5.3 The Supercycle Wave From 1932
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Supercycle wave (V) has been in progress since 1932 and is still unfolding (see Figure 5-5). If there were such a thing as a perfect wave formation under the Wave Principle, this long term sequence of Elliott waves would be a prime candidate. The breakdown of Cycle waves is as follows:
Wave I: 1932 to 1937 — This wave is a clear cut five-wave sequence according to the rules established by Elliott. It retraces .618 of the market decline from the 1928 and 1930 highs and, within it, the extended fifth wave travels 1.618 times the distance of the first through third waves.
Wave II: 1937 to 1942 — Within wave II, subwave Ⓐ is a five, and the wave Ⓒ is a five, so the entire formation is a zigzag. Most of the price damage occurs in waves Ⓐ. Thus, there is great strength in the structure of the entire corrective wave, much beyond what we would normally expect, as the wave Ⓒ travels only slightly into new low ground for the correction. Most of the damage of the wave Ⓒ was due to erosion, as continued deflation pushed price/earnings levels to below those even of 1932.
Figure 5-5
Wave III: 1942 to 1965(6) — This wave is an extension, by which the Dow rose nearly 1000% in twenty-four years. Its principal features are as follows:
Wave ④ is a flat, alternating with a zigzag, wave ②.
Wave ③ is the longest Primary wave and an extension.
Wave ④ corrects to near the top of the preceding fourth wave of one lesser degree and holds well above the peak of wave ①.
The length of subwaves ① and ⑤ are related by the Fibonacci ratio in terms of percentage advance (129% and 80% respectively, where 80 = 129 x .618), as is often the case between two non-extended waves.
Wave IV: 1965(6) to 1974 — In Figure 5-5, wave IV bottoms in the area of wave ④, as is normal, and holds well above the peak of wave I. We show two possible interpretations: a fivewave expanding triangle from February 1965 and a double three from January 1966. Both counts are admissible, although the triangle interpretation might suggest a lower objective, where wave V would trace an advance approximately as long as the widest part of the triangle. No other Elliott evidence, however, suggests that such a weak wave is in the making. Some Elliott theorists attempt to count the last decline from January 1973 to December 1974 as a five, thus labeling Cycle Wave IV a large flat. Our technical objections to a five-wave count are that the supposed third subwave is too short, and the first wave is then overlapped by the fourth, thereby offending two of Elliott’s basic rules. It is clearly an A-B-C decline.
Wave V: 1974 to ? — This wave of Cycle degree is still unfolding. It is likely that two Primary waves have been completed at this juncture and that the market is in the process of tracing out the third Primary, which should accompany a break-out to new all-time highs. The last chapter will cover in somewhat more detail our analysis and expectations with respect to the current market.
Thus, as we read Elliott, the current bull market in stocks is the fifth wave from 1932 of the fifth wave from 1789 of possibly even the fifth wave from the Dark Ages. Figure 5-6 gives the composite picture and speaks for itself.*
The history of the West from the Dark Ages appears in retrospect to have been an almost uninterrupted period of human progress, which, as we have proposed, might be termed a wave of Millennium degree. The cultural rise of Europe and North America, and before that the rise of the Greek city-states and the expansion of the Roman Empire, and before that the thousand year wave of social progress in Egypt, might be termed waves of Cultural degree, each of which was separated by Cultural degree waves of stagnation and regress, each lasting centuries. One might argue that even these five waves, constituting the entirety of recorded history to date, may constitute a developing wave of Epochal degree and that some period of social catastrophe centuries hence (involving nuclear or biological war, perhaps?) will ultimately ensure the occurrence of the largest human social regress in five thousand years.
Figure 5-6
Of course, the theory of the spiralling Wave Principle suggests that there exist waves of larger degrees than Epochal. The ages in the development of the species Homo sapiens might be waves of even higher degree. Perhaps Homo sapiens himself is one stage in the development of hominids, which in turn is one stage in the development of even larger waves in the progress of life on Earth. After all, if the existence of the planet Earth is conceived to have lasted one year so far, life forms emerged from the oceans five weeks ago, while manlike creatures have walked the Earth for only the last six hours of the year, less than one one-hundredth of the total period during which forms of life have existed. On this basis, Rome dominated the Western world for a total of five seconds. Viewed from this perspective, a Grand Supercycle degree wave is not really of such a large degree after all.
*A convincing variation of this picture involves a developing extension from the Dark Ages. It moderates somewhat the vision presented here in projecting the coming setback to be of Grand Supercycle degree rather than of Millennium degree.
