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 ...

Author: R. N. Elliott | Robert R. Prechter | Jr.

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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-

"'" "'" x

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

~

"" n ""m

'" '" '"

""" "" 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.
",. .....tUN Patt.rn '" 1.1>0 M...... 1Ot NmJRm lAW _ THE SECRET

I"trod""""", Rhythm in Na1.Ure I Tho G.-t Pyrunid GiselI n NatUN" (.aw MiMlaMouIOlwtryation, m Hnmn Ad.jYitje, [V DiAtU>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 .... Dio
XXU XXIII XXIV

'"'" Gteo.t o..p..Erno/>ono.J. C)'clM of Individual.

'"

XXV

..........

XXVI

I

Enlargemenl of Correcl>onl 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 c<.>nvince 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
111..... in the end, I find my.telfpenuaded by the nobler wonb ofbotb Elliott ud Collinll, whoagreed in their lett.en thet what is important above all elM ill the ".eean:h forTruth."Thia ..ucll

ill, projeet for.U mankind, and keepioil dramatie new conoepta from othen will only hinder prognu. If the Wave Principle it nature'. w.:y of giving WI' peel< at the future, we mUJIt nevertheleu realiu that it is only. peek, not the full panorama. Foretelling the future with e:u.ctitude all the time ill not nne oC the bleu:inp available to man and likely never ...ill be. Elliott him.If, dupite his great achievement, ...... not fanatical.bout hill ideu. He knew that the Wave Principle, for all ofitll value, wu not the be·&lI and end.all.-rhe diacovery ohhe Wave Principle," he said, "hu only opened the door to real progreu.. A1J you n!8.d EUiott'. worb, it may h..lp to recall hd wonh of guid.nce to Charla J. Collillll when lui uid, ~I hop' you 'po pn!Ciatoo that application of 1"\11... requirM eolllliderable practice

and a tz"IlnqUU mind." - Robert R. Prechter, Jr" 1979

•

Copyngnted matanal

A BIOGRAPHY OF RALPH NELSON ELLIorr by

Robert R. Prechter, 'r.

•

Copyrighted material

AUTIlOR'S NOTE Until now, nothing ..hll.tIlOever had appeared in print pertainina'to Elliott'a per1lOna11ife nr hiA activitiea prinr to di!lCOVerina the Wave Principle. The facta I WIl.8 able to put toeetber WeN! gleaned partly by atudying hill. boob and market letwnl, c:orTeapnnding with the Library of Cnngreaa, and talking with fnnner uaociatea. Howard Fay and BN!nda Taylor wera helpful in providing biographical information. Journalillt fetu Kendall followed eevera11eada to ~lIent reaull. Uk" • determined privawlnvntigator, Market TflChniciana Aeaociation member George A. Schade, Jr. in over two yean of re&earch "Y.tematically uncovered a wealth ofinfonnation on Elliott'alineage, family and geographical locationa. Elliott Wave International'e Michael Buettnere:lplored the U.S. State Department'. archivee to come up with atartling informetion on Elliott'a role with the Coolidge Admlniatr&tion. Marie Eliadea took the photo ofEliiou'. houae in Loa Angelea. and Paul Brodtkorh took the photo nf Elliott'.......idential hotel in Bro
" Libnlry (KS); Oregon State Univenity Library (OR); Brenau Univenity Library (GA); Georgia State Univel'llity Library; ChNtatee Regional Library (GA) and GeineMlJe College Library (GA).

A. you read the atory ofRalpb N,,\..,n Elliott, you m-.y be as intrigl.led .. I am t.h.lt. theory lJ(I remarkably unique, when compared to other methods ofmarltet analylria U that time and IIlVell tboae of today, could have ~n developed.., late in lif.. by • man not of Wall Street baekground. Bolton uc=ate!y de.cribed thfleDOnnity of Elliott'. feat when he Hid that "he developed m. principle into a rational method or-toea market analysia on • /ICl.1e never heron attempted.-

