R.N. Elliott's Masterworks: The Definitive Collection

•

Edited by ROBERT R. PRECHTER, JR.

INCLUDES: The Story of R.N. Elliott The Wave Principle (1938) The Financial World Articles (1939) Selected Essays - 1940-1942 Nature's Law - The Secret of the Universe (1946)

...... Ne.... DI.... Ralph NelIIon EIiolI (1871-1948) led an advenlur· OUI and produdive tle. He ~ a temarkably tueeeSIfuI aoc:ouoting career. inYoMng book 8Ulhoi1ll1ip. fI1lIllIIZine oontJb.JIiorw. lixl........ lraWll and ""'" Ii U.S. Slale Depar1Jrlert ,""",Ill...... EMotI pc.mlitlhed his tnt book on !he SUIdl matkeI mille lIlIlI of 87. N1 ill'ploallc:o, to IWl)'OIlOI facing hill "dec:IlrIing" yea... EIiol1'. evident geniu. ,MChed lui ~ i'I fie. dec:ede of his lie, 'Atl&'l he broI.Jght Ii great gift of Ia 10.. "'gii III mao*lnd. 1

EIott _ of lhaIllIf8it of breiidi, Ii truellCholar i'I lhe plllCtlcfol wond of 1iIiinoe. l-k ~ Iheoly 01 itOdI rnatkiiI b8haYIor goes way biiyond IIle UIUOII Imilalioni lhaI lIrii thaIa:tellitic 01 !he bulk of !he 1itenduN. .... A. l-lllmiIIc:w'I Bc*ln, Iooodet of !he Sank ~ ~ iiild. "He deViiklped hIii pll..ciple ir*' Ii ralionIlI method of itOdI matkeI aniilyiii on II .:ale _ beIor1o

lll&.it*Kl." 11'1 '-:to !he Wave P110 ~ ill far ITIOIe lhan Ii use-

fullll'llllyticell mettlOd. <Mr!he years, • has had Ii pn;lb.i1d eIJea on lhoM .too not ony have !he llblIily to ,eoogou. .Iheoly of 1o'.'llllll8 pnIdicaI \IlIk.e, but who can apprec:liilii !he • I ltiillc beauty 01 !he hI.man ellpIIrieolCe n!he iIbBlJiLl Thll WI.,. Pt. lCiple has rucinliliid philolophers, 0'I'IllIhemllli, 1*fd')Io ....", lheobgIa. . and INnciers aIikii. Now. IIfIef being out 01 pm lor

"'" bMn

, lhe CIIigO'\aI worQ 01 R.N. EIiolI havii i'llhil DOli ...... , .. hl.lItIbne.

R.N. ELLIOTT'S MASTERWORKS The Definitive Collection

EditH, fonwonld, ",,11 with 01 biogNlpJry by RoIwrt R. Pnclrter, Jr.

Published by New C1aaaiea Library

Th1_

One

IllllllllllllllllllllltI~ EVHH-LAR-eKZS

R.N. ELL/07T'S MASTERWORKS

Copyright C 1994 by Robert Rougelot Prechter, Jr. Fint Printing; September 1994

Second Printing: July 1996 Printed in the United States of America For information, addrea the pubt~hen: New Cluaica Library A div~ion ofEUiott Wave In~ational Post Offict! Box 1618 Gainesville, Geo'lPa 30503 USA The material in this volume up to a lll8.lrimum of 200 words and/or fourchart.a may be reprinted without written penniaaion of the puhlisher provided that the 8ClW'Ce ~ aclmowledged. The publieher would greatly appreciate being informed in writing of the "...., of any IIUCh quotation or reference. Otherwi....11 riirhtl are relltlrved.

ISBN: 0-932760-37-0 Library ofCongresa Card Catalog Number: 93-87631

71iis 600(.15 tft,aUAu4 to lUfn4JtlM ~rtJSt, a t40r frinu£.

,.

The Foreword and about half orthe biography were initially publilhed in TM Major Wor" of R.N. Elliott (New Clauics

Library, 1980), which il now out of print. ThiIJ volume feature. a greatly expanded biography, uPftaded footnotea. and the Selected Euay8 lIllCtion, makini R.N. Elliotf. Maa~rwor.b a truly comprehellllive anthology of the author'. important writinp. Compl"tiJlta ma,y wUlh to obtain R.N. Elliotf. Momt fAtt",. 1938-1946 (N"w Cl...ics Library, 1993), which oontaill.l all orhia additional publicationa.

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ACKNOWLEDGMENTS A number oCpeople have been instrumental in thai project. A.J. Frolrt provided a copy of 'I'M Wot>t! Principk Illld copjea of the Elliott Wa.,. Supplement. too the BaM Cndit Analyll, and collabMated on the fore'llfl'lrd.ing comment.. Alfred H. Kingon, editor-in.ehief of FiNJ/lCUU WM!d magazine, i1nerouely eoD· ....nted to the republication crt Elliott'. 1939 article•. The New York Public Library yielded much information, and ia the only library Imown to have. photoa>py aIth.. oripnat Natun'. Lew.

Cl.ire Chartrand, an .uoci.te of the late Hamilton Bolton, helped dear up a few cloudy areu on the avail.bl, reproductiOIlll. The Library of CofIiI'eU provided the material for the Selected Eua,ya lIeCtion. One of the main reuolW. compRbemrive republicaUon of Elliott'. worb has not been Ittempted before 'If AI the prolIpect of the formidable ilhatratina job neceuary to do jUltiee to Elliott'. conoepl.8. Hi. two boob are rather roughly illllAr.ted and. mere phatographk reproduction would not have lIUffic:ed. Robin M.ehdnslri ~Uy tackled thitjob, and are proud to featun her wwk herein. Arthur Merrill of Merrill Analr-il, Inc. provided m. invaluable photographie talomtl toward the reduetioo of the illuatratioll8 to eaDlllr&-ready lize. The ropy edili"ll for the C\1lTelIt edition 'NO dODe by Jane Eltell and Kareo Latvala. The jacket design Wall erafted by graphics artillt Pamela

'If'

KimmOnJI.

For aeknowledgmeDIa relati"ll to Elliott'l biography, _ Authora Note 00 page Ill.

the

CONTENTS p ...

I I

.

ACKNOWIJ'iDGMENIlI

FOREWORD

13

... BIOGRAPHY OF R41" NEI.SON £Ilion

M

DIE WAVE PBJNCIPLI UlWl) Rhythm in Nat"""

""

'"lOll

1 08

, II

Stock Merkel W._ Identi/)'iDI tho W....

"

T

m v

Cgrredjon. Knepp",..

112 114 III

ExkmmO' Of EltcooilKl' Boha. . . of MatkeI. Fonowinr EntnIioo...

no

lmcWar

no '"

hUu... WMn tho SlUMP' ja;o

121

... 14.0

1M

'"

'"

1M

'M

TrianIl-

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Su.pp!.olDOlO!arY CrciN ",. W.... Prindp!ol in Oth« FWlela

IX

HeIr MOO!!

THE FINANCIAL WORlD ARTICI r 8 11m) AnDow>cinc tho w.... PriDcipl. p"rt I

~

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'" '" '"

""" "" v

In

"" " "" '"IX "" "n

110

Part!

1M 1M

p"rtn

,,, '" 191

196

Doubt

Sp!!d, Volume and. Chamn, MiKooIl...- N_: Cbartinr AwlItIlllIho W.... PrInciple Rori.... in the 1937.1R38 Beer M.rb,

11\6

'" '" no

CorNo""",

&toq Correeliom

120

'" ,,, '"

;......

vi!!;;;;.".,;...... Fi8.b W.""

Par!.

p""m SEI FcrKD gUrU ltfO,IH2

on.. Bam. of the Wn.. PrincipII

Hoor Iho W~ Principle Woob.

nuratjM

AI'

and.1~

eon.leCion Wit.b

Tim. E'.m""t

•

201 204 209 213 216 220 222

m

m 229

'!I!2 232

Market AP'll!u' _ Co.... and 1WmiJla_ ~

Crcl. c:live Feu\InlII of H........, AdiYltiM

Y

CornrtiQ!!1

ZipAp nato C<mple2 ~ Tri.aocl..

234

237 238 242

III

EllenMon'

:ua :ua

EJum'igu, ofE.......1jpn1 ExwwioNI in Wave Ii wi E............. Coun1.inl

U4 ~

2fll

us

or THE uNJYERBJ: UHf)

vn

2110 21\2 2M

vm

269 2M

XI XII

267 270 2'12 2'15 277

XW XIV

xvn

280 283

XVIU XIX

284

xx

287

XXI

IX X

xv XVI

:l88

Pre*'" iIak

lttfl.lI'an I'rit!I of GoIcl Patenl.l T..JIDig,J Futuru Dow Joan &oj! IMtq Tho YoJlleot'NmI

Cbminc ltt_unant Timing Selaetian oITn.diq Madia I'Yratrjdio SymhoIa and K>w Thq .... Dioonl 5idnrj. Moyrmenl.l Itrecu!ar Top. A11en1.tioto. S..I" E:aomplH (Au.Hollihton A'1IJ The 'I'hir\ftfl Y.ar TrianI!'

289 292 294 300 300 30lI 301

•

Mj_J1,ofQUl \lq!p!DllofW._

CirrlM A.B B_

302

XXVII

The 1!l.42.JlWj Bull M.Get

30ll

R«rlow ,pc! Cqncluoion

3lIlI

Bcferu_

,

Copyrighted material

, FOREWORD Hamilton Bolton aid in 1953, "For every ODe bWldred invutonl who have heani of the Dow Theory, there is probably DOt one who ltno~ about Elliott'. Wave Principle.oln the aervice of juAtiee, the time hu eame to remedy thu overaitlht of hutory. Fordecades. demand has ui8ted for reprinl.8 o£Ralph Nel1100 EUiott'. major writinp, but until now no one hu Men fit to bring .U the boob and articles together in one profeuioully ilIlll1trated vol\lltle. I undertQok tbi, prqjeet in reapol\$e to dem.nd from ......denl of Frwt'. and my book and out ormy d....p concern that the form oftlMo original di8eovery DOt be loet in the duBtbin ofbilltOry. It ie for those who have an llPPnlCiation for the hi.torieal record and who oriBh an undenta.nding of the development of th" Wave Principle throuch itll dilKXlVerer, R.N. Elliott, that thia book ill publiJ1hed. Hiatory ill replete with example. ofinnovaton and discoveren, men ~IU'II or even centuries heron their time, wbOR ide.. reached lID far ahead of their contemporariel' thu they were ignored by the profeMionl.l MtabliAhmellt of their cay. While Elliott wu not ignored, he mofi certainly wu not affon:Jed the recognition he deaened, In my experillnce, there are two eategoriN or people who have atood in the way or providing Elliott'. W.ve Principle a wider audience. The fi,..t i. made up of thoae who ~ it, in_ cluding both thoae .... ho dillmiu any RUch idl!U out of hand and thoIIe who graJlp the theory but chOOlle not to believe it beca\llle they will not erpend the energy required to find out ifit ill true. A neutl'al rNpo...... to UIlrt!uonable rejection of th. Wave Principle would have been impoeaible for the discoverer ofthill remarkable phenomenon, who undoubtedly reared that hia diACOVeT)' would go entirely l,UllKltioed if he were not able to cnvince at ll!Ut a portion of the invelrtment world of ita validity. The eloquence ofTM Walle Prindpk and the inteDllity ofNature'. Law partly derive from Collina' and Elliott'1 desire to convince the invelltment utabliahrnent not only thlt the Wave Principle wall I vllid theory, but a1Ao that it wu the truth behind the prugreaion of the Itoek market, and that in fact it reflected the la.... govemini the form oCtile natural ptIth of all human activi •

