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Elliott Waves: Your “Rhyme & Reason” to Mainstream Market Opinions

R.N. Elliott’s stock market observations fell together “into a general set of principles”

by Bob Stokes
Updated: August 03, 2022

It's understandable why investors with little experience consult the market opinions of professionals.

But many of these new investors are left scratching their heads. Two headlines from July 29 indicate why:

  • [Fundstrat Managing Partner] says the 2022 bear market is over, stocks could hit new highs before year-end (CNBC)
  • Stock market's post-Fed bounce is a 'trap,' says Morgan Stanley's [Chief Investment Officer] (Marketwatch)

Yes, two directly opposing opinions that were published on the same day.

The date before those headlines published (July 28), happened to be Ralph Nelson Elliott's 151st birthday.

You may be interested in his discovery about stock market behavior because it offers an alternative to consulting mainstream financial stories.

Here's a brief overview: In the 1930s, Ralph Nelson Elliott (1871-1948) discovered that the stock market moves in recurring patterns that he called waves.

Elliott had led an active life as an accountant and management consultant, working at various times for railroad companies in Mexico, Central America and South America, a business magazine, and for the State Department before becoming seriously ill with pernicious anemia.

In the book, R.N. Elliott's Masterworks, Elliott Wave International President Robert Prechter describes what happened next:

Despite being physically debilitated by his malady, Elliott needed something to occupy his acute mind while recuperating between its worst attacks... It was around 1932 that Elliott began turning his full attention to... finding out whether there was any rhyme or reason to the stock market...

Around May 1934... his numerous observations of general stock market behavior began falling together into a general set of principles that applied to all degrees of wave movement in the stock price averages.

Elliott's insights continue to be employed by investors today.

The basic Elliott wave pattern consists of five subwaves (denoted by numbers) which move in the same direction as the trend of the next larger size and three corrective subwaves (denoted by letters) which move against the trend of the next larger size:

Eightwaves

When this initial eight-wave cycle such as shown by the illustration ends, a similar cycle begins.

In other words, the basic Elliott wave pattern links to form five- and three-wave structures of increasingly larger size.

An important point is that the Wave Principle helps investors to identify turning points in the trends of financial markets.

Follow the link below to learn what the waves are suggesting is next for U.S. stocks.

"Safety in Numbers"?

NOT in the Stock Market

Financial history shows that the investing "crowd" is almost always on the wrong side of the market at historic turns.

In truth, an investor must think and act independently from the crowd for any hope to financially survive a full market cycle.

Elliott wave analysis is ruthlessly objective -- and helps you to make market decisions that are indeed independent of the crowd.

Learn what our Elliott wave experts are saying about the U.S. stock market's current juncture by following the link below.

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Comprises the monthly Elliott Wave Financial Forecast, 3x-per-week Short Term Update and at least 12x-per-year Elliott Wave Theorist.

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