A BIOGRAPHY OF RALPH NELSON ELLIOTT A man',flif., Jb. pi«» 01 !6pUl1)', is mMJ. up 01 many sun., wh#dl ... ~ mM<.•• pan.m; ftl ~I• • ~ 0fHt IIf)tJ 100/0; ., it .",. f1(1( 0I'iT dHlI'OyS ltIot ~, blJI gtVu In. flrn laJse 'IlIIlw. - Leamed H;wv:l

In"'"

Wave One: The FOI"IIUltive Yean

Ralph Neoon Elliott'. family tree oont.ained IIOme dimnguiBhed Americanl. Hil maternal great grandfather, Jonathln Hamblett, foughtaa a private militiaman at Bunker Hill during the American Revolution. He waa wounded in battle and later appointed one of General Washington'l bodyguAfiU. Elliott'. grandfather, Hugh Elliott, WIUI • veterln of the Wlr of 1812. Hugh Elliott was residing in Ohio, then at the nation'. we.tenI frontier, when hilllOn FTanklin, Ralph Elliott'l father, 111'11 bom in 1835. Franklin became I merchant and mamed VillPnia NelllOll, who came from a wealthy flnning family near Philadelphia, ....he,.., her brothen and ei.ten each fenned 80 a<:ree. In 1865, at the dose of the Civil War, Franklin and Virginia Elliott had a daughter. Anna May. She WIUI three yeara old when the family moved to Maryaville, Kall.HIUI, allIIUlli community by the Big Blue River in the northeaatern part of the ltate. Franklin hed oontinued hi. father'. practice of heading west with the nation as a whole, u at that time, Marysville WlllI a bu.etling edge.-:>f-civilization stop for the Pony Express and travelen on the Oregon Trail. The family'e eeeond (and lut) child, Ralph NelllOn Elliott, was bom in Marysville three yean later on July 28, 1871. TIM! family then moved I few hundred milea ....t to Fairbury, Illinoill, a small and pfOllperoUll fanning oommunity about 100 miles lIOUthWetlt of Chicago, apparently a better location for a merchant. The femily lived on Elm Street, where Elliott .pent hil early childhood. By the end of ISSO, Elliott had moved with hie parente and .ieter to San Antonio, Te..... During hie teen years, he learned to epeek end write Spanieh Ouently and developed a love for Mexico, the border of ....hic:h wall 150 miles to the IIO\lth. He vieited Mexico at timllB during hill youth and in fact lived there wben be was 15 to 16 yean old.

,.

"

R. N. EuK)tT'$ MAlITDfIOUS

In 1891, at the age or 20, Elliott len home permanently to work on the railroads in Mexico at the heirbt of North America'. great railroad boom. Shortly thereafter, in the early 18908, his family moved to La. AngeIN, California, where hiA parente and lrister t
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, ao
r.,..

or

,.

BWgraphy

"

The bome of the ptJOII ia tdU&11y a mere .bacl< whoee walla and roof are olleave. and p-aa. The noori. bare earth; furni· ture, if any, and cooking utenail. are of the _ primitive kirK! imqinable. Animall of all ~ript.ion•• bare the d_ll· ill(place. Dop atld pip [proYidel wannth. Thefllth and ~ua lor ia beyond deecriptiOil. They are ignorant ... atld ridden with aupentitiOll, land have] little deIIino for improvement. When drunk, ... a thougbtleu word, alligbt differeme ol opinion, an acc:ideDtal puab. fW a quan-d over women ia .uffic:ient to pr0voke a bloody pit.
same manUKript, Elliott revealed hia nperie~a to be oonaiden.bly more adventurou.o than OlIe might &IIII\lIDI! liven hi. profelUlion. For eIl1llple, in one JHWUl(1l he recalled thia incident, ..hich probably involved employeee at one of the ooltlJHlDi... where he worked: So..... idea ol'"Ule innatolllllvapry ol'"thep«>M' mll,)' be gath_ ered from an experienca oftha write<" lIOfDa little time back, in a CentnJ American port. Two la~. both hopeleMly in.toxieated, were arrested and thrown into jail for fighting with Imi""" on the beach. On the following day, when they "",no relatively...bet, they were interrogated by the Port Comman· dant, and profeued to be tha belt of lnenda, statillf that they had been fighting "par glillo' (for fun). The quality ofthi. grim amlltement mll,)' be gauged by the faet that the I. . fortunate of the plll,)'etI had moretban forty guhetI on hia race and body.