•

ti"". My goal with thit book, however, is Dot oeeeMarily to convince reade... that "EllioU ia the ~," but merely to lIlllke aVllillIble knowledge oCthe WlIve Principle to those who have enough lIel\Ml lind energy to WIe it. Aa for the lleCOnd category, I find that among thOle people who understend the theory's immeDlle value and apply it eueeeufully, lDOllt have done their bellt to keep it Heret. I have been IUlked lIeveral times by Itudentll of the Wave Principle to refrain from pubJilhing any matenalat all on Ellilltt'l great innovative work for fear that "tou many" people would etart using the Wave Principle in their inveetmeot timing, thua diluting the utility of the theory. I must lay that at times I have had lIeCOnd thoughta. The WlIve Principle frequently can call turnlI and projec:t. tergeta with IUcll incredible accuracy that I mil find my....1f amazed. As II tool for eIplaining the otherwise surprilling and indecipherable w~ ofthe market, it hae no &qUill. However, the relIder mUlt realize thllt, dl!llpite the buic IJimplicity of the concept iteelf, "Elliott" analysis is not that euy to do if your goal it to do it ..ell. On the other hand, it is very l8IUIy to do haphuardly, and mOlJt pou1.--time practitionere do ""'_ aeU)' that. Even if the Wave Principle were to become popular, there would be 10 many opportunittie haelu Doating about their ill-considered opiniona that the l.l'Ilth probahly would be 10IIt to the investment majority in the elUJuing babble. The degree of uncertainty in wave pattern rKOiIlition, moreover, enauru enough forecasting erron that the averagt! penon will dismillll it after dillCOYering the imperl"ection of ita application. For moo people, the best approaeh, even by far the beat approach, is not enough, ... they demand the Holy Grail of perfection. In Ilddition, let me say thllt even among devotees, it is one thing to recogniu that the Wave Principle aovems stocl< pri""s while it is quit.e another to predict the nm wave and still another to profit from the ue.rciee, ae anyone ..ho ever hu attempted to turn a good market forecasting Ipproach into money knowll rull well. None of us can eecape our human nature, a natunl that involvea us in the univenal deaign whether we wish it to or not. I have met few men who invest or trade with a eompletely rational Pl'Olll"aDl baaed 00 re8llOnable probabilities without allowing greed, fear, erlraneous opinions or irrelevant

n judgmentll to interfere. Tolman ofluperiordillcipline, the Wan Principle will yield a fortune; but then 80 will many other meth
npenaive automobil_, pI.,. bri<J&e f.,.. a doll..-.,.. monla point, nee. hie tboroua:hbrede, and enjoya hi. eulUlive c1ube, hie -.II appoin!A!d born" and ita leviehly ee..-f table. Hie wife and cbildren are exquilitely druHd, and are denied nothing th.t mooey can buy; their Engli.h and French are Inothingl ehnrt of perfect.. Hie eountl')' houee will bout e ewimmin. bath, tennia eourta and landllc:.pe gardene, aoM' mll,)' be gath_ ered from an experienca oftha writermt UlI that El. liott Willi an aa:ompliMIed enough boneman to ride three miiN thrt>ugh. thund"'J1It/Iml in the middle of the night. He further COlDJDellted, "{The foodl i8 of, moo uninvitinr nature.... No hem

that walu, flies or awima i. deapised from the standpoint (of edibility]. The writer has seen lIQuirre1A, lizards, parl'llU. foxell and even anUN, cooked and eaten with evident guato.- Theee myriad obMrvatiolUl eould not have been made by I. man who lpent all hd time in comfOJ'Uhlll hotala or corporate offlOlll. The chal1enae of eonductina bu.in.,.. in primitive condi. tions and in • different culture, particularly one that continually preltlnted llItfeme penonal and political nib, was partieularly daWlting. N EJlioU explained, the "lack ofmeans of communication, the .hortage oflabor, landl almOBt impauable road8" made induatry particularly difflcuJ.t. "It may take one man .U day: he Hid. "to haul. 1000d of coffee (by o_rtl from the plantation to the railroad and mum empty." The per~nality of the locala ,I~ preaented ob.tac:lel that had to be understood and dealt with. In deacribing aubordinatea' method of dealing with IUperion, for i.n.Itance, Elliott obIervecl, 'The vel"J antitheail of the [bluntJ North American, be win anawer quutiooa In a oourteoul manner but calculated to please for the moment,"lrreapect.ive of the truth. The teJion wu ,1.10 "con.-tantly -oring with intrigue," he noted, in prefacing thia di. CUllion of hil Iituation in Guatemala yeU'll later when that wuntry'l ptNident died, From niaht to morning, the wbole COWltzy hu t-n thrown into eoof'uaioo. Soldie... are patrollina the atl'eetI and are atItielned at all the public buildi.Daa- There il manifut reluctanee to meet (JUt elf doon, and IpeculatiOO il rire .. to what turn eventl may taIuo. On the one hlllld, nothing may happen. On the lither, a r... da,1 may _ the whelle nation pJunpd into blllGdy ci't'il war, with ita attendant harrowini _ _ of_CIDlen and children beillllhClt OOWD in cOld blood, elr pneral chlOl

,

BiOflraph,

and of murder, rape and plund&r, Everyone reaJiza, though perhape unconaeiouely, that be is living on the brink ofa lmoldering volcano, aDd that in the very nature of t,hinp, the ...... ment of IflUtestaeenUng tranqllility may precede a devutIltina: eruption.

An individu.alauch III Ralph Elliott., who Will at ease in dealing

....th auch an environment., will certainl, wellauited to handle tbe tl'anaitioDll £rom "tranquility" to "devllltating eruption" in the Irtock market. Elliott proepered in hia special niche not only by being rugged and adventuroua, but ironicall, by being an ata'ImpliMled -people penon" III well Elliott later explained that Latin AmeriCllfllI place tremend0U8 value on "a auave and engaging penonality: a "never failing urbanity," above all other character traita. Elliott'l complex ability to deal with all atrata of lIOciety, hia reliab or the ell ~

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'" Elliott'. monthly eontribution wu entitled limply, "Mr. Elliott'. Column," and generally ran ,bout two pagelI. Each one wu announoed on the front toYer and ._~niedby hiJI photo, one ofonly two writelll' photoe in the publication. Elliott'. first artiele, which IPpeared in tile Septemberiuue. preaent.ed ~me bamc idelJl lod ...,licited quMtiolUl from the buaineu people who read the maguine. SubMquent columf18 anaw"red the question. IlUbmitted. EllioU practiced wha~ • Department of Commerce bulletin from the time ClIlle
_ume u many duties u poll8ible over a period of time, and learn the buain. . from the bottom up, a path that he billUelf had taken in developing hia railroad ao;:l;OUll!ing apecialty. He further adviHd that people not "follow a buaineu that dDl!tl not appeal to them'- regardleu of the applll"ent linanciaI benefita, an adage that be certainly lived by. Hia waminp apilUlt borrowing to atart a bulinea reflected numeroua aperiencea with companiell burdened with debt, whicb he considered one offour primary reuona for buaineu failure (the other three bema inexperience, inaufflCient capital end inadequete reeonIa). Otber commentll from hie columna renected ideas thst eerved him well in the futUTe. For inatance, hill admonition that "indeciaion ia frequently more harmful than a wrona dec:iaion" later directed hie unhedied calla on the market. Hia idea that reeonl keeping ia primarily 'a guide for future action" WlUl directly applicable to hie approach in atudying the atock market, and hia penchant for 'graphic explanation" helped him aceompliab it. Hia general obeervation that -every buaineu that ie newny fuhionablel ia liable to be overdone periodically" hinted at hia experience with buain_ eyelee and know1«lge of boomand-buat fade. He even dillCUlllled the peyc:hology ofaatiafied cuetomen and explained where to find boneat opiniona about a buaineu' lhorteominp, directiona that renected a healthy .,If..teem that later allowed bim, when he WIJl unknown among market profeuionlle, to .alicit the opinion of the nationally faIllOUS Charlea Collins oonoeming hia Wave Principle diecovery. Then, .. today, the reetllW'8nt buaineaa presented a etrong attraction for many proapective entrepreneun, relIulting in subatantial competition .. well .. a high failure rate. M a result of both facton, the indWltry WI\.I hungry for adviee. Elliott'e commentary wa.a populu, and the opening letter addrueed to him in the November ielme began, "Your oolumn ia moet inte...,.tjng and I can plainly _ that n. Ram md Gil 3lt:p will have to be enlarged to accommodate your oolTMpondence." The eateem with which hie oolumn was held in the restaurant aceounting and management field ia renected by the fact that in late 1924, Columbia Univenrity invited him to apeak on the subject. Possi· bly beclluee of tile very renown be wu eaming, Elliott wu foned. to decline the invitation, ae he wu once again on hie way out of New York on buaioeM from hiJI then-",aidence at216 Weal 79th S....C

"

R. N. ElliOTTs

MA!1T'u~

Elliott', qgreaaive mobility and eorporate eervice over the yean oecuionaUy brought bim into contact with influential people in the academic and political world. Hi. pel'llOnal cbarm served him well, and hi, ruclnating range of experience and eteadfut integrity must have made him an enjoyable aaeociat.e. One of Elliott" contactll Wall Dr. Jeremiah Whipple Jenu, • di$tinguWled. lawyer, academician, politicaladvieor and author of nearly two dozen boob on poliliCII, Mlcial iMU8II, religion and bu.!lineu. Durillll' the mid·192Oe, Jena wu Chairman and Prw!identofthe Aleunder Hamilton IlllItitute in New York and Research Profeaor of Government and Public Adminiatn.tion at New York University. Elliott undoubtedly metJenb tbrou,gh profeuionailUllOciation, u Jew bad alao lIel'Yed on the board of diredon of lM!Veral railroada, including the Pacific Railway.

of Nicaragua. The two men may have become acquaint.ed .. early .. 1903, when Jenu wu. profellllOl' ofPolitieal Economy and PolitiCllatCor'neli University. H" had apentllOlDtl time in Mwco that year eerving all a COIlllU]tant to its govemment on matten of Nn'I!ncy reform I.t I. time when Elliott WlUIl.n llDCOuntant for the MflIican railroad. What'. more, becaUM Jenkl' time in Melico coincided with Elliott'. marnllile, and ainee both Mary Fiupatrick and Jenk.l. had traveled from New York, it_ma relUlOnable to epeculate that MlU')" may have been working for

Biqrraphy

"

Jenk.8 when she met Ralph Elliott. Whatever the date, at lIlIllIe point Jew' and Elliott'. common interoe.tIl in the railroad in· dustty, finance and Centni America brought them together. The characters orthe two men appear quite different, Jenu a Victorian-style moraliat of the academic and political world and Elliott an earthy, praetical profeaaianal in the corporate world. Neverthel_, their common inl.erellta led to a mutual relIpeo:t and friendehip. One of Jenb' main goale was promoting a strict c;ode of virtues as a -.>Iution to llOciai problema, and in researching hie p0sition, he became widely read on the eubject of human nature, particularly as exprl.'lllled in llOciai eelion. In one book (1'hI: Politkol and SociDl SiKnifimn« o{tM Lift and Tra.:hilt6' ofJellU), written in 1906, he included the followingeommenta and quotations: Every llOciety il built upon bumllll nature, and il ilie product ofberetentill appointee fOf another govemroent polIt. in Nical"afUll. Whateve!" political influellCll Elliott', ideas CO!" Latin Amerio:a may have had, it il of HCOOdary importance to EIIioU'. later achievement In diecoverina' the Wave Principle. In that regard. 'I'M Futun of Latin Anwrica ~ primarily meaniniful in revealing. mind that wall comfortllble in . .imilating mountairw of detail while lrimultane0u8ly holding the big picture in penpective to the end ofMllving. m-.ior puzzle or dilemma, a prerequisite ability for di8COverilli and eodifYini the Wave Principle. One paMB,ge in particular conwM a c]"'aT hint of Elliott'. diJIpomtion to _ pattern in the nature oCthinp: '!'be prec:eding ehapten m.,. bave led the "'~ to the eoDelUlion that the problema of the United St.ItM and of lAtin America lend themMlveo to mutu.a.l ...Iution. By .. ~ming coiNeKk_. but wh41 mGJ' -U N /I prooisil>n 0( '''Ii i" ea>nfon« with 1<J.w. not ~ properly WIlkr.tood, all Uloae thinp which Ule United StaW laeu ..... to be fDUDd in profumDII in Latin America, and the neecb of Latin America are IUeh u the United Sta""" i.I beIIt fitted to provide for.IEm-

""t"... ...."...

phui, added.1 Here Elliott implies Ulat na.ture tenda toward a eompenaatory balance, in wbieh acarcity ofone lIOn i, CO\lnteTeonal favorable r-ie.... poured in from

Tiu New Yor. World, the National Reatllurant ANociation, which invited him to lpeak in Buffalo, New YOI'k, on September 26, 1927, ud othen. He advertieed for client., probably !Wing language ,imilar to that in hi" ad from the January 1925 is/JUe of &IIoluant lJIUl Tea Room JounuJi, which .....d: R.N. EWoU May be "oppd to Report on IOeAtiona, ...piuJ and reHrYe, Report on p......,.,t .u.tua of. buain.... Keep boob on a boil that pr<mdea a guide ror action, Take care of intome tn., Comult on all matt.enl pertaining to tea l'OOIIl.I, cafeteriu, ete. My ~ it adapted to out-of-town ownen.

