An Elliott Wave Pattern that Signals the Start of Opportunity

An Elliott Wave Pattern that Signals the Start of Opportunity
The size of the wave will surprise most everyone
October 15, 2012

By Elliott Wave International

On Monday Oct. 8 I sat down with Elliott Wave International's senior analyst Jeffrey Kennedy to discuss his favorite wave pattern of all: the Elliott wave diagonal.

Nico Isaac: You say if you had to pick just ONE of all 13 known Elliott wave structures to spend the rest of your technical trading life with, it would be the Elliott wave diagonal. First, tell us what the diagonal is.

Jeffrey Kennedy: The diagonal is a five-wave pattern labeled 1 through 5, in which each leg subdivides into three smaller waves: 3-3-3-3-3. Unlike motive waves, however, diagonals are the only five-wave structures in the direction of the main trend in which wave 4 almost always moves into the price territory of wave 1.



Nico: So, what makes this pattern so darn special?

Jeffrey: As you can see in the above charts, the diagonal is a terminating pattern. They can only occur in waves 5 of impulses or C-waves of corrections. This is why they're so exciting. Diagonals precede a dramatic change in trend. And, when they end, prices tend to retrace the entire pattern, or more, and fast.

Put simply: If you see a diagonal, you know it's soon time to "look up above" or "out below!"

Nico: Could you give us a real-world example?

Jeffrey: Sure. Let's go back to the May 2011 Monthly Futures Junctures. In the "Featured Market" segment of that publication, I presented the following chart of cocoa that showed a complete multi-year ending diagonal wave pattern and wrote:

"Another piece of evidence that forewarns of an acceleration in recent selling is the larger operative diagonal pattern... This suggests that cocoa prices will continue this year's sell off for many more months."

Nico: And then what happened?

Jeffrey: Take a look at this AFTER chart: Cocoa prices sold off to a 3-year low as they were nearly cut in half -- the sharp manner characteristic of post-diagonal moves:



Nico: Thank you so much for taking the time to explain the ins and outs of your favorite structure, the diagonal.

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Fibonacci in Nature: The Golden Ratio and the Golden Spiral

Fibonacci in Nature: The Golden Ratio and the Golden Spiral
The more you learn about Fibonacci, the more amazed you will be at its importance
October 10, 2012

By Elliott Wave International

If you've studied the financial markets, even for a short time, you've probably heard the term "Fibonacci numbers." The ratios and relationships derived from this mathematical sequence are applied to the markets to help determine targets and retracement levels.

Did you know that Fibonacci numbers are found in nature as well? In fact, we can see examples of the Fibonacci sequence all around us, from the ebb and flow of ocean tides to the shape of a seashell. Even our human bodies are examples of Fibonacci. Read more about the fascinating phenomenon of Fibonacci in nature. 

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Let's start with a refresher on Fibonacci numbers. If we start at 0 and then go to the next whole integer number, which is 1, and add 0 to 1, that gives us the second 1. If we then take that number 1 and add it again to the previous number, which is of course 1, we have 1 plus 1 equals 2. If we add 2 to its previous number of 1, then 1 plus 2 gives us 3, and so on. 2 plus 3 gives us 5, and we can do this all the way to infinity. This series of numbers, and the way we arrive at these numbers, is called the Fibonacci sequence. We refer to a series of numbers derived this way as Fibonacci numbers.

We can go back to the beginning and divide one number by its adjacent number - so 1/1 is 1.0, 1/2 is .5, 2/3 is .667, and so on. If we keep doing that all the way to infinity, that ratio approaches the number .618. This is called the Golden Ratio, represented by the Greek letter phi (pronounced "fie"). It is an irrational number, which means that it cannot be represented by a fraction of whole integers. The inverse of .618 is 1.618. So, in other words, if we carry the series forward and take the inverse of each of these numbers, that ratio also approaches 1.618. The Golden Ratio, .618, is the only number that will also be equal to its inverse when added to 1. So, in other words, 1 plus .618 is 1.618, and the inverse of .618 is also 1.618.



This is a diagram of the Golden Spiral. The Golden Spiral is a type of logarithmic spiral that is made up of a number of Fibonacci relationships, or more specifically, a number of Golden Ratios. For example, if we take a specific arc and divide it by its diameter, that will also give us the Golden Ratio 1.618. We can take, for example, arc WY and divide it by its diameter of WY. That produces the multiple 1.618. Certain arcs are also related by the ratio of 1.618. If we take the arc XY and divide that by arc WX, we get 1.618. If we take radius 1 (r₁), compare it with the next radius of an arc that's at a 90° angle with r₁, which is r₂, and divide r₂ by r₁, we also get 1.618.



Now here are some pictures of this Golden Spiral in various aspects of nature. For example, on the left is a whirlpool that displays the Golden Spiral and, therefore, these Fibonacci mathematical properties. We also see the Golden Spiral in the formation of hurricanes (center) and in the chambered nautilus shell (right), which also happens to be a common background that Elliott Wave International uses for a number of its presentations and graphics.



We can also see the Golden Ratio in the DNA molecule. Research has shown that if you look at the height of the DNA molecule relative to its length, it is in the proportion of .618:1. If we look at the components of the DNA molecule, there is a major groove in the left section and a minor groove in the right section. The major groove is equal to .618 of the entire length of the DNA molecule, and the minor groove is equal to .382 of the entire length.

This graphic of the human body also shows how the Golden Ratio exists in certain relationships of the human anatomy.