Elliott 8.lplained that wealthy landownen, with wborn he often stayed, typically looked after their laboretlllB iltbe)' were an extended family. He teClIlled thia lICene illu.strating the role of women in carryilli out thia duty: Late at night, during a hea¥)' thll.luieratorm, a little Indian boy came to the door olthe f.armhouae (where Elliott waa ata,y. illfl and informed. the family that hia brother waa dyina;. Qui_ etly calling ffW her horae, and paclcillf IIIme medicin"" and proriaiona in a buket, (the )'OUIlieI' daugbter of ~teenl let off for a three mile ride through the rain and wind. The write<", who wu privilepd to ac:c:ompany ber on thia errand of

,.

'" mercy, can vouch for the di..,.,mrortll of the journey, and aleo for the utter lKk of fl'atitude dilplayed by the unfortunate euffenr, who proved to be menoly Wider the innuence of an overdoN 01 alcohol.

BMidea revealing hill relpoDllible nature and hinting at a lubtJe.-enBft of humor that he .u.played more than once in hi, profeMional writing1;, tIli. pUnS. at leut info:>rmt 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 el
,

R. N. EUJOJT's MAlI1V.f/fOIWI ,."".-ganw.d num.eroua corporatioll8 by inltalling new Iyatema of record k~ping, Inticipating futun expenditurea, and apply-

ing a principle of pereentage alloeation ofrevenues, which in a maguine article he later eaIled "the only llAfIe method ot controlling any bu.aine. lIUc<:eIIf"ully." Much like an independent buaineaa conaultant, Elliott ultimately lerved many elienu., 11.1thoogb btl approac:h we.. to ai.gn on with companies one at a time, remaining with eaeh one until the reatru<:turing waa complete. Elliott mll5t ha", RIved many corponotiona trom ehronie loueII 01' increaled their profitability, .. over the yeara he earned a lIUblrtantial reputation u a bulIinelll organiution upert. The ElliottB might well have remained in Mexico for the reat rJl their live., but cin:umNncea ultimately torced their return to the United Statel. Beginning in 1911, Mexico experienced a HTies orviolent revolutiolll that extended over the next IflYeral ye..... Relationa between Mexioo and the U.S. were atrained by the Wileon adminiatration'a refuaal to reoognize the government ot Victoriano Huerta, who "",ized power in early 1913. Temiona increaaed. aharply in April 1914 wben U.S. Mil.· rinea o<::eupied the Me.x:ic:an _port orVeraf;J'\lz to retaliate tor the aeilurtl of a party of American .ailo.... In July 1914, Huerta'agovernmentwu overthrown, but the ruulting COlIlition government lOOn aplit, and civil war broke out. On March 9, 1916, rebel general FrancilOO "Pancho" Vina, who eontrolled mueh of the northern part rJl the eountry, led an attack on Columbull, New Mexico. Preaident Woodrow WiltlOn ordered General John J. Per1Ihing to puraue the rebel army acroelI the border and capture Villa. The expedition tailed, aerving only to ille!'elUe anti-American aentiment in Mexioo. ANaulbl on U.S. citUell8 and ~etionorAmerican-4wned property in the country were widely reported. Railroada appear to have been a partieular target ofboth the rebels, wlHl destroyed trneka and rolling atoek, and the federal government, which began to nationalize the railroadA in mid_1914. Nationalisation probably affected Elliott's employment aituation. When the Marin.... landed in Veracruz in April 1914, the ElliottB moved to Frontera, a small port town on the Gulf of Me:z:ioo near the western edge or the YucaUn penilllula known for ita Ml\Y8lI a~haeological aite.o. Elliott may have come to the region with the railrnad,'" the main C08.stalline from CoatzaCOlIkoa to MErida rulll thro~h the area today. Bec:aulll the area IHIme tor Illveral Ameriean-4wned mahOfllny plantationa

w"