Inquir)' doea not inwl", obligation. The o:oa ol my llel'Viee tomelI out or additional proflta.

That lut gu.t.rantM rould only have ~n made by a man who was confident ofhia ability t.o add value to a buaine"".

Bfugruphy

"

Elliott's reputation, baaed on a dilltinguilhedcareer, hia new book, and a long HlIl. ofreferenees, wu once again _ring. Hia goa.I of aecuring a lufficient number of clienta in hil new location wu rapidly being fulfilled. Though he had prudently retained the profeMionai option of returning to Central America, the persistence ofhill medical condition made -..ch a return inadvisable, while the rapid pace of his newest luc:celIlI gave him every rell.llOn to remain in the United States. The two situatioM combined to prompt him to lIettie down. In December 1927, after thirtY-3Q. yeara of intenee work, travel and hotel living, El_ liott tIeC:Uf'ed a more permanent reaidenoe at 833 Beacon Avenue, a 15,1150 lICluare-foot, three-3tory hOUlNl built in 1905 that had been converted to apartmenta in 1920. Ju.lIl. when Elliott'l future appeared ita brigbtest, hia ind. pendence and financial security seemingly aalured, diaalter Itrock, IllItead ofrecovering from hia iIIneu, Elliott's condition worsened. By 1929, hia amiction had developed into I debilitating CQI of pernicious anemia, involving chronic fever, dYlllln-

-,....--

833 Bn ... A~, LO$ AngNs, ElIiolt's home frDm 1927/0 1938

.

R. N. EUJOTT's MASURWOIlKS

t«y and weight lou, le8Yilli him bedridden. The adven\.w'ou.t and produttive R.N. Elliott.u forced into an unwanted retirement.. Hia book 00 Latin America. whether bealUM of the State Department'. noneommittal rtl5ponH or hillaccelera.ting debil· ity,"'u never publiahed. He could Df1longer tnIvel, and had to abandon hia OCIlU1ultin(r practice. Several times over the neIt fi"" ye&I'8. be came utnmely clo.e to death. Each time, he manqed to rety, and became one of the firat IUbKribe... to Rhea'. atock market Dow ~ Commt'ol 0932-19371. It ... around 1932, then, that Elliott began turning m. full attention to Itudyin& the behavior of the ltoek market. He began punuing a miMion that he had enunci.ted for all ~lpoMible men in his man~pton Latin America. '"!'here ia. reuon for everythiq,~ he Hid then, -and it ialone'sl duty to try to diacover it. ~ Not unlike the Dow Theory geniua Robert Rhea, who luffered from tuben:uloail and WlUl bedridden It the time, Ralph ElHou, who lpent long boun On hia front porch I'flCUperIlting and atudying, began to make lOme fllllcinatini obael'Vlltionl concemiq the movement of prieea on Wall Street. Hia -..till path ofiDQUily,I.e., loolrlng for paltema in ~te ltoek price movement, WlUI undoubtedly direeted initially hy expofUnl to the tenetll ofDowTheory. However, EllioU'1 ultimate dillCOVery Will all hia own, lUI over. period of MVenl yeaD he pailllltakingly UllCOYered the Wave Principle of market. behavior by Itudyina empirieal tnridenoe. '"!'he mono desirable the goal,· Elliott had Hid once before, "the greater the triall which have to be met and conquered. for itll uhievement." In invlllltipting the poaaibility offonn in the mlrketplace, Elliott eumined yearly,

lIeni....

•

Biography

"

monthly, _kly, daily, hourly and even hair-hourly chart,., of the variOUll induell covering .eventy·five yean ofstock market behavior. He constructed the hourlyehartll from a data seriN that began for the Do. Jon.... lndWltrial Average on October 5, 1932 and the half-hourly ehartlI from fIgUl1ltl be collected off the tape in the tnlding room of a brokerage house. Around May 1934, jWlt two monthB alter h~ final bl'Qh with death, Elliott'. miMion began to be fulfilled, H~ numeroua oblIe"ations of generalatock market behavior began f.lling 10gether into a general eetofprinciplea that applied to all degrees of .ave movement in the stock price averages. Toda,y'a scientific term for a large part ofEliiott'a obeervation about markete ia that they are "fractal: thereby coming under the umbrella of what is today called chsne l!ICience, althouah he went far further than moat .tudie. today in actually dellCribing the component pattema and bow they link together. The former "EIperl Orga. nner" of busineuee, through a meticuJoWl .tudy of detail, had uncovered the organizational principle behind the movement of markete. When he started applying th~ principle over the nut seve",1 months to eJ .,..terruI

""ri.,.

method, Elliott began llending ColiiDil a of lette,.. Rod ehatt8 ouUining the buia of what he referred to Var1OUl1ly as ......ve theory" or the "Five W• ..., Principle.- Elliott ~ th.t sinee his fmancial lItatua wu difficult, he whed to acquaint ColliM with the theory and prove iLl value without waiting two or more yean for II complete market cycle. Included with Elliott'" lIOOOnd letter to ColliDll dated December 9, 1934 w81I a brief but thorough eJtpolliUon of the Wave Principle, iocludine an introduction, which IlOMtltUted the fint wordA EIHott ever wrnte to another on hi, theory of the stock market: The market may be lii<ened to II. river. It hu rather ..ell defined bOllie... ofwill'orm width, lICClI.Iionally becomell blocked by barriet'll and suddenJy breau a"'a,y from them. When the channel ioI nlllTOw the apeed i, greater and vi"" vena. It CW"'l'H aceonling to noaioltan"".

paaaagH in hiol two earlier books bad already auggflated, Elliott'a intereat in mathematies, rhythm and repetition waa keen. He waa UlIing flnd·time cydell in biB Il.nll.l)'lia at that time, llIId referTed apecifieaily to a nine week eyele in atoek prieee, v..nable to twelve ween, which ia atill quite regulu today. ThiB intereat turned out to be only a tempol'ary divel'llion, but kept him thinking in the right direetion. ~All life and movement conll.iBtlI of vibratioNS," he said in hiB aecond letter, ~Md the ll.toek market iB no uoeption.· Exoept for aueh ocea.aionaIl COlllfmlnlai, Elliott atayed focuaed on hi. empirieai oblIervationa, which inaeaaingly revealed pattema that far edipeed the aimple concept of repetitive cycle•. Theae obaeryationa ultimately aceumulated to the point ol'gellilli"with hi. grander notiona into a practical and deeply aatillfying undel'lltanding ol'the marker. PlIttema, aa well aa their mathematieai baae. Elliott'. lettel'll to Collina revealed a finn belief in the virtue ofindividuai inibabye, which virtue he certainly pr&d.ieed AJ!,

•

. himllelf, and a rec:ognition at the harm of government regula-

tion of blllinesa. One letter referred to the "unprecedented un· l:OlUItituuona! meddling in economics by politics.· (Significantly, there ia 00 record or Elliott or hi. wife ever haYini obtained a Social Security number.) In another letter, he dillCUned the plight of the raill'Ollca, with which he "as familiar from long es:perienee: I _Iit.tle 01' no hope 0( activity in durable goods 10 long as Regimentatioo ia diop1acinllndiridu.al;"m. But roc Individualiam there would never ha"" been anything to regimenL The rail. have been in a .eeular decline llinte 1906 [whell] politicians and labor unione oombinf!d to harau them. The Utilitie. are getting tbeir doH of politi.. now; their treatment ia reflected in the a""ragel to the IoOrrow of tbowanda of innocent in_ton.

During this letter writi"ll' period, Elliott continued to disDOver new tenets of the Wave Principle u hilnudiea grew more thortlUBh. While prwv;OWlb' attemptl"ll' to count five waVeII in IVery mov""'lInt, for inatance, he cam" to ODnclude that all "triaDglell, perioda ofheaitation, flata, are equivalent to 'COrTediOIUl' of the ruling trend," Leter he found that "diagonal trianglea art! inevitable terminations of movementll of their degree.Sinee COlliDll ..... in Florida that winter all w.... hia CWltom, it waa not until January 4, 1935 that be began ffllI])Onding to

Elliott'e "flood ofletteI'll," all Elliott himself put it, a ta8k that for a few weeu had been lefl to an llMOcia.te. On January 11, COIline eent a telegram to Elliott willi him to diapatch a wirt! when a particular minor declining wave they wert! tracking had ended, A wNk later the Dow Jone. aVeragelII were ltill in a declinilli ph.... and, all EIHott put it, "the wiseacrea around hert! an! very beariab,- At that time he waa forecutilli that the Raile would break their 193410.. but the Indunrial. would not, a prodiction that mUit have .truck COllina later as uncannily accu· rate. Hi. first telegram in ruponae te Collinl' requeat for pinpointilli the bottom of the oorrec:tion was dated January 15, 1935 and read, "CORRECTION ENDED LASI' HALF HOUR TODAY.-Tbe ea\1 ..as perfect, and a rally enaued immediately. On January 22, Elliott reoognized the rally aa a oorrective atyle

•

B'Oflraphy

advance, and aftu the cloee he wrote to all'y, "the pittl>re i.$ beariAh asain.· The rally peaked two trading boun later. He then forecut that the Induatriala would llip below 99 to 96, and the Ra.ile would crack 33, ularger WIVell 3, 4 and 5 downward unfolded. Moat of the predictions that Elliott made in hil barrage of lenera (even thoH that took yelltl to praveJ were correct, many to perfection. However, in the approach to the actu.al bottom, which was made at 96 as Elliott had fltllt fllnlCll.!!t, he changed his mind IIeveral times in an attempt to call the low euctly to the hour. Elliott'l changes of mind, newly dilJl:'OVeted tenetl and occuional wave relabeling bothered Collina, who wnKe Elliotta long and courteaua letter on February 15 pointing out weakn _ in Elliott'a methodil and end""ing IIIme ofhia own work on a five wave theory I.lI applied to long.term price movernentB. He auggeated that in order to remedy hia financial aituation, Elliott manage aome rilIk capital and begin a letter ..,rviee to be cireulated to a ""lett group while he developed hiA theoriea to completion. Even at thia Itlge, however, Conina obvioualy rec::. ognised the ....Iue of Elliott'a work, u he offered to introduce him to the day'aleading t.ec:hnical anal""t, Robert Rhea. Elliott countered Collina' grounds for delay by listing the varioua imperfectiol13 in Collina' own market letter'a invel!ltment decilliona of the previoua two years. He strongly rellflinned hil wish to become\l.8lOtiated with Collina, whoee lettere, he atated, were 110 well dona that there wu"no comparillOn between your letten and thole of any other service that I have aver _n." On February 19, 1935, Elliott mailed CoIlina lIeVenteen j'I8gflI of. haatily organised yet metituloualy detailed treatille entitled "The Wave Principle.· He lent twelve more pagea and five addi· tional charta over the next two months along with his regular colTellpondence. The fltllt page of the treatille containa Elliott'. statement of the utility of the Wave Principle: A careful.tudy of certain recurring phenomena within the price Itructure itllelfhu developed certain f.ttB whieh, whila they are not always vocal, do nevertheleu fumjah a principle that determinea tha trend and gi"... clear warning of revena\. Collina thel'
•

60

R. N. ELLKnTS MABTUWOIlD

11le SWlcMII Arms Hal. (noll buM 01 MiIn srr.dilh on f~J 1e9 CtM:JnlbUf HMg/Ir., BnxlI\1yn, N.w YI;If1r E/Iioo'. from ISI38IO IP47

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Lette"" which outlined and ro:recut the path of the market in !.ermA of the Wave Principle. He iMued the one to four page let,. te... irrqularly (.... lb. ooca.sion ~..ure."), ranrilli from three to aeven iuuell annually between November ID, 1938, and AuKU8t 6, 19.o ... ~ _tzll•• «>r 11nobc4l. (1 ohIoio ""0) I hod "" .........It'" _ _•• ..... _ or..., • do "" \bon port ,In I"'hlld'l .... DlleU, 51»00 _ boT p.Ibl.hb04 "'" N'loo 1 ~ obeo. -...ld bo ot

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Coaot' Primiple: Whom a newly diacovered phenomenon ia diac:loaed, ae1f· appointed "ezperta" immediately appear. Conaiderable uperience i. required to interpret correctly ....vea which are in

66

R. N. EUKYrr's MASTU'rOUS

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" proc:eu of fomultion..•. No intel'pretation of the Wave Principle .hould be _ptfId u valid unl..... IIl8de by me or by • Irtw.\ent directly lieenBed by me.

