false break-out, or
false breakdown.
Figure #8 Bear Markets in Pink 1900 to present
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Elliott’s 1st Guideline: “The most likely extent of any correction is the previous 4th wave of
one lesser degree, and usually its extreme”. In Figure #1 you see Cycle Wave IV’s A-wave
trough in 1975, retraced the extreme of Primary Wave 4 in 1962. Since the Market is a fractal,
in the absence of Fed manipulation, Supercycle Wave (IV) would have logically plummeted to a
minimum of ~Dow 572, the extreme of Cycle Wave IV, the previous 4th wave of one lesser
degree.
In the absence of the correct wave count, Elliott’s 1st Guideline serves of little use. A corollary
of Elliott’s 1st Guideline, the Supercycle Channel widens after Supercycle Wave (IV) to
accommodate Grand Supercycle Degree, of 4x higher magnitude.
Elliott’s 2nd Guideline: Waves 2 & 4 within the same 5-wave progression alternate between
simple & complex; sharp & flat corrections.
Figure #9 Transcending Magnitude simulates the action of a particle accelerator
After magnitude gears up, the 5th wave morphs to the higher sequential magnitude to become
the longest of waves 1, 3 & 5. This is a stark departure from traditional Elliott, where the Cycle
Wave V, and Supercycle Wave (III) are erroneously labeled synonymously. Supercycle Wave
(III) replaced Cycle Wave V entirely, to become the longest of waves 1, 3 & 5, and the only
segment to unfurl entirely at Supercycle Degree, in practice. A corollary is that 5th waves are
never extensions; the only extensions occur in the b wave or a-b transitions, which can repeat
3x to extend beyond the orthodox top or bottom at major reversals.
Eduardo Mirahyes