Elliott Wave theory, introduced in 1933 by R.N. Elliott, is based on Fibonacci numbers and used to describe market trends. Robert Prechter’s socionomic theory, an ambitious "theory of everything," is based on Elliott Wave theory, Fibonacci numbers and fractals (patterns in nature). It can be applied to patterns seen in stock market charts. It can also be applied to social mood, length of women’s skirts, measures civil unrest such as crime and war, and more (not necessarily accurately, that’s another matter.)
The theory holds that variables such as market indexes, skirt hem lines, and civil unrest, are dictated by the numerical series influencing collective social mood. How? That answer requires a bit of mystic-thinking. While Elliott Wave counts are useful for traders, counting the waves is subjective and easier in retrospect. Consequently, there can be many predictions flowing from the same charts. Using Elliott Waves for trading purposes requires learning how to interpret the charts and applying the information for trading purposes. Ilene
Fractals!!
Courtesy of Michael at EW trends and Charts
I wanted to spend the week-end exploring more about a fractal that has developed in the last few months. Parts of it have already been discussed on the blogs, but I have expanded the fractal from the original wave to include the waves preceding it. And to see if it is possible to see into the future a bit, to maybe foresee the coming wave structure and the size of it. Of course this is only a hypothetical situation, and I will not trade off of it, but will keep it on my radar. You never know what nature is capable of until you sit back and watch the power of it!!
This is the big picture, the SPX all the way back to the end of 2008, from the start of the sell-off and one of the largest corrective waves in history. There is an eerie similarity that has developed between wave 2(blue 2) of P1(green 1) down, and wave P2(green 2) up. The over-all structure between the waves, both have a-b-c counts, and both are showing a bearish rising wedge that are almost identical. Even the preceding waves 3 and 4 are almost identical. But to make it a fractal, it must make a copy of itself in a smaller degree. And this is where the spooky part comes in (hey it’s Halloween [weekend, almost over…]). Did you notice the counts?, both are wave 2 up, and one degree apart in the larger picture, the perfect definition of a fractal!!
What if we really did have a 2nd 1-2 built into this wave this week, instead of a 3-4 as I mentioned in my post yesterday, Friday updates. We could then theoretically achieve that level of 38.2% retracement to 935-950 in the first wave down, before we have any significant rally to relieve the oversold conditions.
From a technical analyst point of view, we are already in very oversold conditions now, and the TA does not support such a large sell-off without first some sort of correction to relieve those conditions. While cnditions can remain overbought or oversold longer then most people can remain solvent, the odds don’t favor this.
Monday’s price action will be very telling. Either we finish off the micro 5th wave, ending the first wave down from the top, and start a powerful 2nd wave up that will scare most shorts in to covering and setting a bull trap as all the dip buyers jump in, or we have a small correction up for the 2nd wave of iii of 3 down, then one of the most powerful sell-offs we have seen so far this year, iii of 3 down with a target of 935-950!!
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