Lesson 34: Nearing the Pinnacle of a Grand Supercycle

Real time forecasting is an immense intellectual challenge. Mid-pattern decision making is particularly difficult. There are times, however, as in December 1974 and August 1982, when major patterns reach completion and a textbook picture stands right before your eyes. At such times, one's level of conviction rises to over 90%.

The current juncture presents another such picture. Here in March 1997, the evidence is compelling that the Dow Jones Industrial Average and the broad market indices are registering the end of their rise. Because of the large degree of the advance, a sociological era will end with it.

Elliott Wave Principle, written in 1978, argued that Cycle wave IV had finished its pattern at the price low in December 1974. Figure D-1 shows the complete wave labeling up until that time.

Figure D-1

Figure D-2 shows the same labeling updated. The inset in the lower right corner shows the alternative count for the 1973-1984 period, which The Elliott Wave Theorist began using as its preferred count in 1982 while continually reiterating the validity of the original interpretation. As shown in Lesson 33, the count detailed on the inset called the 1982 lift-off, the peak of wave [1], the low of wave [2], the peak of wave [3], and by Frost's reckoning, the low of wave [4]. Wave [5] has carried over 3000 points beyond EWT's original target of 3664-3885. In doing so, it has finally met and surpassed in a throw-over its long term trendlines.

Figure D-2

Take a look at the main chart in Figure D-2. Those familiar with the Wave Principle will see a completed textbook formation that follows all the rules and guidelines from beginning to end. As noted back in 1978, wave IV holds above the price territory of wave I, wave III is the extended wave, as is most commonly the case, and the triangle of wave IV alternates with the zigzag of wave II. With the last two decades' performance behind us, we
can record some additional facts. Subwaves I, III and V all sport alternation, as each Primary wave [2] is a zigzag, and each Primary wave [4] is an expanded flat. Most important, wave V has finally reached the upper line of the parallel trend channel drawn in Elliott Wave Principle eighteen years ago. The latest issues of The Elliott Wave Theorist, with an excitement equal to that of 1982, focus sharply on the remarkable developments that so strongly suggest that wave V is culminating (see Figure D-3, from the March 14, 1997 Special Report).

This is a stunning snapshot of a market at its pinnacle. Whether or not the market edges higher near term to touch the line again, I truly believe that this juncture will be recognized years hence as a historic time in market history, top tick for U.S. stocks in the worldwide Great Asset Mania of the late twentieth century.

Figure D-3

Epilogue

Until a few years ago, the idea that market movements are patterned was highly controversial, but recent scientific discoveries have established that pattern formation is a fundamental characteristic of complex systems, which include financial markets. Some such systems undergo "punctuated growth," that is, periods of growth alternating with phases of non-growth or decline, building fractally into similar patterns of increasing size. This is precisely the type of pattern identified in market movements by R.N. Elliott some sixty years ago. The stock market forecast in Elliott Wave Principal the thrill of bringing the reader to the pinnacle of a sociological wave of Cycle, Supercycle and Grand Supercycle degree as revealed by the record of the stock market averages. It is a vantage point that affords remarkable clarity of vision, not only concerning history, but the future as well.

The future is the subject of Robert Prechter's new book, At the Crest of the Tidal Wave. It presents a highly detailed elaboration of the second half of the authors' forecast, i.e., that a record-setting bear market is now due.

At this time, half of our great journey is over. That first leg, upward, was both personally and financially rewarding in fulfilling the authors' sober expectations, which were simul- taneously beyond most market observers' wildest dreams of riches. The next move, which will be downward, may not be as rewarding in either way, but it will probably be far more important to anticipate. Being prepared the first time meant fortune and perhaps a bit of fame for its forecasters. This time, it will mean survival, both financial and (based upon Prechter's work correlating social and cultural trends with financial trends) ultimately physical for many people as well. Although it is generally believed (and tirelessly reiterated) that "the market can do anything," our money is once again on the Wave Principle. In the sixty years since the first forecast based on the Wave Principle was issued by R.N. Elliott, it hasn't failed yet in providing the basis for an accurate long term perspective. We invite you to stay with us for the next leg of our great journey through the patterns of life and time.

To order R.N. Elliott's Masterworks (The Voice of the Master) and At the Crest of the Tidal Wave (Prechter's forecast for the next 10 years), click here .