Which Elliott 4th Wave Are We In Currently?

Dec 16, 2008: 1:10 PM CST

There’s a rather large debate currently brewing among Ellioticians regarding exactly which Elliott 4th Wave we are experiencing – though there’s widespread agreement we are in a 4th Wave Counter-rally.  Let’s look briefly at both sides of the argument, and what it might mean for the near future – don’t miss this post.

I’ll present the first argument first.  Elliotticians are generally in agreement until October 2008, in that we all generally agree that Waves 1 and 2 have transpired… but that’s where the agreement stops.  The first argument states that the massive (and destructive) 3rd Wave down has completed at the November price low of 746 on the S&P 500, and that we are currently in a large-scale 4th Wave which should take us to at least 1,000 to 1,100 on the S&P 500 … before embarking on a final 5th Wave down perhaps mid-2009.

Let’s look at the proposed wave count for this argument:

The agreement stops roughly in August where the fractal 2nd wave (around 1,325) takes place.  These believe fractal wave iii of the larger 3rd wave ended in October, iv ended a week later, and the v fractal wave of 3 completed also in October, and we got a quick rally up to complete Fractal 4 and then the final fifth fractal (5) of the 3rd wave completed in November.  Look closely at the chart if the textual description doesn’t make sense.

(Note – in my labeling a circle means a large-scale wave, a 1 means a fractal of the large scale wave, and Roman numerals – i – mean a fractal of the ‘fractal’ wave).

The implication of this view is that we are *currently* in a large scale Fourth Wave which should play out similarly (perhaps) to the pathway I’ve drawn above.  Also, this would put the final price low projection somewhere around 650 to 600 when the Final 5th Wave completes.  This is the more tame or mild view in terms of what’s in store for the market.

The weakness of this argument is in the fact that the fractal 4 and 5 waves do not match proportionally with the fractal wave 2 of the larger 3rd Wave Impulse.  The fractal 2 took 2 months to complete while fractal 4 took 2 weeks and fractal 5 took three weeks – clearly that is not in proportion and should cause alarm from a time-perspective.

What is the alternate Elliott view?

The projection is a little more complex on this one, but it seems to meet the proportion argument a little better.

In this case, the September lows ended fractal iii of 3 while we gave a little more time for fractal iv of 3 to play out, and still more time for fractal v of 3 to play out, which terminated at the November lows.  If fractal 3 of large-scale three completed there, then we are currently in *Fractal 4* of large scale 3… meaning we still have more downside to go soon in this hideous Third Wave.

Technically, we would be somewhere in a “b” or perhaps even the “c” wave of the 4th wave… though others interpret the recent action as an Elliott Triangle consolidation 4th Wave (which would require me showing the daily and intraday charts for a better explanation – I mean to keep this to top-level analysis for the moment).  Either way, it’s a 4th wave movement.

I must admit that I am leaning more towards this interpretation… but I encourage you to do your own analysis.

This seems to satisfy the time requirements generally accepted in Elliott Analysis better than the first interpretation.  Perhaps it also satisfies the overall economic realities – that we’re in for a long and difficult 2009.

The implication for this view is far more bearish for the market.  It implies that the rally we’re experiencing now will be weaker, raise to a lower level, and then plunge quickly to take out the November lows before marking a final end to this devastating large-scale 3rd Wave.

Of course, after the 3rd Wave completes, we’ll likely get a large-scale 4th Wave rally (into a lower level that the prior interpretation allows) and then plunge lower (perhaps to the S&P level of 450 to 500) before the final 5th Wave is in – this clearly would not be the view you would want to go around expousing publicly.

Remember that Elliott Wave analysis is only one of the many ways to interpret the market, and we’re all trying to figure out the probabilities as we understand them and then manage our risk appropriately.

I’m new to the Elliott world, so I strongly encourage readers to share your thoughts and opinions in the comment section, and to discuss among yourselves here as well.