In fact, Elliott did have I cl_ oht\ldentll whom he taurht at ilTf!rWar intenal. from hie small office at 25 Bl'OlId Street. Carroll Gianni, a memberofLhe New York Stock Exchl.l1ie, W.I an oa:alIionaietudentofEliiott'.f'rom 1939 to 1941. Hedeecribed the one hour IIelllIiOll8 all informal but Soaatie, with Elliott finnly in the polIition ofprofeBllOf. On ~mber 30. 1941, Elliott'. wife Mary Elizabetb. who had n!mained with him throqhout hia travel., career changes and medical misfortune, died at age 72. They had been married thirty...,ight yeara. A few montha later, in the Iprina of 1942, Elliott moved hie office to 63 Wall Stl'eet through In interestil1i chain of _ .. nta. Philip K. Sweet, then prellident of Fundamentallnve.ton, Inc., had worked for Edgar r.w...,m,.. Smith in the late 1920s with Anthony Gaubi., who in 1934 became auociated IlII I junior ~er with Chari". J. Colli"" at Investment Coo"",,1. Gllubi. had met Elliott in 1938 at Inveatment Coun"",l and I.ter introduced him to Sweet in New York. Sweet, who admired Elliott'. work, offered him an office at 63 Wall Street where Fundamental Investora wu located. Elliott accepted, and moved hill bUllin..... from 25 Broad Street to itll new loeBtinn. Around t.hiII time, Elliott lieelUMld at leut one atudent of whom there ia lOme record, a man named Richard Martin, who publiahed four market lette", entitled 'The Wave Principle" from March to Augu.at 1942. Elliott made certain to protect hia di. eovery even from his protegefi and had the lettera copyrighted in hiaQwn name. Mr. Martin'acareer with Elliott wall brief, however, poeaibly becal,llle be found hm..eJf in diaagreemtlot with Elliott on the outlook for tha marut. Whila the poaitiOD of the market under the Wave Principle often alklwa Hveral pouible outc:omH, rarely ill their order of probability a proper point of oontention. While EliioU wall willing to dillC1.lU different point. of view, he rightly conaidered hi. interpretlltion. expert and refUNd to unction deviatiolll. Martin dropped from view but reappeared in 1948 II author ofa booklet called TrfIUt Action, A New Mrthod ofFOI'K08tiIlJl. The booklet propoMed an analysill of the market in a faahiQn aimilar to Elliott'a, but now purported

"

R. N. Eu.JOJT's MASnJIll'ORU

to be refined from II syllt.em developed by Frank H. Tubba and published in 1929 all part ofa .Ln! dianally fail. to indicate anything but II luperficialaimilarity to Elliott'. Wave Principle, thus negating any t1aim orplagiariam. Throurhout the fint. haIr of the 1940., Elliott investigated further in the fieldllOfphilt..uphy, art, dynamic 1)'Dllllet.l"y. mathematial, phyaies, botany, and even Egyptology and pyramidology. Olle of the article. he read wa. "Do You Know Your Emotional Cycle?", which appeared in the November 1945 IMu" of&dbooJc magazine. The article dillCu..aed the work of Dr. ReJl(oni B. Hel'1ll'!y, II lCienti8t who diacovered the cyclic.lity ofhuman emoUol1ll (today called biorhythnuo:). HI! ai"" readProph«.in ofMmhi-ZAda ill tM Grret Pyramid by Brown I.ndone, ufe'. Riddk Solwd (1946) by Dr. John H. Manaa, preaident of the Pythagorean Society, and other vol\lfIlell, IIOIIII! ofwhich are lilted in the Refereoeu Metion at the end of Notun'. Law. M....., lind more, hill concept tol>k on II .. holeneM thII.~ fit into what he eventually came to wi "Na~ure'. Law" and 'The SecTet of the Uni_ verM." Some time prior to 1944, EDio~t eolTflllponded with Manly P. Hall, founder of The PhiIOllOphica1 Reaean:h Society, me., a private reHarc:h and educational organisation in r.o. Angelee, California. Elliott requeeted permialrion to reprint the picture or Pythagol"lUl thII.~ Hall had contributed to John Manas' book. Pennillion wu granted, and Elliott reproduced the picture in NlJtun'tl LtJw. Hall, who chronicled man'. lIIIarc:h for the eeeret of "univenal wi..Jom- and who maintained that "all the uni· ....T8OI i, eternal growth," may have influenced Elliott'. thinking by the time he wrote Natun', LtJw. During th_ yean, Elliott vitlited hi, old friend, inveetment couolllllor ~ P. Robi~n, almOO daily in hi, offic" at 14 Wall Stn>et. Robinaon employee Howard Fay became /Hemitl with Elliott and visited him lIIIveral timea at hia home in Brooklyn Heightlll. Fay deac:ribea Elliott ae "intelligent and ,h8l'P," but "omery at tim_," and I.... than patient with th.- who dilagreed with him. By 1945, Elliott Willi eetabli,hed to the point that he Willi advertiainj: for Graphiea Stoeb, a monthly range ch.art.llel"Vice

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'n. _f Cycle ....ve IV. Though Elliott'. concept. powerfully lhaped the work of IIeVera1 of thia century's IlXWt IUcceuful market forecuten, it Wall A. Hamilton Bolton, the brilliant ana1".t ofBolton-Tremblay, Ltd. of Montrql, who tnI1y kept Elliott', name and the Wave Principle alive. BoJton, who w. . a.tock brobrat thetime, l'M.d Elliott', FiIUJllcial World articl". in the apring and NtI1mftr mont.h.o of 1939. He mad. a point of contectinlJ Elliott on one or two oceuiona on hia triJlll to New York and cornlllponded eontinually with him until Elliott'a death. In 1946, the year Natun'. Low wall publiahed, Hamilton Bolton and MauriC4l TTemb'-,y formed a mooey management fum and began publWrlng 1'M BaIl4 Crfliit Alwly.l, a monthly market analyli. hued upon Bolton'a pioneering reeea.n:b on the I'l!latiol1lbip b&tween bank credit atatilltics and trends in the etock markeL M a retlult ofhie conailtent auccese in fonlCUtinlJ with thia method of"fundamental~ana!yllil, Bolton eommanded lJI'tlat and everincrelUling respect within the investment community, particularly among illltitutional inveeto.... While bank credit ltatiaticl wel'l! Bolton'a bl'l!ad and but.ter, the pilei of corrupondence to Collinl, FroIt and othen ehow thlt he.1UI eaptiVflted by the Wave Principle. Five yeara after lJtaI'ting hia monthly publication, Bolton decided to lllIIUJne the task or publicly analyzing the market in terme of what wae by then ref'ened to .. the ~Elliott- Wave Principle. Hil firat "polIition Oil. the IUbject appeared in a 1953 "'aupplement- to 'I'M BanJe CnditAnaly.l. The long-term bulliah forecut it preeented, at a time when to molIt analyatll the market appeared "bijh" WlllI

•

BU!tlraphy

not only daring, hut accurate. Bolton'l anaIyaiA proved M! popular that the Elliott Wave Supplement became an annual feature publilhed each April. Hil thoughtful oommentary and dramatic euccea with tM Wive Principle kept wan Stnlet interested in the concept for thirteen yean. Elliott'l Wave Principle got another Iman boolIt with the inclusion ofa c:onci.... lummary in Garlield A. Dn=w'1 1966 edi· tion of N~/IJ M~tMd.l for Profit ill the Stocll Moml (1948). In it, Dn=w, who rna, have eolicited the oommentary from Bolton, wrote as followl: AtLer a linn start in 1949-1951, the put two yean, at leut, have dett'aCted from long term 1948 forecuu of IllOR baaic cycles. Iftheae projectionl had been oorreet, atoeka should have reaehed a bear market low in 1951, building activity should bavebeen on the dowDlJ'"Ide until 191i3, and 1961_1962 ahould have been tM troua:h of a depression. There iJI one ex· ""ption, howevN'. Elliott', Wave Principle aeerna to have Rood up better than anythin,r elae in the field of IODg ranp forecast. There WII more hesitation of stock pricea in 1947-1949 than original.ly anticipated, but the buic theory WII quite c0rrect that the llUt important move would not only be up, but would abo ex~ the 1946 top. At the Ume time, it wll aiM! fOl'lCallt that, eventually, a fifth "wave" would eueedevell the 1928-29 top for stock priCN. Thlt _med utterly fantaltie in 1948 when the 200 level would have looked "high," but with the Averap havina; alnady hit 360 in 19&4, it no IOngN appeen quite eo impoNible of ultimate ICWIllplilbment. In 1960, while be WIJI president of the Financial Analyeta' Fedenltion, Bollon publi.hed The ElJi«1 WallO! PriN:iple - A. ~ ApproiN/., the flTllt book on the Wave Principle .iDee Elliott'INalun's LauJ. In that volume, he made hil famous forecast ofa major Dow peak at 999, reached lil[ yeara later almost to the dollar. He at.o documented (without referring to him by lllUllI) Collinac' concept of a 1932 orthodo:l Supercye1e low f.... ltocks, Ellwtt'. concept of a 1942 orthodox law baaed on I 13year triangle, and Bolton'l own interpretation of a 1949 orthodox low based on I 21-year triangle. Th_ difl'ereneea of opinion ronatituted a point of good·natured diatlgreement among Itudents of the Wave Principle that luted a decade. A.J. FroKl recounts that Bolton, juat months before his death, changed bis

,.

mind on the 21·year triaDile, ~ with Collila tha~ 1932 marked the ort1'Kldo.I: low. SubMquent market action confirmed thia wave labelillg to be correct.

On Fehruary 11, 1966, two dey. after ~hat decade'. hillh and the peak of Cycle Wave III, Bolton wrote to CoIIiIa, whom he had met twice before, and uked him to contribute to TM 1IanJI Cndit NIaly.t'a 1966 Supplement, which "1IlI published in April. Therein Conine gave h.iI t.IJouihtl on the market and. explained thelltoryofhill relation.hip with R.N. Eniott. He then outlined the Intermediate, Primary, Cycle, Superqcle and Grand Supereyele wave ODuntl for the .toek market and enrreet1y identified the top of the Cycle wave advaDOlll'rom 1942. At the QIIle time, he f;A1led for an enauing fourth wave to be made up of a large A·B-C formation carrying ultimateb' to about the 525 level on thfl Dow IndWitria1&. Collllidering that thfl Dow at that timll .... cl.- to 1000 and bellrl ..ere eearce, Collilll' prediction wu tnl.Iy remarkable, not only becaWle it forecut thll W1thinkable, hut becauee it came tnle. The end of the 1966_1974 c:orrec:tion envillaged by Collina came a~ 570 (intraday reading) on the Dow, jun 411 pointll from the prqjllCtion made eight ylllrI earlier. In.. CompUu ElIwl W...... Writing. ofA HomiltOit Bolll>lt (New CI. . .Ice Library, 1993) preBentl both hia and Colline' entire publiahed c:ommentaty.l AJ. Froat, .. vice prelident in charge of adminilb'ation a~ Bolton.Trembl~,'11''' abuRney uaociate of Bolton'. from 1960 to 1962. He became and remained one of Bolton'. cl..-stfrienda. TIley c:otrelIponded frequently and dilc:uQed in detail the mar· ket and the Wave Principle on many oc:euionl. A1I:er Bolton'. deflth on April 5, 1967, Fn:.t .... choeen to Ull\lme the tuk of writinll the Elliott Wave Supplementl. Froat wrote the 1967 Supplement and conaborated with Ruaell L. Hall on the 1968 Supplement. The JlIlIt Elliott Wave publication iaaued by TM 1IanJI C,..,dit Analyll, which had been purchued by Stotey, a.-kh" Aaaociatu foUowitl&' Bolton'. death, Willi Fn:.t'.1970 Supplement, which inclwled hi. flllDllUB cakulation Wlill( houtly figureI that the bear market then in Pl"O(lreM ..ould bottom at 572. 'fbe hourly low four yean later w. . 572.20.ITlle Compk~ EUWJ4t Wauc Writin,r. u{AJ. Froot(to be publiahed by New CI..· triae Library in late 1996) prellenta both hie and Richard Ruaeell'. entire puhliahed CODlIDMtaty.l

•

BWgraphy

"

The Wave Principle m:eded from public view In the 1970.. Aaide £rom briehllmmari. oCthe theory in a few book chapten and uticlee, the aforementioned diecuse:iolUl by Richard RUAell and Robert C. Beckman's The Elliott WallO! PrindpU4I AppliN. to t~ Lon.dJ:m. Stooll Marut (1976) were the moet ambittou. writinp on the subject durina' this period.