,

Bict1mphy

and an American community of ""rta, he may han ""ught employment and ",fllie there. away from the center of political UlU'e8t. Eventually. civil atrife throughout thtl country reached a point ofcmil, and In June 1916, in Elliott', wona, "when the PrelIidl!nt ordered all AmeriCllIlll out" of Mexico, he complied and returned with m. wifl! to l.oI Angel..., California. Wave Two: RetnacluneJIt and ConaolicbUoa Having been thu. dil!lodged from hialongtime am of work and .....idence. Elliott .ppe.... to h.ve underaone a period of dilllll.tiafaction with hia aituation. Over the nezt four yean, he changed joba twice, invl!ortiK.ted two lIthen, and lII!YI!ral timtlll made planl to retW'll to Latin Ammca. Nume...,.... detaiJ. ofthill period attest to Elliott'.reIt1....... 1lllU. In early 1917. he wu living at 720 Beacon AnnUl! in l.oI Angel... and wu employed by the Type'll'Titer IDlIpe<':tion Company. On May 28. hiafatbtlrdUod. and on July 10. ha bl!pn workinK u the e.port manager" for Blake, Moffitt and Towne, • wholeu.le paper comp.ny with officea in New York and Loa ~lllll and production facilitil!ll in the northwutem c:itil!ll of Portland. Sl!a.ttle and Tacoma. In Decembl!r. by which time he wulivil1i at 801 Beacon Avenue, Elliott .pplied for a pl.Mport to travel to Cuba to accept a poaition with the William P. Field Company of Havana. In JanU.llJ'}' 1918, he canceled m. trip to Cube, applying inste.d for a pal!sport to return to Mexico to promote ezport busilllllll for Blake, Moffitt and Towne, which he later deecribed ... being frUlItratingly "difficult ... under exilIting conditionJ."In his pa.uport application dated January 25. he li.ted an ambitioua itinerary th.t included viaila to Sinaloa, Sonora, Colim., Jalieco and Nayarit in Mexico, aa well u Guatemala. EI Salv.dor, Hondura•• Nicaragua, Coata Rica and Panama. The outcome ofthilljo\ll'MY on bl!halfofhis employer, or even whetber it took place, iA unknown, u it wu not mMtioned in hill nut pullport application. The revolutionary senti· ment atill in the air in Me:rico could have affected the eJlport bWlin_ and therefore the anticipated.u.cceaa oftbe trip. Fe...• 1_ of the political climate, Elliott wu back in Ml!llico the fol· lowil1i year. living in Tampico from June to Decembl!r 1919 and workil1i ... an auditor for the U.S.-owned Pierce Oil CoEporation. During t.heae montha, hi. wife resided in the popular reIKlrt area of AaheYille, North Carolin., staying in the U.S. undoubtedly becaWl
R. N. ElllOT1's MiIS1WlIWOllKS

(R,tJp/l(pn:IbMNy Nfison E/liolt SBVtmJJ

prior

to -'--'I)' 1918 )

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BiotJraphy

"

It is fortunate for biographel'll that Elliott traveled 110 much and that upon the advent of World War I in 1914, pulIporW wete required of U.S. citizeDll for the flf'St time. Hill vanoUi paas. pori; applicatioDll, beld by the National Archives, contain a good deal ofinfonnation. They reveal, for instance, that he we. 5'8" tall, had blue eyell, brown bair, a rompleIion described alternatively .. "ruddy" and "fair,- and wore eYeelUMB. Photoe taken in hla mid-to-Iate fortiell ahow a IOU with a aturdy frame, a hardy appearan"" and an air of aelf-llMUI'llfICe, all of which well aervecl Elliott'. active life. Eniott'a main pia during thia time were to perform the type of work that he eqjoyecl and to return to the region where he had lived mo.ot of rna adult life. He obviously found hia employment durill( thi. time unfulfillill(, possibly becauae he we. doing buainelll development work or simple a_ntill( illlltead of the Itruetural O!pnWng that he eqjoyed.. Hia low opinion of .tandard accounting we. expreaaed unequivocaUy In a 1924 magaxine article:

I believe it ill we 1.0 .ay that moat IlCCOIlIltanl.l do not like their ealli"l, and ~ being the cue, can you a>q>ect that otb. en, ... ho ano not familiar with the tenn. and obj«I.I. will rellah dilcuMiODl on the .ubjeet1 When I InU'oduced mr-elf to one youna: l.dy and opened the IUbjeet or acc
,

