Lesson 33: A FORECAST FROM 1982, PART II
excerpt from
The Elliott Wave Theorist
September 13, 1982
THE LONG TERM WAVE PATTERN —
NEARING A RESOLUTION
Continued from Lesson 32
Double Three Correction Ending in August 1982
The technical name for wave IV by this count is a
"double three," with the second "three" an ascending triangle. [See
Figure A-3; note: Figure D-2 places [W]-[X]-[Y] labels on this pattern.] This wave count
argues that the Cycle wave correction from 1966 ended last month (August 1982). The lower
boundary of the trend channel from 1942 was broken briefly at the termination of this
pattern, similar to the action in 1949 as that sideways market broke a major trendline
briefly before launching a long bull market. A brief break of the long term trendline, I
should note, was recognized as an occasional trait of fourth waves, as shown in [R.N.
Elliott's Masterworks]. [The main] disadvantage of this count is that a double three
with this construction, while perfectly acceptable, is so rare that no example in any
degree exists in recent history.
Figure A-3
A surprising element of time symmetry is also present. The
1932-1937 bull market lasted 5 years and was corrected by a 5 year bear market from 1937
to 1942. The 3½ year bull market from 1942 to 1946 was corrected by a 3½ year bear
market from 1946 to 1949. The 16½ year bull market from 1949 to 1966 has now been
corrected by a 16½ year bear market from 1966 to 1982!
The Constant Dollar (Inflation-Adjusted) Dow
If the market has made a Cycle wave low, it coincides with
a satisfactory count on the "constant dollar Dow," which is a plot of the Dow
divided by the consumer price index to compensate for the loss in purchasing power of the
dollar. The count is a downward sloping [A]-[B]-[C], with wave [C] a diagonal triangle
[see Figure A-3]. As usual in a diagonal triangle, its final wave, wave (5), terminates
below the lower boundary line.
I've added the expanding boundary lines to the upper
portion of the chart just to illustrate the symmetrical diamond-shaped pattern constructed
by the market. Note that each long half of the diamond covers 9 years 7½ months (5/65 to
12/74 and 1/73 to 8/82), while each short half cover 7 years 7½ months (5/65 to 1/73 and
12/74 to 8/82). The center of the pattern (June-July 1973) cuts the price element in half
at 190 and the time element into two halves of 8+ years each. Finally, the decline from
January 1966 is 16 years, 7 months, exactly the same length as the preceding rise from
June 1949 to January 1966. [For the full story on The Elliott Wave Theorist's long
term assessment of this index, see Chapter 3 of At the Crest of the Tidal Wave.]
Advantages
1) Satisfies all rules and guidelines under the Wave
Principle.
2) Keeps nearly intact the long term trendline from 1942.
3) A break of triangle boundaries on wave E is a normal
occurrence [see Lesson 1].
4) Allows for a simple bull market structure as originally
expected.
5) Coincides with an interpretation for the constant dollar
(deflated) Dow and with its corresponding break of its lower trendline.
6) Takes into account the sudden and dramatic rally
beginning in August 1982, since triangles produce "thrust" [Lesson 1].
7) Final bottom occurs during a depressionary economy.
8) Fits the idea of a four year cycle bottom.
9) Fits the idea that the Kondratieff Wave plateau has just
begun, a period of economic stability and soaring stock prices. Parallel with late 1921.
10) Celebrates the end of the inflationary era or
accompanies a "stable reflation."
Disadvantages
1) A double three with this construction, while perfectly
acceptable, is so rare that no example in any degree exists in recent history.
2) A major bottom would be occurring with broad recognition
by the popular press.
Outlook
Triangles portend "thrust," or swift moves in the
opposite direction traveling approximately the distance of the widest part of the
triangle. This guideline would indicate a minimum move of 495 points (1067-572) from Dow
777, or 1272. Since the triangle boundary extended below January 1973 would add about 70
more points to the "width of the triangle," a thrust could carry as far as 1350.
Even this target would only be a first stop, since the extent of the fifth wave
would be determined not merely by the triangle, but by the entire wave IV pattern, of
which the triangle is only part. Therefore, one must conclude that a bull market beginning
in August 1982 would ultimately carry out its full potential of five times its starting
point, making it the percentage equivalent of the 1932-1937 market, thus targeting 3873-3885.
The target should be reached either in 1987 or 1990, since the fifth wave would be of
simple construction. An interesting observation regarding this target is that it parallels
the 1920s, when after 17 years of sideways action under the 100 level (similar to the
recent experience under the 1000 level), the market soared almost nonstop to an intraday
peak at 383.00. As with this fifth wave, such a move would finish off not only a Cycle,
but a Supercycle advance.
October 6, 1982
This bull market should be the first
"buy-and-hold" market since the 1960s. The experience of the last 16 years has
turned us all into [short-term market timers], and it's a habit that will have to be
abandoned. The market may have 200 points behind it, but it's got over 2000 left to go!
The Dow should hit an ultimate target of 3880, with interim stops at 1300
(an estimate for the peak of wave [1], based on post-triangle thrust) and 2860 (an
estimate for the peak of wave [3], based on the target measuring from the 1974 low).
November 29, 1982
A PICTURE IS WORTH A THOUSAND WORDS
The arrow on the following chart [see Figure A-7]
illustrates my interpretation of the position of the Dow within the current bull market.
Now if an Elliotter tells you that the Dow is in wave (2) of [1] of V, you know exactly
what he means. Whether he's right, of course, only time will tell.
Figure A-7
Next Lesson: Nearing the Pinnacle of a Grand
Supercycle |