The Wave Principle ReDewed The reoeeaelon of Elliott Wave eommenttlry ended with the rel_ of Froolt and P'reehter's 1978 book, Elliott WallO! Prin· ciple -1CQ to Stooll MarUI Profit., the first book toarnnp all mown IUlpect.lI of the Wave Principle in lagieal sequeoce and add points ofmblt.lu,e to the llte...ture. In late 1976, while I wu a teehnlcal analYllt with Merrill LYl>Ch in New York, I bepn correepondilllf with A.J. Flwt. I had been publiahinK reports aince April on the stat..... of the market in tenna of the Wave Principle and WIUI betPnnillll' reHan:h fOT a new book on Elliott. The Market Teehnici&nll AlIllOcl.tion contacted me in early 1977 and wed if I would al'T1lJlge for Fl'OlIt to llpealr. at its annual conferellCll in Pl!llIUIylvani. that May. When Fl'OlIt and I met at the conferenee, we enjoyed ..ch ather'a company immeneely and became fut menda. Frost eJ.. plained that he a11JO Wall in the proceaa ofwritilli a book on EI· liott, which Wall to he a collaborative elfort with laD M.T. MeAvity of DelibcrotiolU (for artwork) and Richard RUSIlllIl. Froet added that he would lilte to include tIOme of my recent analytical ....ork III a chapter. I IIl:I'"d and began work on the chapter while con· tinuing reeearch on my own book. Frost spent mOlt of 1977 writing a draft summary of the Wave Principle for his book. Then latll in that year, MeAvity and R...-n contacted Froat and explained that their b\IIIy Kbed· u1H precluded their Involvement with the book. Frost wrote and wggeated we coIlabontll on the volume and in December in_ vited me fOT a weekend to hie home in Manotiek, Ontario, to go over our pllDII. lepent the Dm IIllVlln mQntha IlUbltantiaUy u· pandillll' on A.J.'s drat\, interrupted only by a deliKhtful weekend viait with Frostand CollilUlat Cc>UllUI' retreat in F"orida. By July the book ..... ._ or TIll .... .. '-"" lPU

_ . liD . . . . . _ ' . It ....,"'" ..., ....... to , ..... I

_

" .. 1.0

,

,

•• ' ••n .....

... .... -.-

Pr'..

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..

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R. II. lLLIO'TI',

R. II. Illiott.

....tod.", 110. _n

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tlw

to •• prod.uro '~100 pupar"

1>7'

."tho.

I. I. ""• • 00., SI.O.I>dU' St.o.U.tln Co. In.>, ~. r.... k Stoalt Ia....... ,

hr."".,

Ilo.-J _'oorl"ll b,. tho

.,,\/>or

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t'ho II.U-t P1B&... ld _11.17. 00., lno. 1.U.... lnc of . . . . . . . . d _ ,Dol 10 prot..ot..d "" ooP7"IIM.

_ .....11 U • ..-..... p h o _ 10 41 . .1..... .. It-o.ppolnted "npwtoo' ~dlU.l,. 'PP"'U"' Clorl.ld....bl. n""rl oo.... tl,. . . . . . .""elI

10 Uqu1tH \0 !.nwr,nt I .. l"'..... of to.... u ....

Lone

dlol.aMO to...... Unc .0quiT•• U>or",,&b tulllo:rt"J' rit.llllhl.o'lad p.....d..,t.. DlarI"C°

t .. ,...... \ho _kot 0111 not tolloo v.. po.tt.orn .b••,..0rTlIrt1y I Utinlr., that Oil.. Olle lrnowa the PrincipIa, it is ....y to l'WCOlPlize and foUo.., but it tak. pnctioI to be abla to forecaat the m.artat frolll it. On tbe other band. it is I>Ot nec:eaaary to fOl'flCUt in order to trade aucaufully. As Elliott oaid in a 1eI.ter to CoUi.na,"' ~_ that it ill far more important to .." ...... ..hen the terrnilla\.l .... aetuall1 reached than to rorecaat a 'guHI'"

,

II

STOCK MARKET WAVES Human emotionl, u mentioned in the preoeding diJlcu9ion, are rhythmical. They move in waves of. dmnite number and direction. The phenomenon OCCUf1I in aU hUlIlan activiti",., whether it it blai~, poli~, Qr the purauit of pleuure. It:ia partieululy evident in thoM free market. where public ptlrtid· pation in price movementll :ia e:rterwive. Bond, stock and I>'.lm-

modity price trend, are therefore npecially lubject to uamination and demonstnltion of the wave movemenL Thill treati" has made UHofprice rnovementll in.tocb to illustrate the phenomenon, hilt aU the prineip''''' laid down herein are equally appliublto to the wave movement in every field where human endeavor it regiltered.

A eompleted movement conl;m of five wavel. Why th:ia abould be live rather than 110m. other number ie one of the II&eretll of the universe. No attempt will be made to upl.in it, al· t.houah, in paaaina, it mii:ht be oboIerved that the figure five :ia

prominent in other buic pattem.l ofnature. Taking the human

to....,_

body, for example, there Ilre five f!:rtensiona from the head, two legs, two ..,....; five exteflllioM from head - two eara, two eyea, the noee; five exteMiona in the form of fillllera, from each arm, and in the form aftoN, from each leg; five phyaical IItln8ell taste, lImell, .igh~ touch, he.nllll; and 110 the .tory might be repeated eilltlwhere. In any event, fi~ wow. a", 1xuJil: to a camp/tim. ....cud mooe1lU'IU and can be ac:cepted witho...t neceuity af reuoniDB the matter oot. Three oCthe five "'avea that form any completed movement will be in the direction of the movement; twa of the WaVN will be in a contrary direction. The firat, third and fifth ....Vel repreHnt the forward impll1ae; the aecond and fourth waves, thecontrary, or corrective. Stated aU..."';lMl, the add n...mbered wavea are in the main direction; the even nwnbered wavea, against the main direction. Thil il iIl....trated in f'igl.are 1. Five Wav" of one climenllion become the f!nlt wave of the next greater dimelllion or degree. Aa an eumple of this, the five Wf!v.... in Figl,Ire 1 progreaIItld from point M to point N. In Fill\lre 2, however, repreaentiDB I next hijber degree «move.

,

" ment than the onejult ilIulItnted. it will be _n that the movement from M to N ia but one _VII of the five-wave movement M to R. The movement M to R, in turn, becomes but the first wave

of « movement of.till hiaber degree.

',,1 XX of Ntl.IW"". Low.

,.

v WAVE CHARACTERISTICS In the preoedioS diacuaaiona an attempt baa been made to .tate, u lIimply as pouible, the live-wave phenomenon. In the present diaeuaBion attention will be devoted more to detail, in ordw that the .tuden~ of the wave movement can fully maater the trubject, and thllA be prepared to develop hill own studies of price and other movements ofhwnan orieill. and influence. Invelltora and apeeulal.or1; in .toeb are partieular!y eon-

cemed with the tenn.ination point of a fifth wave, as thiB event marb the point at which all. entire movement i. to be 00lTIlcted by • reverse movement of .imilar degrM. Stock market move-

mente of important dimelUlio..... Ineh all Intermediate .winga l'\lIU\ing over a number of montbll, and Primary awinga nmning over a number ofyeara, will witneu, at termi~tion, a eoneiderable price cornetion, and 8uch terminal pointll call for diBJX*ition of atock holdinp. It ie Iilr.ewille important that terminal correction. be identified, u th_ points l"I!p..-ot price areaA where long polIitioDll in .toeb are to be ....tabliJIhed. In the foJ10'lring paragraphs the fifth ~ve, lUI well u the correetive wave,

d....elt upon rather fully. Other Cattors bearing on terminal pointll are alllO d~.

aN!

The Fifth Wave In fuingtheend o(a movement in Itock priCflfl, it Ihould be borne in mind tIult before the movement hal terminated there mUlt be five waves of the Den I_r degree ofmovernent, that the fifth wave of luch next I_r degree will also require five waVllll ofa atill next I_r d"'flI'Ole, and 1IO on. For illustration, an Intermediate movement will end on the liI\h Sub-Minuette wave of the fifth Minuette wave of tile fifth Minute wave of the fifth Minor wave of auch Intermediate movement. In Figure 16, the fifth Minor Wive baa been broken down into itll five Minuette wav"",, and the fifth Minuette ...ve baa been broken down into ita five Sub-Minuette wavee to iUuatrate the foregoing principle. 1 The fifth _ve ofa movement, particularly the larger luch all the Intennediate and above, jenerally penetl'atea or "throwa over" the upper puallel line formed by channelling the tenni-

,

The Well,.. Prinripk

""

~, •

,

. , ,

•

,

'Y

FIgUre 16

nation pointa ofUae lJeCOnd, third and fourth waVlllIU dE!llelibed in the pnocedilli diacuAion, and U ilh...trated in Figure 17. Volume tenda to climb on a throW'ilVeJ', and when thilI throwover ia by the fifth Intermediate wa"e ola Primary movement, volume ,hould be very beavy. When the fifth wave 01 any degree fll.i.la to penetrate or throw-oVeT ita upper channel lin, and decline oa:ura, thia ia a warning of weakneaa. The ertent of the weakneaa indicated ia IlIlCOrding to the degree of t.he wave.

no

F/g(Jre 17

5

FIgure 18

m Sometimes, near a point olthrow-over, a fJft.h wave will fail to immediately complete, and the fourth wave flattena out bef_ number five lItartlI Figure 18). In locating "throw-ovenl," a lop.rithmic _Ie ia highly recommended for thote charte: on which the market, or individual .tocka, may be followed by me.na of the weekly pri~ range, wher.... an arithmetic Kale .hould be UMld. for daily ranae and hourly charta. At the tope ofprim&Q' and higher degree move· menta the arit.hmetic acaJe ia much mora likely to prod~ throw. ""enl, whereaa at the bottom of such movementa the teVf!t8f! i. true; that ia, the logarithmic ecale ia more apt to de",lop throw""era. In both CUM the arit.hmetic acaJe would be deceptive, in wavea of NY SO poilltll or more. To clearly iIIunrat.e one of the foregoing .tatementll, a monthly range chan of the 1929-1932 movement of the Dow-Jonee Indwrtria.l A","ifl on both the loga. rithmk and the arithmetic acaJeII ia ahown in Figure 19. Fifth wavea will aometimea deploy or apread out. Thia haa been deaign.ted a.e Aoill,,,n: one type of ·atreto:hing.~ In .uch an event the fifth wave, rather than the terminating ( movement of which it wae a part, ia followed by fOUT other ..aveaoflowerdegree. Thatia, the fift.h wave baa .imply aubdivided into five wavea. Str'eto:hing ia a charact.eriatic of muketa that are unuaually atrong (or weak, where the .treto:hing occura in a down movementl. Eumplea of upside atretching were witneeeed in the 1921.1928 upawing, the eulmination of a lIeventy·two yeu advan~.


....• ..

, •

, , • , , , ,

,

,, connect O!" channel two eIp
_ta.'

EEhange 18) Senonel tluctuatlOnli p"",aent difficulties which may be overcome by cllarting a ten year averai!' of ween, mOlltm or quartel'8, using ume IJ!I I. ratio buia. For eu.mple, weekly ItatiBtka ofear loadinga are available, and the ratio of the current week to the ten year average may be charted, \.1m. diacJo.i.nj: the r.«II needed on whieh to bll.lle an interpretation under the Wave Principle. 19) When twoitem8, which do notalwaya tl'avel in hannony, unite oa:8lionally, unullUai diaturbanoe may take place, aueh 8.lI that deeeribed under the title "Volume." 20) Not an ItoeD perform hannonioualy. While the principal averages topped on March 10, 1937, the _ral Standard Stati8tica groupa commenced to top in November 1900, increued to the maximum number in Marcil, then gradually decreased until May. On the other hand, .toeo tend to bottom aimultaneoualy. FOOTNCYl'E8 Four. actually. • I.•.• "Keep the channel li".. parallel.' I Thia rather cryptic ueertion il better ltolted in obJIpter VI. EV1In ..., lin"" ...t prieM .... not actively tnded -..ugh to regiater in "minor degree," it ia difficult to _ h_ their ....",could h.lp clarify the lbon tenl:t """lid. l

,.

VIII

APPLYING THE WAVE PRINOPLE N.tate
,.

