September 13, 1982
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This is a thrilling juncture for a wave analyst. For the first time since 1974, some incredibly large wave patterns may have been completed, patterns which have important implications for the next five to eight years. The next fifteen weeks should clear up all the long term questions that have persisted since the market turned sloppy in 1977.
Elliott wave analysts sometimes are scolded for forecasts that reference very high or very low numbers for the averages. But the task of wave analysis often requires stepping back and taking a look at the big picture and using the evidence of the historical patterns to judge the onset of a major change in trend. Cycle and Supercycle waves move in wide price bands and truly are the most important structures to take into account. Those content to focus on 100-point swings will do extremely well as long as the Cycle degree trend of the market is neutral, but if a truly persistent trend gets under way, they’ll be left behind at some point while those in touch with the big picture stay with it.
In 1978, A.J. Frost and I forecast a target for the Dow of 2860 for the final target in the current Supercycle from 1932. That target is still just as valid, but since the Dow is still where it was four years ago, the time target is obviously further in the future than we originally thought.
A tremendous number of long term wave counts have crossed my desk in the past five years, each attempting to explain the jumbled nature of the Dow’s pattern from 1977. Most of these have proposed failed fifth waves, truncated third waves, substandard diagonals, and scenarios for immediate explosion (usually submitted near market peaks) or immediate collapse (usually submitted near market troughs). Very few of these wave counts showed any respect for the rules of the Wave Principle, so I discounted them. But the real answer remained a mystery. Corrective waves are notoriously difficult to interpret, and I, for one, have alternately labeled as “most likely” one or the other of two interpretations, given changes in market characteristics and pattern. At this point, the two alternates I have been working with are still valid, but I have been uncomfortable with each one for reasons that have been explained. There is a third one, however, that fits the guidelines of the Wave Principle as well as its rules, and has only now become a clear alternative.
This wave count argues that the giant Cycle wave correction from 1966 is still in progress. The final low [before the great bull market begins] would occur between Dow 563 and 554. Only a break of 766 would have made it certain, however, and no such break has yet occurred.
Figure A-2
Series of 1s and 2s in Progress
This count [see Figure A-2] has been my ongoing hypothesis for most of the time since 1974, although the uncertainty in the 1974-1976 wave count and the severity of the second wave corrections have caused me a good deal of grief in dealing with the market under this interpretation.
This wave count argues that the Cycle degree correction from 1966 ended in 1974 and that Cycle wave V began with the huge breadth surge in 1975-1976. The technical name for wave IV is an expanding triangle. The complicated subdivision so far in wave V suggests a very long bull market, perhaps lasting another ten years, with long corrective phases, waves (4) and ④, interrupting its progress. Wave V will contain a clearly defined extension within wave ③, subdividing (1)-(2)-(3)-(4)-(5), of which waves (1) and (2) have been completed. The peak would ideally occur at 2860, the original target calculated in 1978. [The main] disadvantage of this count is that it suggests too long a period for the entire wave V, as per the guideline of equality.
Advantages
Satisfies all rules under the Wave Principle.
Allows to stand A.J. Frost’s 1970 forecast for an ultimate low for wave IV at 572.
Accounts for the tremendous breadth surge in 1975-1976.
Accounts for the breadth surge in August 1982.
Keeps nearly intact the long-term trendline from 1942.
Fits the idea of a four-year cycle bottom.
Fits the idea that the fundamental background looks bleakest at the bottom of second waves, not at the actual market low.
Fits the idea that the Kondratieff Wave plateau is partly over. Parallel with 1923.
Disadvantages
1974-1976 is probably best counted as a “three,” not a “five.”
Wave (2) takes six times as much time to complete as does wave (1), putting the two waves substantially out of proportion.
The breadth of the 1980 rally was substandard for the first wave in what should be a powerful Intermediate third.
Suggests too long a period for the entire wave V, which should be a short and simple wave resembling wave I from 1932 to 1937 rather than a complex wave resembling the extended wave III from 1942 to 1966 (see Elliott Wave Principle, Figure 5-5).