" Weet82nd Street in New York City, where be waaliving in early Man:h. 1920. He may have moved there becallH of a corporate traMfer or perhapl to p l _ hi. New YOf"k-bonl wife, WhOM mter, Mrs. Milton T.11lompeon,lived in Upper Montclair, New Jel'HY, an affluent luburban town near the city of Newark. Whatever the reuoo, it was oot becaU8ll he had seeured a highly desired profeMionai po$ition, .inee he aggreuively continued hill quest to fllKl.uilable employment in lAtin America, where he obvioully preferred to reIIide. In M~ Elliott apin applied for a passport, thia time to travel to Muioo City and Tampico "to attend to IIOme property acquired durilli a Ion, retlidenee in MeDc:o." Th1e viAit w. . to have been folloWllll. by tnlvel to Cuba. thi. time to invmipte" pGIIition with the C\lh. Railroad Company. Elliott'a ahilitiN obvioualy WeTe widely known and highly regarded in Latin America, lince he ..... offered tIli. pooIitiOll dNpite the fact that it already had been accepted by IIOmllOne elae. All the company'. vice pn"ident and pneral manager wrote to Elliott, "If we thought you would come, we would notifY thia party that the offer to him W1lI withdrlwn." Such energetic IOlicitatioll8 for Elliott'allerVi.,.". ........ not unUltai. The ~it.ion he n.d coMidered accePtin&' in Cuba ~hree yean before had been offered to him in an urgent cable that read in part, "Your aerviCf!ll badly needed." Appanntly, he wu the most talented bilingual 8CC01lDtant and COll'Orite reorganiler available to theN Latin American companiea. Then came an abrupt change in Elliott'alife. For whatever reaaon, be suddenly called off hi. trip and ceaMd hiI effortl to find employment and relideooe in Latin America. Perhape the relllOn wu aimply that in hia fortuitoUl move to New York City he had found another place that auited hia adventuroua nature.

Wave 'I'brer. ProductlvUy and

p,~

a

Elliott, now in hill early fl1\;j. . and with a new base of operatione in New York City, maintained a remarkably bUly lIthedule over the nen IevenYeanl. Later lettel'l to CharleliJ. Collilll reveal that he traveled to Canada, Germany, England and France, though for what reaeon (perlODal or buaiDeII) iI unknown. Hillargeat company reorganization out.l:ide the railroad field wu Amlinck "Company, an eJfport.-import hOUlle of five hundred employeea.

BiOfJmplly

Elliott once again decided to epecialiuo, and in reaponH to a newly popular indWltry, quickly developed a IJeCOnd epecialty u a buaineu coneultant to reatauranw, cafeteriu and tea. rooma, which wu as well euited to New York City as hie railroad epecialty had been to Mexico eDd Central America. He dieplayed hie lllIU&.l energy in elltabliBhing thia new niche, and in the pw. celIlI in<:reued hie profeuionalltatUl1l yet further, thie time by writing for a profellflional journal. In the lummer of 1924, Elliott joined the editorill etaff of the New York bued monthly bWlineIM magazine, Teo Room ond Gift SIwp. 'I'houih the term "tea room" ie now quaint, tea roome were a booming bWli..- in the 192011, and their popularity w&lIspreading rapidly to the point that entrepreneW'8 from ezperienced rutaurateW'8 to hO\l.M!wivea were trying their hands at them. TN Room "nd Gift SIwp avenged 30 pagea an iaaue, MIld for S2 a year. and bouted 8000 profeuional readen around the world. Elliott's anival at the maguine wu marked with aome fanfare, with nearly a full page devoted to introdllcing him to ita read_ era. Here ie an excerpt:

Mr. EWoU dow Our Staft' We are glad to be able to make good 10 800ll lIOllle 0( the promi_ of a "bigger and better" Tea &om. and Gift Shop made in tba August numw. One of the very important stepa toward inaeued....-vice to our retlden i. ~he addition of Mr. R.N. Elliott to the corpa of experta in the "anOIa probleUll or our field.... Mr. Elliou will conduct a departlD8n~ d.... oted to the fmancial ph..- of tea room oper.tion.... Mr. Elliott, in hie con.eulting practice, hu been able to 10000te the financial Ie..., the riolationa of .dmini.trative principles. which have prev,,,,ted Ian] edeqv.ate retllm.... Mr. Elliott has the aceou.nting background. and ",hat ie exoeedingly important, the husinea acumen, to he or veal service to our .ubacriben.... Hia .... t.look ia not confined to .....o'ulling, but incllldea kindred mat.ten u related to the aeDera1 probIllU1I of the operation of an eatina place.... We heve hetitated to .pp1y NCh a label u ~M, counting," "Operating COlIW," or ~Yinence" [to the .ubjectl. Althouah Mr. Elliott il thol"l)llj:hly equipped in accounting knowledge and .. a co~tant in general tea room, reetaurant and cafeteria operatioll, he i. primarily a butinea mIlD.

TEARoOM AND

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NOVEMBER, 1924

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Mr. EJliott's Column

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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
iog rar more than juat bookkeeping, .1 he hime"lf had d"molUltrated during hi.JI many y"..... of company """lIuir.a· tiOD. Hia attitude toward the food Mrvice buaineu, and to bu.iOeM in &enenl, i• ...,...,nably wen exp.--ed in the following collection olcommenta eulled from hie MY"n articln: Tea roo..,. apparellUy well pIItronized ..... IlUPpoMd [by the proIIpective entrepren.eur] to be "coinin, money." (Ho..pet',l "Survival of the FitteR" ;" trull in tell'O
Hia advice waa not merely technical but came from e:tperience. FOl'" inatanee, he urged hopeful nDTieea tint to obtain em_ ployment at a auc:ceuful elJtahliahment at any wage offered,

,

Bictlrcphy

"

_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 ofbere<\ity and environment. Each llOciety will differ fr'OlP every oilier eociety, but when the question ia one of fundamental moving fon:ea. human beinp &nl much ilie aame in all times and <:oUIItri..... 'To undentaDd man, bowever, we mUBt look beyood. the individual man and Ilia ad.;OBl or inl.el'Ml.l, and view bim in combinel.ion with hill feDowl." - Carlyle Vrtry frequently, men in llI@(ICiation .. grouP' or llOcieti.... or natiooa ad. in wllJ'1l quite different from tbMe ofindiridu_ oJ, *A large put of all the eocial action in which many indi_ rid...la take a COI>OIIrt.ed part is impuillive ....ther than delibe... ate; and. ther"f....e, many of the dramatic eventl of hilt<Jry IUlVe been impulsive eocialactlonl." - Giddinga Needl_ to ...y, thill line of thinking '" fundamental to the Wave Principle and indeed validated by it. It ie JIDIl"ible that aome of the ideas about human nature that Elliott ultimately expree-d in hie boob on the ,toclI: market percolated from diacuaeiona with Jenb on the subject yeara earlier. Elliott', longtime lIlIlIOciation with Jeremiah Jenu proved fortuitou& in providing Elliott a fucinating reeponsibility as well as a bit of adventure. Jenb, in addition to bi, otber aetivitiee, h.ad eerved on a number of government eommieeiona, inc:luding