'" af • certain de(lTfl! from aoother wave of the ume degree. A IIlOn! ""rta.in guide, however, can be derived from cllanneIliq. The Super Cycle running from 1857 hu oompleted four wavell ofleaer degree (Cycle movementa), and thua by connectq n~ eontaet.8 ofwave terminals two ud four of the Super Cycle and drawilli • panlleJ line acrolIlI the terminal point of wave Uuw, an upperpanllel i, Nt.abliehed, about which line the fifth Cycle, or that running from 1896, ahould end, thWl completing WIlve five of the Super Cycle movement. Similarly, the Cycle movement from 1898 hu c:ompleted four wavn (Primary mov... menta) lOG that, u for the Super Cycle, it can be given its final

upper channel line about which the fifth Primary movement now under way ,boulcl terminate. Attm.pointtheinvelltor, whoeeMtp~ia to hold.toeo pun:hued in June 1921 until the Primary movement then start.illi hu terminated, obeervM thOlNl rules which will help him in .elling out. Some of thClR ndell have been prevlowliy mted; othen are fim preMot.ed at thi. time. t) The Primary movement will be made up oftive Intermediate waVN. Selling is not to be colUlidered until four Intermediate ...vee have been witneued, and the fifth ia under way. 2) Whom the fourth Intermediate "ave hH terminated. and the rlfth illta under ..ay. it will be eom~ offiveleMerdegree or Minor wavel, and lelling il not to be conaidered until the fifth Minor wave i8 UDder wa,y. 3) When the fourth MinOf' wave of the fifth Intermediate ....ve hH tenninated, and the fifth Minor wave get. under way, it will not terminate until five Minute wav"", have been wit.. neMed. and ...lIing ia not to be eol\.lidel'fll ahead of the fifth Minute wave. 4) It i8 probable that the fifth Minute wave clthe fifth Mi· I\Ol' wave of the filUl Intermediate wave will alao be made up. hued upon hourly aver.e, of five Minuette ..avea. the fifth of whi~h wavee will likewi... be compoeed of ftve Suh-Minuette wavel. To reaeh the .nn.me top of the Primary wave R.arling inJllDe 1921, therefore. it will not be neeeaaryto liquidate hold· ~ until the fifth Sub-Minuett.e "'ave of the filUl Minuettll "'ave, of the Ofth Minute ..ave, of the fifth Minor wave, of the fifth Intermediate .ave haa terminated. 5) The filUl "'avea of a Super Cycle movement, of a Cycle movement and of. Primary movement generally penetrate or

,.

'" "throw-over" the upper channel IiIHl utablisbed for the termination limit of each IUch movemenL Upper channel lin.... (_ earlier paragraphl) have been elltllblished for the termination limit of the fifth Super Cycle wave and the fifth Cycle wave. Sinoe the Primary movement ltarting in June 1921 will end a Cycle u well u I Super Cycle movement (_ Figure 14), it may be antidpated that auch Primary movement will not have "nded until it hu aimed price. (on a logarithmic lCIIej above the upper chlnn"l lilHll of the Super Cycle and the Cycle. Likewiae, the fifth Intermediate movement oftha wilting Primary -.n Intermediate movement that is yet ahead - .h(M,l\d pelHlb'ate or thro.....,..er the upper ehanneJlilHlutablished for iL 6) Terminal pointe of the fifth wave of Super Cycle, Cycle, and Primary movemente are uaually aceompanied by he.vy volume of tnding relative to prior . .vea of each .uch movemenL Intell8ll volume lhould therefore be witneued during Ind near the peIIk of the fifth Intermediate wave of the Primary movement now getting under . .y. With the above general mIet! in mind, the invt'lltor leta the market unfold, plotting ita weekly and monthly movement in order to keep .b.......t of each Intennedi.te move . . it OOCW'I. The weekly movement ia given in Figurea 57 through 61. Intermediate wave one terminates in Man:h 1923. It il made up of live Minor Iwinp, u a glance .t Figure 157 will indicate. There followl Intennediate wave two made up, u .hould be the cue for even numbered or corrective movementa, of three wav.,.. Intermediate wave three l'llJUI toNovember 1921i.lt DIIA ~e.l:1y Ronoia R1ceeeded by the usual loll... ".....Ie ,..,.1 three wave OlH'n!Ction. ' A..og.I92' 1OMoiI't 1IonIIo. 1937

.

-"• "'~

M , '" d>

'"

163.31

-"

Flgu~"

,.

'" Fifl'un 65 embodiH the greatellt llumber ofintereeting feature. known to the author. Note the paraUelogrUl pIlttern. Thco "irregular" top, OT to B, (oreeutll • IeVlre decline. The RtenIlion xa to lie forecutlan immediate retraeement in three wavee to Dl and nentuall,y lower prieeB than n. The tint n!tl'acement w.. f;OlI1~ oft.hree ...v". u Ilhown in Figure 66, which confirtu lower level•. Thepg·ugA·B-mmentA are important in predleUll1 tbe speed 0( OOI'l'fICUOI\ll. Unfonun.t.IJ Elliott ........r expatldocl on the. uu)u.lb", in Ietel' writinp. • Elliott'. 11M of l.hi.o temI il confuting inil.ially. 1U doem't define it and faila to iIlUltn.tA hi. thou«btA complet.e!;r. WhoIt he ;.

,.

".

R. N. EUJorr':r MA8J'D'ItOIWJ

M)'ins;' tbIIt ....... he n~ "" A-B-C be... market, 1M flOC. five ....... doWII irYtMd. Hi. "rupplementaly oyde" Ie merely \.he lil\.h wue of .. five-_uti wbe..... at the t.ime of writine he felt that

""""l,

it ..... _bo... an .dditioual decline followinl an A-B-C

~on .

• The 1937·111:18 declirJe r.......... el,..,. Ii_wave ""ttem ( _ ~ 63), .hieh """"pl_ onlJ' wava® ortbe~bearmarket of' lal17_1W'l. While thia £act ...... to .lud. Elliott In t.b_ para' graph., other HlIt.enel'WiN. In two inII~ (the lim pap or \.be book, and u.. fiMl in tm. chapter, .hid ...en origittally p~ with F ~ 68), he mUM it dM>' that he ~ \he ccrreet i.n.terpreta.tio:n. It. appeal'll \hat be ill Dew_ ally «i""" two dilf_t incerpreta.tion.o ohhe Itl37-38 bear market in thia book. Perna"" he recocniucl. the correct intel']>l'eUItioo all t.be book .... JOins to preM a"d made ..,.,.. quick ... r....." ... to hit new thouehtl 011 the fint and. final p..,... On the other hand, PM'hApe he bad tho ccrreet inlolrpnltatlon at the time or -ritina' but inadvertctilly included hi' pre";"",. iT>C>:ll'Tert n _ ... hen to. inRrted aMpler IX, deteribilll dditional fonnatioM, into Collin.' "",,,UKl'ipt. I In nearl)< the lut ""OnI& ofth. book, Elliou ~ eoneludea that the Nard!. 31, UI38 low .... oll.\Jr wna A or el.aJp A_B-C bear mAtkllt. Th.i.o interpret.aticm. ill tho COITOCl. __ and. r"....,..l.I u.. lower low ill 1lN.2.

.,,1.&_

,.

x THE WAVE PRINCIPLE IN OTHER FIELDS For yea", the word ·cycle" hM been in common uH, but alway. in a rather IooIe manner implying mereJ,y a broe.d upward IlDd downward movement, ThUll, as concerns the COline of trade in the United StateB, 110m" eronomUta refer to the period 1921-1932 lUI a completed cycle; nthen say that the period CODtained three c:yc1N of 1.._ or greater inte.mty _ the mov. ment from early 19'21 to mid-l924, from 1924 to lata 1927, and from 1927 to mid-1932. In general, the cycle hu been l'llIXIgniz.ed in a rough way, largely for the rU80D that, in itll ertreme upect8, it necMArily intrude. on our pl.... IlDd opinion.. but the \Ulderlyilli law of the cyele has eluded the obeerver. This tnt,tiR, u.ing the atock market lUI but one iIlWltl'atinD, haa dealt with the law of the cycle, and in the dillClOllIIJ'e baa mown bow one cycle becomea but the lltarting point of another, or llU"J:el', movement that, itllelf, i •• part of and 1IUbject. to the aame law WI the I_r movement. This il entirely conaonwt with every .tndy of Nature, for we Im",w that She h.. ever unfolded in an upwani dire8" >8"

'''0 ''''' '''' '''''

Voh.une Ratio N.Y.S.E. Seats

1932/33

''''

June 18. 1938 June 15, 1938

After bottoming in 1932, bonda made an orthodox top in April 1934, at whkh time stocks would probably have topped likewiH but for the N.R.A.' Following the orthodoJ;: lop in 1934, boncb de.ecribed an immenae 'irregular" correction with wave "B" topping in December 1936, then bottoming in wave "C" with atocka in Marcil 1938.

::rr:;/''\::;:::::;:3tC~'''''''''''''''''O'''''''''''''''''''----;--l • 'Jl s

~

"

~

~ ~ ~

@

"

,

1\ •

,

~

FOOTNOTES I N.R.A. refen to the Nationallndunrial Recovef)' Ad, ellActed in 1933.

,.

Copyrighted

ma~nal

THE FINANCIAL WORLD ARTICLES

,.

ANNOUNCING "THE WAVE PRINCIPLE" A few months ago Mr. R.N. Elliott presented to us faroonside.-ation the results of his st\I~ whkh led to the discovery of a phenomenon in human activity wltich may be ob5erved most readily in stock market cycles. Believing tNt OUr reader5 ahould be inlonneci of new d~elopments in the art of interpretation of stock market movements, we hIove arranged with ltirn 10 prepare a aeries of ~ on the prinrip~ whldt he hH discovered, the first of whkh will appeu in the next ;,sue of Tht Filll/ltd,,1 World. Many yt'anI of Mr. Elliott's career Wen! spent in Latin America, where he lll'fVed as an acwunlimt ;and in other capadtil's in the rai!rwding profnskln, ;and in 1927 he retired to La. Angeles, California. At tNt time the stock market attracted his atknlion. He.h.>d>ed ec0nomics and many ·systems; charls and theories of market interpretation and forecasting. Expressions CUITl'nt then as now, such as ~resistanee levels,· Mdouble bottoms,~ '"head and shoutden,~ ~trend lines; de., were examined, butlhe significe of their applications was found 10 be limited.. However, the possible implications of the word -cycle,- which. was applied rather"va8U"ly In stock market studies, o=!ted his curioIJity. In 1934, he began 10 I'lllIio> certain dupl>cations of patrerns whkh were similar in both large and smaJ.I moveD'l ,,"dM in 1~2 .nd .bkh coincided with the nadir in tbe fOl'tuJMo; or the Allie. in World War II.

,

PART II In the preceding diAcuMion of the Wava Principle u applied to the foreculing of ltock price movemente, it was pointed out that a completed movement COlllliJltl offiva waVII, and that • set offive wavel ofone degree completetl the flrlt wave of the I1lllI:t hi&'ber degree. When wava 5 of any degree bu been completed, there ahould occur a COll'edion that will be more severe than any previOUll corredion in the cyclical movement.

Completed Movement The rhythm of the corrective phlllel ~ different from that of the waVelI moving in the direction of the main trend. Th_ correetive vibrations, or wavee 2 and ... are each made up of th1'ft l _ r waVelI, whereu the pro(lrflllllive _vllll 0, 3 and 5) lin'! eaclt compolleli of {ille Imaller impu1aell. In Fi&'ure .., the completed movement is ehown, being identical to Figure 3 lIJ:cept that waves 2 and" of the ~ig·z.ag" pattern are shown in greater detail. Th_ WaVeB 2 and .. are thus lhown to consist each ofthreecomponent phlUlel. but u theae twowavelIlln'! aleo ·completed mov<mIente,· they are alao charact.eriDd by fille,wolle impul_; that ~, the "a" and "c· phuell (the first and third movemente of the cornction) Iln'! a110 each comp<Med offive tunaller waVeI, while"b" (the correction of the correet:ionlis compoeed of three lesser wavea. This queetion of correctiollll will requ~ more extended dilleUBlrion later on, as /lOme fOflllll and typell Iln'! 10 complicated in lItn1cture that their preeentation at this stege mia:ht be conflUing.

,

3 1

•

b

• ,

•

The Itudent using tha Wave Principle to forecast price clulrtgee does not requ~ confirmation by a companion average, inatunuch .. the Principle applieB to individual stocb, to vanOUI groupl (steels, raile, utilitiel, coppen, oils, etc.) and a1lO to

,.

