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Elliott, in his second monograph, used
the title Nature's Law — The Secret of the Universe in
preference to "The Wave Principle" and applied it to all
sorts of human activity. Elliott may have gone too far in saying
that the Wave Principle was the secret of the universe, as
nature appears to have created numerous forms and processes, not
just one simple design. Nevertheless, some of history's greatest
scientists, mentioned earlier, would probably have agreed with
Elliott's formulation. At minimum, it is credible to say that the
Wave Principle is one of the most important secrets of the
universe. Even this grandiose claim at first may appear to be only
so much tall talk to practically-minded investors, and quite
understandably so. The grand nature of the concept stretches the
imagination and confounds the intellect, while its applicability
is as yet unclear. First we must ask, can we both theorize and
observe that there is indeed a principle that operates on the same
mathematical basis in the heavens and earth as it does in the
stock market?
The answer is yes. The stock market
has the very same mathematical base as do these natural phenomena.
The idealized Elliott concept of the progression of the stock
market is an excellent base from which to construct the Golden
Spiral, as Figure 3-10 illustrates with a rough approximation. In
this construction, the top of each successive wave of higher
degree is the touch point of the logarithmic expansion.
Figure 3-10
This result is possible because at
every degree of stock market activity, a bull market subdivides
into five waves and a bear market subdivides into three waves,
giving us the 5-3 relationship that is the mathematical basis of
the Elliott Wave Principle. We can generate the complete Fibonacci
sequence, as we first did in Figure 1-4, by using Elliott's
concept of the progression of the market. If we start with the
simplest expression of the concept of a bear swing, we get one
straight line decline. A bull swing, in its simplest form, is one
straight line advance. A complete cycle is two lines. In the next
degree of complexity, the corresponding numbers are 3, 5 and 8. As
illustrated in Figure 3-11, this sequence can be taken to
infinity.
Figure 3-11
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