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The Financial Tsunami Headed To Shore Has Been Building for 80 Years

The Financial Tsunami Headed To Shore Has Been Building for 80 Years
The size of the wave will surprise most everyone
October 12, 2012

By Elliott Wave International

If you're a passenger aboard a ship in deep water, you can't detect a tsunami; the swells are indistinguishable from regular ocean waves. Wave lengths can be hundreds of miles long, but only when this energy reaches shallow water does the mammoth tsunami wall form -- and can wash over anything in its path.

So when forecasters warn "Move to higher ground!" it's not wise to think, "Until I see the tsunami, I won't believe it's coming." Once it's visible, it's probably too late.
It's equally unwise to ignore signs of a financial tsunami.

Investors who wait ... before acting will be too late. We have to anticipate developments, and the only way we can do that is to use tools that reveal signs of approaching trend change.

The Elliott Wave Theorist, March 2012

The most famous financial tsunami in modern history occurred in 1929-32. Almost no one saw it coming. For example, the observation below was made shortly before the 1929 Crash.

Stock prices have reached what looks like a permanently high plateau.

Yale Professor Irving Fisher, Oct. 1929

Other prominent people did not see the signs of economic trend change that led to the 1929-32 deflationary crash.
Fast forward to this July 18, 2012, CNBC headline:

Fed's Bernanke: 'We Don't See a Double-Dip Recession'

When reading such comments, one might ask, "Is history repeating itself?"
Elliott Wave International believes only a relative few suspect the magnitude of the approaching economic wave, including the world's financial authorities.

This largely undetected financial tsunami has been silently traveling for at least 80 years. Once ashore, the outcome may rival 1929-32.

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Economic Gloom or Recovery? 5 Signs That One is Ahead

Economic Gloom or Recovery? 5 Signs That One is Ahead
The economy has never really recovered since the 2007-2009 financial crisis
October 05, 2012

By Elliott Wave International

Several signs suggest economic contraction instead of expansion.
The first was recent front-page news: 8.1% August jobless rate. The number would have been higher, but it excludes people who gave up the job search.
The second is summed up by this Sept. 4 Bloomberg headline:

Food-Stamp Use Climbs to Record

Nearly one in seven Americans use food stamps. Before the downturn it was one in 10.
You can find the third sign at the other end of the income scale.

The chart shows that after a multi-decade bull market that tracked the major stock indexes, lobster prices (per pound) peaked in 2005, one year ahead of the global downturn. The timing of the lobster price top is so close to the downturn in home prices that the Maine Department of Marine Resources noted, "Interestingly, a 'lobster bubble' coincided with the national 'housing bubble' in 2006. ... The six-year divergence between per-pound prices and total pounds (shown by the trendlines on the chart) suggests that lobster mania will not be back for a long time. Luxury is a classic byproduct of a bubble.

The Elliott Wave Financial Forecast, August 2012

Speaking of the parallel trend of lobster and home prices, a Sept. 18 Wall Street Journal excerpt reveals the fourth sign of a deflationary trend:

Mortgage lending declined to its lowest level in 16 years in 2011 amid weak demand for mortgages and tighter lending standards.

A Sept. 19 Reuters article says the latest housing data is mixed:

U.S. housing starts rose less than expected in August as groundbreaking on multifamily home projects fell, but the trend continued to point to a turnaround in the housing market.

Yet we've seen "hopeful signs" of a housing recovery before. The larger trend for real estate points in the opposite direction.
The fifth sign is summed up in this Sept. 18 CBS headline:

Median Income Worse Now Than It Was During Great Recession

The article says:

The median income for American households in 2009 - the official end of the Great Recession - was $52,195 (in 2011 dollars), while the median income dipped to $50,054 last year, falling 4.1 percent over two years. ... The recovery is the "most negative for household income during any post-recession period in the past four decades."

The "Great Recession" never ended. A more accurate way of describing the state of the economy is the onset of "depression."
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R.N. Elliott's Discovery Foretells a Major Market Turn Still to Come

R.N. Elliott's Discovery Foretells a Major Market Turn Still to Come
Elliott's 70-year-old forecast applies in 2012
October 1, 2012

By Elliott Wave International

Adversity often visits people just as their future seems brightest.
At the same time, other people learn that when one of life's doors closes, a window will open.
Both of these truisms describe the life of Ralph N. Elliott (1871-1948), the founder of the Wave Principle.

In the 1920s, Elliott became a successful business consultant. But his life of accomplishment and financial independence were in peril when he fell gravely ill. During months of recuperation, Elliott occupied his mind with a meticulous study of the stock market.
In other words: The door closed and the window opened. At 67, Elliott made a discovery.

Through a long illness the writer had the opportunity to study the available information concerning stock market behavior. Gradually the wild, senseless and apparently uncontrollable changes in prices from year to year, from month to month, or from day to day, linked themselves into a law-abiding rhythmic pattern of waves. This pattern seems to repeat itself over and over again. With knowledge of this law or phenomenon (that I have called the Wave Principle), it is possible to measure and forecast the various trends and corrections (Minor, Intermediate, Major and even movements of still greater degree) that go to complete a great cycle.

Ralph N. Elliott, R.N. Elliott's Masterworks, pp. 154-155

In 1941, Elliott drew a chart of his long-term forecast based on the Wave Principle. The final label on that chart is the year 2012! (That chart is republished in the February 2012 Elliott Wave Theorist)
Amazingly, wave analysis thus far confirms Elliott's 2012 forecast.
In the August 2012 Elliott Wave Theorist, subscribers receive a specific stock market overview through early 2013.
Indeed, EWI's timing tools appear pointed to the exact month of a major stock market turning point.

Two observations lead us to the same month for the last upside gasp in the stock market.

The Elliott Wave Theorist, August 2012

Imagine: Today's price pattern is in line with a forecast R.N. Elliott published 70 years ago!
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