Corey Rosenbloom
Afraid to Trade.com

70 Comments

70 Responses to “Which Elliott 4th Wave Are We In Currently?”

  1. Adan Lerma Says:

    really fascinating thread; only happened onto this site because of a mention on mish’s site, very grateful for the link

    re “practitioners can wiggle out of any forecast…” – # 50 above,

    i’m relatively new to EW, but quickly came to appreciate it for it’s probabilistic set-ups, rather than concrete forecasts, which, no one i’ve ever read, has ever been 100% correct on

    i like the acknowledgment that decisions and responsibilities are still up to the individual in regard to his or her own monies

    more than i can say for the financials, who’ve, so far, gotten $3 trillion (from us) for their (evidently) riskless forecasts 🙂

  2. JBN Says:

    In response to #51.

    I’m not expecting EW to be “right” 100% of the time. My position is that EW has no ability to give probabilities greater than %50 (chance).

    There are numerous problems with EW:

    Many market movements cannot be counted as 3’s or 5’s, even if you go down to one minute charts or tick data. 3’s and 5’s often have to be forced to agree with the someone’s interpretation. Although the counts are supposed to be consistent across time scales, our current access to high frequency data (as opposed to Elliott’s hourly DJIA) does not provide support for wave counts as it should.

    EW ignores continuous time. What happens to the waves when the market closes? What about trading in other countries or before and after markets close in the US? These data are almost always ignored.

    Fibonacci ratios fail to appear more often than they do appear. etc..

    Perfect hindsight, zero foresight.

    Please remember that leading practitioners of EW have been continuously (for years) and greatly wrong on the markets.

  3. chris Says:

    Corey,

    Do you have any updates based on market close Friday Jan. 2nd above key areas. Which of these two patterns in Wave 4 now appears most likely to play out?

    Thanks

  4. Jeff Cooley Says:

    Often simple wave ii are followed by complex wave iv and differ quite a bit in time and price. Wave iv tend to be complex and congested and difficult to trade.
    Just found your site;Love it!

  5. john davies Says:

    My interest is when it is over and the bottom is reached. So I can buy unit trusts in Japan
    Presumably it will be world wide issue, the nikkei for example bottoming when the s&p does, the nikkei seems to be starting a reacion wave mid way in the three wave bear market and so the ‘bottom’ is a long way off in the time aspect. Could you include the nikkei 225 in you apparently detailed analysis? its a facinating market.
    john

  6. john davies Says:

    I've amended my annalysis of the nikkei 225, if anyone tracks this market I will be interested in your analysis.
    It seems that it has completed the first wave (composed of five waves) of an overall presumed five wave downward move and just, it seems, recently entered a second reaction wave.
    It seems it will be a couple or many years completing the overall downward path, which will mark it seems the overall end of the bear market which in the case of the nikkei started in late 1989,
    The third wave will I imagine (in view of the first) be long and fairly devastating.
    I assume that the major world markets will turn up as and when the nikkei eventually turns up into the bull market, eventually being the operative word.
    The coppack philosophy which allows an approx twelve month “mourning” period particulary after a supercycle could possibly mean a delay to the start of a bull market, to my knowledge elliott had nothing to say about the strength of the turn relative to the severity of the bear market.
    The elliott wave, though certainly open to different and wrong interpretations in some market conditions, from my experience, it is the best long term indicator available.
    The nikkei more so than many markets has followed to my mind a classic pattern for many years and should be given greater attention by more analysts in my view.

  7. john davies Says:

    I've amended my annalysis of the nikkei 225, if anyone tracks this market I will be interested in your analysis.
    It seems that it has completed the first wave (composed of five waves) of an overall presumed five wave downward move and just, it seems, recently entered a second reaction wave.
    It seems it will be a couple or many years completing the overall downward path, which will mark it seems the overall end of the bear market which in the case of the nikkei started in late 1989,
    The third wave will I imagine (in view of the first) be long and fairly devastating.
    I assume that the major world markets will turn up as and when the nikkei eventually turns up into the bull market, eventually being the operative word.
    The coppack philosophy which allows an approx twelve month “mourning” period particulary after a supercycle could possibly mean a delay to the start of a bull market, to my knowledge elliott had nothing to say about the strength of the turn relative to the severity of the bear market.
    The elliott wave, though certainly open to different and wrong interpretations in some market conditions, from my experience, it is the best long term indicator available.
    The nikkei more so than many markets has followed to my mind a classic pattern for many years and should be given greater attention by more analysts in my view.

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    Perhaps some
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