Mailvox: caveat emptor

DS has reasonable doubts:

Having subscribed to Elliot in the past I find that it may be useful for investing (not trading) but only in the largest view one can take. They have been so wrong so many times on even what I would call the year view, much less month, week, day or intraday. They were wrong throughout the 90’s waiting for the top of V that to have followed them meant financial disaster if you shorted and very low returns if you sat on the sidelines. I lost alot shorting on their advice last year when they called over and over and over for the start to wave III down. My feeling is that like most of us they are way too soon in their calls but have to say something to their subscribers. They will eventually be right but in the mean time I learned the hard way not to trade in any time frame on their advice.

There’s no question that the current state of Elliott Wave understanding leaves much to be desired. I, too, was anticipating a decline last spring at the start of the war for other reasons thanks to a flawed system of my own development, so I’m hardly one to cast stones on this subject. But timeframes are clearly a major weakness in the current level of analysis, although I don’t think there’s any nefarious need to feed the subscribers that’s involved – accuracy is far more saleable than action here – instead, I suspect it’s simply the age-old problem of human impatience coloring the wavecounts.

For example, the idea that Intermediate Wave 3 was about to begin in early 2003 appears almost absurd in retrospect. Why? Because Wave 1 took about 640 trading days from March 27, 2000, to October 10, 2002. (The precise figure depends on the specific market, of course.) Now, if it’s true that we saw the peak of Wave 2 in March 2004, that’s only 319 days, pretty close to 50 percent of the time-length of Wave 1. So, far from this countertrend wave being exceptionally long, as many would have it, it’s pretty close to the minimum that one would reasonably expect even if one knew nothing of Elliott Waves. A counterwave may be longer or shorter, but it’s not reasonable to EXPECT it to be one-tenth the time of the preceding wave.

As the S&P 500 is the largest of the three indexes, it is the least easily manipulated. Assuming the Intermediate wavecounts are correct, the countertrend response of Wave 2 was a 50.83 percent retracement of the Wave 1 decline over almost precisely 50 percent of the trading days. The Nasdaq-100 featured only a 19.54 percent retracement, while the Dow did best in reclaiming 85 percent of its losses. As 50 percent is a reasonable amount of time, the Dow is unlikely to re-establish new highs and there are a plethora of other factors indicating near-term continued decline (after the expected mini-rally over the next week), I don’t expect a need to redo the Intermediate wave counts.

Time decay is fatal. I think products like RYVNX are probably much better for those with a bearish outlook, as it significantly reduces the danger of impatience. In any case, I don’t believe that Elliott Waves are definitive, I only think that they may prove to be the tip of the iceberg that is our understanding of the way in which mass forces operate over time.