Elliott Wave Theory Subset – Wave Count Overlays & Process of Elimination
Ralph Nelson Elliott (1871–1948), a professional accountant, discovered the underlying social principles and developed the analytical tools in the 1930s. He proposed that market prices unfold in specific patterns, which practitioners today call Elliott waves, or simply waves. Elliott published his theory of market behavior in the book The Wave Principle in 1938, summarized it in a series of articles in Financial World magazine in 1939, and covered it most comprehensively in his final major work, Nature’s Laws: The Secret of the Universe in 1946. Elliott stated that ‘because man is subject to rhythmical procedure, calculations having to do with his activities can be projected far into the future with a justification and certainty heretofore unattainable.’[1] The empirical validity of the Elliott wave principle remains the subject of debate. (Wikipedia, 2020)
More here: https://en.wikipedia.org/wiki/Elliott_wave_principle
Everyone has different perspectives and unique ways of looking at the markets. Therefore, there are a variety of technical patterns that are possible in the market. However, only one will unfold as time passes, regardless of how many patterns show a majority. Through a process of elimination, I try to predict which technical pattern will hold true. This chart below shows an overlay of five possible Elliott Wave patterns for the S&P 500 after the COVID selloff.
https://www.tradingview.com/chart/SPX/F9PrNqSz-TRACKING-SPX-OVERLAY-OF-MULTIPLE-WAVE-COUNTS/
A lot of times, a news release or a big change in information will change an unfolding pattern into a different one. To mitigate risk from not seeing what else is out there, I have decided to overlay all of the possibilities and to link wave patterns according to the current investment environment so I could choose the best pattern for the current economic climate.
As time passes, possible wave patterns will change, and this chart below shows three possible major wave patterns and four variations for one of them.
https://www.tradingview.com/chart/SPX/AklewYhF-TRADE-IDEA-UPDATE-SPX-OVERLAY-PATTERNS-84-000-CHART/
- Super millennium 3rd wave completion from 5th wave millennium completion on 1/26/18. Then WXY completion 3/23/20. Starting a new millennium 5th wave uptrend in GREEN.
- Super millennium 3rd wave completion from 5th wave millennium completion on 1/26/18. Then WXYZ with WXY completion on 3/23/20 and a move lower in Z in BLUE.
- Super millennium 3rd wave completion on 2/18/20 and in a 4th wave correction
- Millennium 4th wave triangle extending out to 1/5/21 in Yellow.
- Millennium 4th wave triangle in less time in ORANGE.
- Millennium 4th wave WXY completing sometime around August to September 2020 to 2100 to 1800 in PURPLE.
- Millennium 4th wave ABC rapid sell off into 1550’s in RED.
- Millennium 4th wave triangle extending out to 1/5/21 in Yellow.
Using intermarket analysis, one possible pattern was eliminated, so this chart shows four possible Elliott Wave patterns now. After a couple of months, three other possible patterns look unlikely, and the S&P 500 is matching up with the green line now.
These lines are meant to be estimates and are approximate in nature. The duration and velocity in which the price travels with the green line are never guaranteed. However, when this green line is updated daily, it will reveal hidden support and resistance levels that help with trading.
https://www.tradingview.com/chart/SPX/DLWaPpit-SPX-OVERLAY-DAILY-CHART/
References:
Elliott, Ralph Nelson (1994). Prechter, Robert R., Jr. (ed.). R.N. Elliott’s Masterworks. Gainesville, GA: New Classics Library. pp. 70, 217, 194, 196. ISBN 978-0-932750-76-1.
All information is for educational purposes only and not investment advice.
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