,

. the High Commiuion ofNiean.gua. In 1912, the !oog-atanding liberal guv"rnmentofNQnguA '"'" overthrown by. ""'-'p. The U.S. MarillH entered the COWlUy to effect a turnover ofadministrative control to the U.S. government for the .tIlted purpoee of protec:ting American intere.ta in Nicaragua. Aftolr a dozen yean, the U.S. State Department tired ofit.8 role and appointed the High Commi.uion to advi.e it On bo'/ll' to help atabilize the NiCllrllgUan government enough to allow the U.S. Marinea to withdraw. The Commi.uion rapidly INlt up national electiona, which were held in November 1924. The newly "l..eted c:oalition government in Nicangua then eontr&<:t6d with Dr. JeDb, aa reported by The Nl!w Yori 7'imt'" "to reviM! the bankina and financial lawl of Nicaragua" and "to eatablilh a new banking aywtem in the /:IOUD.Uy." U.s. banking interelltll apparently wanted to finanee and modernize the Nicaraguan raill'Olld aylJtem. an effort which would have interested both Jew and Elliott. One ofJenb'fint actione wu toaet up the Nattonal Bank ofNiearagua and tterve as a direclor. At JenD' recommendation, Ralph NelllOn Elliott wu cholieD by the U.S. Department of State to MIlum" the poet orChief Accountant for Nicaragua. On o..c:..mber 18, 1924, Elliott met with Sec:retary of State Charles Evana Hughe.l in Wuhington, D.C. to receive hie formal appointment and ilUlb'uctiolUl. The following week he applied for hia paallport, and in January 1925 !let nil for Nicaragua, ac:<:ompanied by hia wife. The State Department invitation and aceept.ance were effected. 110 lIWif\ly that .. hile Elliott wu mWDg plana to leave New York, an advertiMrnllnt for hia oonauitillll" ...rvices, as well u hia column, ran in the January isaue ofwhat wu now called &,WUJ'O/l./ and Tto Room Jmt.r1101. Hia last column, ..hich had been aubmitted in December to meet the publiahing deadline, ran in the Febl'Wll')" illllue, at which time ElUatt wu on the high aeu to Central America. The ahip arrived in Managua in February, and Elliott im_ mediately belld to apply rna extenaive ezperieooe in corporate reorganization to reorganilillll" the financea of an entire country. The Jenb millllion arrived ahortly thereafter, on March 24, 1925, and began advialng the newly elected. coalition government in what waa probably a joint effort with the State Department'a appllintf!ea.

•

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36

R. N. EUJarr's MASTKRWORXS

" Though originally llCheduled to.~ lUI long lUI two yea...,

EJliotteerved in hitoffici.1 ,..,...ernment poIIition only unl.il June of the INlml! year, when the U.S... MUted itself from Nicaragua. At that time, the U.S. recalled all State Department appointee. all well .. the Marine. under the ...umption that calm and order had been sufficiently restored.· From Nica.flli\'a, Elliott returned to the U.S., but only for a month. Whether or not there had been any caunl relation,hip to the termination of m. column four montlui eaTlier, /W.tn... rant and 1M Room JOUJ7IlJ1 wu foldirli. Upon dillCOVering that the mag_nne had jUIt mailed ita 1118t iUlle, Elliott applied for an executive polIilion with tm. International RaiJ_y o((}entral Ameri<;a,' U.S. rompany blUled in New York whole atock waa tl'aded on the New York and London Stock Exchangell. He wu hired immediately u 11.11 General Auditor, another top euc:u. tive poeition. The Alary of $9000 a year (a figure that tod"Y, nonnaliled to $390101. gold, ia equivalent to $170,000. year after lax"a) reflected Elliott'. corporate earning power at the time. Ralph and Mary Elliott promptly eet out once again, on a nineday voyage to the companya center of operatiolUl in Guatemlla City, Guatemala, arrivina: on AuguBt 8. This wu to be ElIiott'a IlUlt profeMioll.l.l pclfIition. While....-ring in Guatemala, Elliott wrote a comprehenaive 176-page book entitled Tta Room and C<J{euna Monagp;rMnt, an enension of hill earlier magazine artid.... The book w.. publiahed in August 1926 by Little, Brown" Company. The fint faV
"Th, Marin.. left Niearagua in Auguet

1m al\er ,

13-year Iplltl of u.s. occupation. Without U.s. INPPOrt, the rulina" coaI.ition immediatflly eoll.peed ""del" ""bel p...... ure, and within "'ontba civil wu wu ,..,mil. Tha Marin... WenI lent block to Nicaragua after I..... than a YNr'1 abMnnt and atayed. ""til 1933, oomple\.iog a 21-1"u lpan of occupa\.ion.