,m commoditiM and the varioua "aver&iN,· web .. tbOH of DowJOIlell, Standard St.atilltklJ, New York Timea, New York Herald Tribune, the Financial Times of'London, etc. At IUlY given time it will be fmmd that.mlll atoclul are advancing and othen are declininl, but the gnat m-.iority ofindividuallrtocu will be following the ume pattern at the ume time. It ill for tha rn.an that the wave pattern of the "averages" 'frill correctly reflect the cyi:liCIIl poIIi~n of the JnllI'bt . . . wbolol. The larger the number of Roeb ioduded in an averap, the more abarply outlined the ...ve imJl1'f!*&iOllll will be. 'I'Iu. meana Wt ifat.o'lUa are widely

diatributed amonil a large number ofindividualB, the relIpon&e to o:yclical UtfI~ ...m be ~red ""'"' definitllly and rhythmicall, than nthe diatribution ill limited..

Price Rant- UHd No reliance can be placed on ·cIo.inpt daily or weekly. It it thll hiiheat and lowell range. thu ruide the lubaequent t:Ourie of the e:yt;le. In rad, it .... only due to the NtlblWunent and publication by Dow.JoneJI oftbe "daily range" in 1928 and of the "hourly range" in 1932 that IlUfficient ....li.ble data. beearne available to eatabli.h thlll rhythmic rec\lrrtlnce of the phenomenon that I have called the Wave Principle. It II the leriel of actual "tl'avell" by the market, hourly, daily and weekly, that reveal the rhythmic: ron:ee in their entirety. The ~clOlinp" do DOt dilclOM the fullltory, I.lld it ill ror thil reuon Oaek or detailed datal thlt the phue-by·phue C'OU/'8ll or the London ltock market ill mOf'e difficult to predict than the New York market. The complete meuurement or the length or I wave il thererOft its continuous trliIvel between two COI'nlCtioIll of the ume Of' grelter degree. The length of a wave of the Iowellt degree ill ita travel in one direction without any IIOrt ofcorrection even in the hourly record.. l After two eorrectiolll have appeared in the hourly reconI., the movement then enters iu fifth I.lld Jut ltage. or thin:! impulH. Stceed.t the nonnaI theoretical upe(:tation, .. ahown in Figuno •

When wave 3 haa ended, the actual upper channel lin.. ia drawn from the top o!wave 1 throllfh u.. top ofwave 3. And for forecallting the bottom ofwave" reaction, a tentative or daahed hue line ill drawn from the bottom of "ave 2 panllel to the actual wave I-wave 3 upper channel line. In FiiUJ'll9, the tbeoretieal ""~nq'for tenni...t>on of wa"" be "rerri. . tc> .. phenomenon I bave noticed ...........,. when an thrN il ab""",,oill;r strona••lm"'l1\ vertU:a1. the CIDft"eI:t channel for marlcallting, thia atntching appli.... to the fifth wllve itaelf, nther than to the terminating cycle of which it il a part. Such apreading out ia a charaeterilltic of marketa that are unueually atrong (or weak, if a down movement). An nample of atretc:hing CIc:CUlTecI in the 1921-1928 upolwiq, repre...nting the culmination of a 72-year advance.

,.

PARTVll The rhythm of eorreeti.ve movementa is the lDOlIt difficult feature at the Wave Principle. Inten.ivtl st\ldy of the detail of the col'nldion will lKNDetim" be neceuary in order to determine the poeition of the market and the outlook. Mutel)' of the aIIbjed, however, mould prove utnomely profitable. All correetiona uecharacterized by thrft broad ..avea, but the detail and extent can vary conaiduably, and thua different pattema are formed. Varioua facton (time, rate ofapeed, extent at previoua movement, volume, ne""s itema, etc.) tend to influence and allape the corrective pa.ttem. Baaed on the writer'a market research and experience, there .ppear to be four main type. or pattema ofcoutctiona. Th_ typea have been deaipated u ~-ug, fl.t, irregular and triangle. DilJCUlllrion ofthe triangle, in ita vllrioua forma, muat be Pl'l!lIeDted in. aeparate article. The other three fonDll are diagrammed in Figunra 13, 14 and Hi. Small cornction. that run their COIU'H in a comparatively .bort time an enmplified in Figure 13. Correctiona of a larger degree are dNCribed in FiIUf'll14. Figure 15 aJforda a diagram atthe market action when the Primary Of' Intermediate b'anda tum downward. Some of tb_ cornctiona, particularly thoee of the irregular type, may extend over a period of yean and embrace movement.. that are commonly mistaken for "bull marketa.~

The three-wave or A-B-C fonnationa th.t characterU.e the zia-ug, O.t and irregular co...-ect.iana are clearly shown in the .=panying diagralDa. The zig-ug type ..... diacuaaed briefly in Part U (FiIUf'll 4). It ditr...... from other eorrtctiona in th.t both the first and third ..avea (A Illd C) are eompoeed of five amaller vibrations. The HCOnd (B) _ve of zig-ug corrtctiona i. eompoeed of three imputae.. Sometimea, in high-apeed movelDaot, the Iirat leg W may .ppearconUnuoua, and reaort to the amaller or hourly atudiea may be nec:eaauy to detecT. the Oow. The firlIt and aecond wavea ofboth n.ta and ilngulara each conaiK ol t1Ir« vibrationa of a degree amailer than that of the previoua movemenL Of' the three movemen'" making up the aecond or ·B~ phue of both 0.... and irregu.\ara, the tirst and third (a and c) are each compoeed of /f.ue atill smailer impubea. In • flat, .11 of the three w.vea have approximately the aame length.

,.

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,

.,

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I

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r

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An irTel(Ular c:ornction ill diAtinguiahed by the fact that the _ d or "B" wave advarJ!U!!!l!t

,, .... , h,. "" •, h •.

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FOOTNOTES

I

COpJTlt;hw( J 19'\l I>y

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Ellion rl,Mo

h .....
40

~l

1lo• ...Ion•• ln~u ..... tol

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,

upanda or conb'aetl with the Imgth of the price t.r1!nd. The longer the trend, the greater the public interest and turnover in stocb, and vice verN. During recent yean, the awinp in the price t.r1!nd have become progreuively ahorter, IS iI charac· terilItic at movement. within an orthodon- trillDl)e. The awinill of the Dow Jonel Industrial l1lOnthly average, I I ahown in the accompanying chart, afford a clear erplanation for Walack of ronfIdenee and I'MU1ting apathy. The two d...hed linea, Q - V (drawn a~ the falling tops al April 1930, March 1937, and September 1939) and R - V (drawn ICr08lI the riling boUoma of July 1932 and March 1938), fonn a triangle ofgigantic area. Each completed awing of the pendulum within thiI trio angle baa become p~ively shorter in accordance with the geometric ratio alO.618, I I regarda: bath extent and duration. The triangular outline iI therefore a1ao a "ratio triangle'and .. auch, differa in important relIpectli from the .....ave triangle· described in my Tl'eaUse, ~ Wow Principle.1 The ratio of 0.618 and itll reciprocal, 1.618, Item directly from the ratio of the circumference al a circle to the diameter, or 3.1416.1 Thil ratio iI a1ao the buic characteristic alt.he Fibonacci Summation Seri., which ia identical in numerical count with the etruc_ tura of The Wave Principle. Thia aimilarity ie dillCulled fully in a circular, '"The Buil of The Wave Principle." The Fi· bonacci SeJ'i1ll, the ratio of Il1lCh term to the next tenD, and the reciprocal value, an revealed in the following:

Table of Relativity S«ood First T,m Term 2 plus J equala S • • S 8 • S • 8 • 8 • • • • •

, "" ""

• •

"" ""

89

• •

"" "" ,...

89

Ratio

ReciprocII R.tio

0.60

1.67

0.625 0.615 0.619 0.617 0.618 (1.618 0.618

1.60 1.63 1.616 1.62 1.618 1.618 1.618

,.

&I«ud Buoy. from J94I).J942 'I'b_ ratiOll and IMlriell have been controlling and limiting the extent and duration of price tnnda, irrelpective of w..... politiCll. production indicetl, the .upply of money, general purchuing power. and other generally accepted method. of de""..... mining atock valu•. That thill .ta~l!U'nt ill trw ill veri{iM hy the following t.,bulation of important movementll .inee April 193 11M C)'olbl RaWloily "' . . . . . . ,.....

Oat-

Pinla

To rr-. To a.anp JIl111"2 2M.0 .0.5 260.5 Mud> 1t!1T 40.5 1911.0 1M-5 1106.51151.5 • IO.K Jola«h 1938 1118.0 lt1.0 iII.0 iII.0/IM-I • 13.5 SepI. U3\! 117.0 15&.0 no 61.0/ no • 11.8 ,~

u .• Thil felture provu that current eventl and politiCi have DO innuence on market movementl. Since the ClUNe of this pheDOOlenai market. behavior originl"" in the ",lativity ofthecornponentcyclell cornpreeaed within the triangular I",,, it il diltinctly encouraging to be able to point out that the ... pidly approaching apex oftbe triangle .bould mark the beginniq of a relatively long period of inaeaaing Betivity in the atock market. With the Wave Principle, the fact that all five meaaure. (the ratio of cyclical tnnda. the relative time for the movement, the mathematical nature of a trianale. and the Fibonacci Summation Seri.,. all .""mming from the common lIDuroe) point to an approaching culmination of a tnmendOUll thirteen-year cyclical correction ia extnl.ordinary. FOOTNOTES 1 This trealiM ia an uadlenl innovative analylia and I eorrec:t

COIleluaion. The difJ"erenoe 8lliott pointll out ii, in fact, cn":isI. Appantnl.!y • ratio triangle may appNJ' lpart rrom a wave triangle. ThUl. the 13 yeu triansJe ill not a 1'llq1tired intel'JlUtlltion deIIpite the FibanacQ 1

....l.oti"".hiPII. I See dixuolion in ch.pter III of Elliotl Wave Principk.

,.

lWO CYCLES OF AMERICAN HISTORY AUGUST 25, 1941 1776 -1857, 81 yelll'll 1857 - 1!H1, 84 years The earliest available !tock I'KOrd i! the Axe-Ho\li:hton Index, dating from 1854. The _ntial-change" characteri!tiCll of the long movement from IBM to September 1929 are .hown in the accompanying graph. The W!"' from 1857 to 1929 may be either Cycle wave I, m 01" V, depending upon the naturtl and extent of development of the country befon! 18M. Then! i! tell· ton to believe, however, that the period from 1857 to 1929 can be regarded .. Cycle wavelIJ.Z In the rlnt place, the brotld periodicity of approIimately eiahty yeata connect.e the Revolution. ary Period, the Civil War Period ami World War II that hu been in progrea durina the put dec.de. Secondly, the market .inee 1929 h.. outlined the pattern of a Jipnt.ie thirtftn-year trianale oC .uch tnlmend.OWI .cope that the... defeatiJlt y...... may well be erouped u Cycle wave IV. Thirdly, my oblIervation h.. been that ort.bodo:r trianglea appear only .. the fourth wave of a cycle. To appreciate the
,.

'" D. Adequate atatilltia available on ..n mauers relatilli to corporations. E. Daily high and low range charted in luch • manner aa will diadOM the w&vu of all degrees u they occur. The daily range of ltoek traneactioll8 wu inlugunlted in 1928 and the hourly record in 1932. TheIle aTe necelIHl)' in order to obHrve the Minor and Minute 'Nun, upecially in rut marlteta. Conlnl)' to teaclUnp of the Do.. Theory, .. popular device for purina .toek market mOVIBmenta, "Natun'. Law" dOH not requiTe confirmation by two aveTap. Each Iverqe, group, lItoc:k or any h\.llU.n act.ivity it interpreted by ite own wave•. FOOTNOTES

I Exeept fOl' t1UMlI" revi.ionl, thi. Inln>ooa are remarkably correct iJaofar III today'. knowledge permitol an undentandiDj". Much ofthi.JI knowledge i. comp....· tively recent and indicates th.t thellCientific lI)'Illbol. embodied in Gizeh mUllt ha..e been supernatl.lnl or that previOUll civiliq. tiona en.ted which equalled or exceeded todey'. development. It ie pouibll! that • hia;h ~ of civiliz.tion previouab' es:iated on the Weatem Hemillphere, eapecially from Melico to Arrentm.. 'I'hfl Bihle metltio!UI giant.. and qllit. recently j ..... of IilIDtoI have been found thlltmay ha..e .... eighed four or five hundred pounda. 1 lnaof.r ... 1 have been .ble to learn, E,yptoIogiata overlooked oertain import.ant aymhol8 contained in the Great Pyramid, such u the r.tio of the e1.....tion to the bale of the pyramid which i. 61.8....Dd the numberoCinchea of the elevation which ie tI,813. (Notethe numben tI, 8, and 13, mentioned below in theSummation Seriea.l 'I'hfl unit of meuurement in EllYPt Will, and ie, the "inch" ... wtI know it today.

