Monday, November 5, 2012

Saved by Elliott Wave

Once again I remind you that if you're ever lost and on a deserted road without a cell phone, grab paper and pen and begin an Elliott Wave count. Within seconds, a stranger will appear to correct your wave count. Ask this guy for a ride. The problem has always been where to begin the wave count.

Students of Elliott Wave will try to identify the bull phase of three advances (impulse waves) that are separated by two corrective waves to be a perfect five-wave Elliott bull market. The completed bull is then followed by a three wave A-B-C bear phase.
Our chart is a long term monthly plot of crude spanning about 15 years displaying the entire 1998 through 2011 secular crude bull. The first advance or wave (1) ran from the late 1998 low to peak at about mid year 2000. The first short corrective wave bottomed at (2) in early 2002. The second advance or wave (3) ran from the 2002 lows at (2) to the mid 2008 peak at (3). Note the 5-wave subdivision of the wave (3) advance.

The second corrective wave (3) to (4), while deeper than corrective wave at (1) to (2), never entered the space of the first impulse wave (!). The final advance or wave (5) ran from the 2008 lows to the final peak in early 2011 at (5).

The completion of the 1998 – 2011 crude secular bull is not likely the end of the world for the crude energy complex, but rather just a sign that the easy money has been made. Stock pickers will likely do better than sector indexing over the next few years. Next post we look at the precious metals complex.


SteveB said...

I don't understand how (5) does not pass the peak of (3). The (4),(5) could be an ABC flat said...

Hi SteveB

In a weakening advance there can be a Fifth Wave Failure. This is when the momentum in wave 5 is extremely weak and many times it won’t surpass the top of wave 3, causing a double top at then end of the trend. This formation is also known as a truncated fifth wave - see Elliott Wave Principle - Frost & Prechter page 35

Thanks for a very good question - Bill C