5.1 Long Term Waves And An Up To Date Composite
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In September 1977, Forbes published an interesting article on the complexity theory of inflation entitled "The Great Hamburger Paradox," in which the writer, David Warsh, asks, "What really goes into the price of a hamburger? Why do prices explode for a century or more and then level off?" He quotes Professor E.H. Phelps Brown and Sheila V. Hopkins of Oxford University as saying,
For a century or more, it seems, prices will obey one all-powerful law; it changes and a new law prevails. A war that would have cast the trend up to new heights in one dispensation is powerless to deflect it in another. Do we yet know what are the factors that set this stamp on an age, and why, after they have held on so long through such shakings, they give way quickly and completely to others?
Brown and Hopkins state that prices seem to "obey one all-powerful law," which is exactly what R.N. Elliott said. This all-powerful law is the harmonious relationship found in the Golden Ratio, which is basic to nature’s laws and forms part of the fabric of man’s physical, mental and emotional structure as well. As Mr. Warsh additionally observes quite accurately, human progress seems to move in sudden jerks and jolts, not as in the smooth clockwork operation of Newtonian physics. We agree with Mr. Warsh’s conclusion but further posit that these shocks are not of only one noticeable degree of metamorphosis or age, but occur at all degrees along the logarithmic spiral of man’s progress, from Minuette degree and smaller to Grand Supercycle degree and greater. To introduce another expansion on the idea, we suggest that these shocks themselves are part of the clockwork. A watch may appear to run smoothly, but its progress is controlled by the spasmodic jerks of a timing mechanism, whether mechanical or quartz crystal. Quite likely the logarithmic spiral of man’s progress is propelled in a similar manner, though with the jolts tied not to time periodicity, but to repetitive form.
If you say "nuts" to this thesis, please consider that we are probably not talking about an exogenous force, but an endogenous one. Any rejection of the Wave Principle on the grounds that it is deterministic leaves unanswered the how and why of the social patterns we demonstrate in this book. All we want to propose is that there is a natural psychodynamic in men that generates a form in social behaviour, as revealed by market behaviour. Most important, understand that the form we describe is primarily social, not individual. Individuals have free will and indeed can learn to recognize these typical patterns of social behaviour, and then use that knowledge to their advantage. It is not easy to act and think contrarily to the crowd and to your own natural tendencies, but with discipline and the aid of experience, you can certainly train yourself to do so once you establish that initial crucial insight into the true essence of market behaviour. Needless to say, it is quite the opposite of what people have believed it to be, whether they have been influenced by the cavalier assumptions of event causality made by fundamentalists, the mechanical models posited by economists, the "random walk" offered by academics, or the vision of market manipulation by "Gnomes of Zurich" (sometimes identified only as "they") proposed by conspiracy theorists.
We suppose the average investor has little interest in what may happen to his investments when he is dead or what the investment environment of his great-great-great-great grandfather was. It is difficult enough to cope with current conditions in the daily battle for investment survival without concerning ourselves with the distant future or the long-buried past. However, we should take the time to assess long term waves, first because the developments of the past serve greatly to determine the future, and secondly, because it can be illustrated that the same law that applies to the long term applies to the short term and produces the same patterns of stock market behavior.
In other words, the stock market’s patterns are the same at all degrees. The patterns of movement that show up in small waves, using hourly plots, show up in large waves, using yearly plots. For example, Figures 5-1 and 5-2 show two charts, one reflecting the hourly fluctuations in the Dow over a ten-day period from June 25th to July 10th, 1962 and the other a yearly plot of the S&P 500 Index from 1932 to 1978 (courtesy of The Media General Financial Weekly). Both plots indicate similar patterns of movement despite a difference in the time span of over 1500 to 1. The long-term formulation is still unfolding, as wave V from the 1974 low has not run its full course, but to date, the pattern is along lines parallel to the hourly chart. At each degree, the form is constant.
In this chapter, we shall outline the current position of the progression of "jerks and jolts" from what we call the Millennium degree to today’s Cycle degree bull market. Moreover, as we shall see, because of the position of the current Millennium wave and the pyramiding of "fives" in our final composite wave picture, this decade could prove to be one of the most exciting times in world history to be writing about and studying the Elliott Wave Principle.