,.

Nature', L4w

,,,

The outlines of a aide vieW' y that of a cycle, that y, 8 linK; in a pyramid there ..... S .url'acetI, four above ground and oDe.t the bottom; from the .pes 8 lines are villible; tot.alllUriaeea and linea: 18. Fibonacci, an Italian mathematician of the thirteenth century, visited EII)'JIt and OD hi. retllm diaclOied a .sununation aeriea .. folio...: 1 2 3 5 8 13 21 34 ISIS 89 1".... Any two adjoining numbera equal the nut billher - for example, 5 • 8 • 13. The ratio of any number to the n'llt bia'her i. 61.8"'. (The lower numben produee a r.tio alightly.t variance), Therefore 1M el.uatUm ld the aeed complu of the flower disk there i. III arranpment offlontl. Like the aeedI, theM exhibit NTYl!-Cl'OIiIina numbel'll. They are 1.lI1.II11y 5 + 8. U we beiln .t the bottom of th" plant Ital.. and COI1IIt the ac:tuaJ number of leavee up to the flower dilk, we are likely to lind, as we wind OUT JII'OI"'I' around the .t.I.li, thlt ..e pua a certa.In number of lea'O. before we lind me impoeed direetly over the one lint COWlted, and that thill number and the num_

,.

Not"re'. Law ber of nvolutiOIlll lbout the stalk, ..... conatant betweell each leaf'impooition. n-e will re~t ~ number. belonging to the laDle seriN of oumben exhibited by the -u and Ooretll. 'The numben we have mentioued belong to whIt il called I aummation Rriee, 80 eal.Ied beelWlll each number npreHnta a aum ofprNMilli Ilumben of the Hriee, in un. cue 2. Thil Hriea of Ilumben u: 1. 2. 3, 5. 8, 13, 21, 3', 55, 89, 14"', etc. Each member of un. Rrietl ie obtained b,. addiq- topther the two prec:olr ie within that or observation in the ifOwinj; plut, the whole number il ntained to flcilitalAl tbeckinr. It U an ertn.ordinary coincidence that thu ratio of 1.618 or .618 il a ratio whicb fucineted the ancient Greeka uceedingl,.. ExtraOl'di!W'1, becaUMI the,. could beve had 110 mepi_ cion that it wu connected witb the architecture of plant.. It .... called by them exl.teme and mean rltio. Durilllf the middle agH it W1lI ';YIIl the oame Divine Sec. tion and in flirly receot time, Golden Section.

From Nperienoe I have learned that 144 u thfl bigheat.oumber of praetic.I val Uti. In 1 compltllAl cycle of the ltoclr. market, the number 01 Minor wavea ia 1«, u shown ill the following tabltl and in Figure 7, Chapter 4:

N._

qfWfa_ Major InlAlrmedialAl Minor

,,-., , B. . 21 89

..., "..... 3 13

"

....,

(c~f:7CW

8

"

144

•

R. N. EUJOT'T's MASRIIJfOIlD

All are Fibonacci llumben Illld the I!Iltire lIeriee ie employed. The lengt.h of ..avee IIl&Y vuy, but nllt the numbllr. Nllte the FSS numblll'l in the fllllowing: - The bodieellfhumane fllllnw the numbenl 3 and II. From the 1.01'80 there are l5 prnjectiOllll _ head, two anna and two lege. Each leg and arm ;1 subdivided. into 3 eeetllllUl. Lege and IITlla terminate in 6 toeelllld tingen. The toea and fiDgfln (except the big tolt) are subdivided into 3 seetiOIlll. We have l5 eenses. - The monkey ie the aame .. a human ueept that hie feet are the same as hie handa, that ia, Ilia big tolt ia the urne as his thumb. Mo* animale have l5 prnjectione from the tono _ head and fO\lr lega, total 5. Birds have 5 projectiollll from the tono _ bead, two feet and t1li'O winge. - Mueic: The beateu.mple ia the piaoo keyboard. "Octave· .neana eight. Eath octave ie Cllmpoaed of 8 white keya and II black keya, total 13. . - Chemical elemelll.l: There are approJrimately 89 primary element.. - Coilln: There are 3 primary colnra. Blendin( producea all nther colnn. MlPelJaneoua O*rvati_ - The Weatem Hemiephere ia COlll~ Ilf3 IUbdimions, Nllrlh, Central and South America. - In the We.tern Hemisphere there are 21 Republics, all Ilf which IlA memhen of the Pan·American Union. North America ill compoaed of 3 CllI.lntriee, Canada, Mexico lind the United State-. South America ia composed. often Republies and three EllI'I'Ipean coloniee, total 13. Centl'al America was, previnua to the Panama Canal, compoaed of II Republica. - The United Statel wu originally oompoaed nf 13 etat.el. Today there are 55 R1bdivililllUlU follllWl: 4.8 ltatel, Districtof Columbia, Pbilippinea., Panama Canal Zone, Puertll Rico, Alaaka, Hawaiian IlIiandli and the Virgin blands. - On the Declan.tion of Independence there are 56 lignatures. The original nwnw ..as l5l5. The lut was added later. - Main branchea nl the Federal Government: 3. - Higheat ealute Ilfthe Army: 21 guM. - Voting 1Igtl: 21 yean. - The Bill oCRighta containa: 13 pointe.

,.

Nature'. Law - The colon of the national fla.a: are: 3. _ The Wuhington Monument in Wuhington, D. C. (The eomermone wu laid July 4, 1848.): Total ca.t, $1,800,000. 13 Heiih~ of.haft, 500 feet. 6 Hei&bt of e.plItOne, 65 feet. 65 Bue of Ihaft, 65 feet equare. 65 Top rim of.haft, 34 feet. 34 Stepe of foundation (number): 8 Windowa {two 00 each eider. 8 The t:apJtone la in the form ofa pyramid with a baH 84 fee~ equare and a heiiht 55 feet (ratio .618), - The All:ia wu oompoaed. of S partDera. ~rmany domi· nated 13 cou.ntriea in rapid eucceAion but lJtaIled on the fourteenth, Ruuia. MlI.-llini aerved u dictator for 21 yean. -In 1852 Commodore Perry paid a courtesy viAit to Japan and iovited the "Soo ofHeaveo" to abandoo abaolute iaolatioo· ~. 10 1907, 65 yeaf* later, Japan MriOUlly threatened the United Statu. 10 1941, 34 yeare later, and 89 ye.... from 1852, Japan attacked Pearl Harbor.

,

CHAPTER III

HUMAN ACTIVITIES TlwI expre"';on "human activitiel'" iociudelllueh iteml lIS

.well: priClll, bood prieea, patentll, price of sold, population, move.menl./l of citiUDII from citi.,. to f.1'IlIlI and vM:e vel'l8, COlllDlOd.itiM pricea, government upenditUf1!ll, production. life i~, electric power produced, guoline ooll5Ulllption, fin! 10000e, price of • •1.8 on the IJtoek exchange, epidemicl, and real eatate. The main item of intereat y the price of lJeCUritiell, which everyone ehould undentand, at leut to lIODle de~.

It bebooVM ... to prepaN for the "rainy day.~ Penn.nent improvementll, lIUch IllI for e:u.mple, the construction of buildinp, oon.aervation projectll, roadl, bridgM, f.ctoriu, homea, etc:. ehould ....ait cyclical low. for the double pllTpOlle of low eolIt to the owner and employment of labor. F1uctuatio~ in economic welfare .re lUI unfailing II the earth'. revolution. FOOTNOTES

,.

CHAPTER IV

DISTINCTIVE FUroRES OF HUMAN ACTIVITIES All human activitiea tt.ve three dilJtinetive (eaturM - pattern. time and ratio _ all ofwhich obHrve the Fibonacci Summation Seriell. Once the wav,,", can be int.erprMed, the Itnowledge m.,. be applied toany movement, u the urn.. rulN apply to the price of llt.ocU, bond., jnina, cotton, coffee and all the other activitiea previoWily mentioned. The m.-t. important of the three (acton ia pattern. A pattern ia alwaya in proceaa of formation. Uaually, but not invariably, the ~udeDt ia able to viaualize in adunetl the type of patlA!m. Thia facility ia fumiahed by the type of pattern that preceded. See ChaplA!r 8, ~Altemation.A perl"ect diagram of a atock market cycle ia ahown in Fill"ure" 5, 6 and 7. It ill divided primarily into "bull market- and "bear muket," Figure 5 aubdividea the bull market into five Mejor l wavell and the bear market into three Maj/:lr wavea. The diagram of the bull market in Figure 6 aubdivid. Maj/:lr _vea Vavee em u poaihle trianlle lego .i..... all tri_ ancle lep mu.t be "threM." The ..... t per1Iuuive &fllWDI'nt tlwt • triangle had fOl'Dlfld "AI the aeriM of .618 A1or~mln~ all within perfectl, conYerJinl trendlillN, an IlCCIll'Tl!nM WI ind"", quite unca!lDJ'. ",,-Y«, thiI phenomenon CAn IloCC\1t " " diff"relll _ (u it did £rom 1976 to 1979), and ill"", .nourhjUltilicati...., by itHIf, to claim that. ln1II trianJle i. being form...t Unrortwlately, El~ t...d mad. up hi. mind on an irrelevant point ""Llid_ the WIve PriDciple, narnel, that 1929-1932 wu too ahott • eim. period to ~ \he p... YiOUI Supnqde. ThiI auumption led him to the thitteen-ye... triangle interpnltation, wbiel! in tW'fl led him iDto trouble with u.. ofWUI form ... be tried to fit the IUbw..... in\O hi. pndltermined (:(>11Cept. ThiI Im>r of interproegtion .bouId lICK detract from the reader'1 eJl,joymlllt of Ellioct'. faednatinl dillCO'I'en- and. anal,rli. wil.h reptd to the period af\.er the 1929 pealL I Whil. t ..... lumina: point. .... no\ colndde...., tyiJ\« them 10 the'double ~ace:me.. t" rule. allean .. i\ ia lUted in theo Su~ WlYI would otmltitute the MCOnd retraoe:ment eventually. Still. the action of the .......bt at\er tbe 1921l peak il intrilUina, ... d onl !, retrIoomInt rule ..tWled. I True. Thll ia ~be tnOIt dranlatic bull market. in U.s. hiatol")' in _ of pft'Centlp I........... oYlr ti.ml. • Elliot\ II deocribil\J &Il of the ftnt three WlYelI top1.heT .. , lla\ bee&uoe tbe third Waye of \.be triangle ill(> IUIdlniably a ·fhl.·

ball,,,.

_u.. . .

,.

I Elliou. breaks b;., own ruI. in tbiI interpretation. If 1937_ 11138 ill the"C" ler of'. flat, it mun 1». "Ii..... If it ill • I", of hil trianlle, i~ mUl~ be • "tbree." Ha .bouIdn't be able to hava it both wa,.. • Abaolutal1. v .... will noaee that in Fi(ureo 72 .nd 7riod, ""apt that from 1928 to 1942 the ·correction- wu a triangle illlltead of three wave. A, Band C. In early da)'ll, fanning wu the principal occupation. Here and there a farmer mij'ht own a atore or manufa: wp)at 196.590n December 10, 1945. On aoin, to p...,.,.. an irregular top, ....ve B, i. in PI'Ol:NS of fonnatioo. This should be followed by wave C (_ Chapter 7).3

I eJ-point advance. The thrwlt fiarted April 1942 at 93. 93 pll1ll 285 equal. 328, or 29 pointllabove November 1928, the end ofwaveQ).2The thruat IDaJ' I'ONumeeightyelll'll, endilli in 1950, aimilar to 1921·1929. The imme~ amount of currency in the handa of the publi~ due to fina.nciDi of the aeeond World War would Hem to confum thia indication.

"

There i. a different HqU8II« 11U~ ,bowed. men 'CNl'1ltil' be«iMin.l dAtil' ol1776 and • more auilahl. pi'wer. Gainoosvillo>
E>."""'~ly

r _ ond """"_,,,fa·

1511:-:. MJ17~_

Wrili",.

1M COIItpf.u Elli,," 1+ 0/ A. H"..ill"a BoolHI _ f,. ... o'd b) RoI>rn R. "",,,hl«.k. odiIor. 1 lIQIcoo·. _ £Ilio" lib..., Pmu:ip'< _A C.i,j· ",,~.•II ofbi al Ellion W.... ,,"ides to< n.. /lofd; C",di, ""y prof...I"".1 .nod

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