. •

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economical aspects or the prepantion of food at a hUllinestl." Eniott'l book concernl not only the fmancial end of the bUllinl'll but the aesthetic as wen. Ada for the book refel'l'ld to Elliott as -an "peT!. organizer.- Indeed, as he certainly mU8t have done with aU hia poIitionl in bUllin..., he gave frMlllt attention to detailing, arranging, analyzing and planning. abilitiu that were later rnanifelJt in hi_ erpomtion of the Wave Principle. Several puaage_ reveal bit. and pieoe_ of ElIiott'l background. interIItI and plI'IIOnality, including once ap..in hill aubtle "nle of humor. For inlltance, after dillCUllling the abeolute necellllity of obtaining adeq... te capital for atart-up purpoeel, a precondition that many would·be I'Ntaurateun he knew had naively iMiated upon ignoring, he commented: On the other hllDd, circumRaDceI mll1 &riM where. there being a real demand for a reluurant in I CflI"tain neilhborhood. patronage IMJ' be relied upon from the Itart. Such CODditiolll, coupled with the poMible fact that the 1Ie1_. in that particular loeality. a hou.Ie furniabed with all neeelury equipment which can be utilized for the ~ of I tea. room, mlY be """",""",y taken advantal" of to open ...... taurant with vlSrY little initial ootlll1. Here the owner will pay no additional rent and will, 10 to lpeal<, merely lUUlI\e the reaponaibility of feedin,; I l.arpr family. H. may aiIo. more nearly to inVeRt himHlf with all the Utopian advantagea, be pnIIlf:IIed of I vegetable garden, chicken 1"UD and perha~ even I cow nrtwo.

owner,:

Elliott may have written thia paragraph fO!' the benefit ofthOlMl who miiht otherwilll have taken a courae at the Lewil Hotel TrainingSchool ofWaahington, D.C., which Elliott noted in cor· ~pondence was "in the habit of trying to penuade people that a tea room can be atarted with $50.Several Jllll'1lgI'lpha in the book reveal Elliott'a Interelt In hulinl'll cyclll. Hia profeuioll would have brought luch cycllll powerfully to hil attention, and hill internt in them Wall obvi· DUlly keen. In a chapter entitled -Fluctuationl," be commented: It ia a ....ell·known faet thlt plWJIUity and depreuion follow each other in cycleR, and the waveR of theM are IItreme1y variable. but nevertbel... eertain. Thia;1 not the piaw to dilCUlIlI the C8W111 of theIe cyc1l1; mfliee it to lIy that they an!

..., .....

,

40

R. N. EWOTT's MASTli/!YICJIIK1

Biogmp!ly

Elliott referred to bUllilll!llll cycltll in his conclusion poetically II "the ebb and now of circu""'tance," a phraae that uM& the liquid metaphor he later called "wavy'The publication orthill book announced Elliott'. deci.ion to re.ume his career u a restaurant management specialilJt, and hi! begUl to make plan. accordingly. Mary Elliott retumed to New Vork in June in anticipation of being IIOOn joined by her hUllband. The lut of the aeveral Spanish language letters and telegralIUl that Elliott wrote or received .. an executive in Guatemala is dated Oet.ober 15, 1926. His pauport application to return to the U.S. ia dated October 21, and his corporate corre.pondence is indexed until October 25, at which time it..........:l. A=ml.ing to International Railway. records, an "Interim" Genenl Auditor had been appointed by mid-November 1926, by which time Elliott had returned to New York City. Tboqh the International Railway. of Centnll America WII hudquartered at 17 Battery P1aoe, New York, Elliott had tIl.ken a aabbatical and WII noton companybUllinen. He had returned to New York with a definite goal in mind: to promote the book and cement his stature II the preeminent colWultant in the restaurant man_ agement fi",ld. From hie temporary b(Ule at the Woleott Hotel on Fifth Avenue, Elliott iuued. numeroua communicatiol\.l to the publieh",r regarding th",ir ooordinated book promotion. AI important II Elliott's profeuional activitillll were to him, they we", no longer hie only pu.I!Iion. Tha State Department appointment in Nicaragua had fOCUlled hie talent for problemlI01vinr in an entirely new realm, and Elliott found that he had a contribution to make to politics II well II to bwIineu. During his few weeks in New York, Elliott brought another reeently concluded project to the attention of a publisher, II revealed in a letter re&iding in State Department filea tbat Elliott wrote on February 23, 1927 to Secretary orState Frank Billinga Kellogg. The letter mentiolll a memorandum be had written "a year Or more ago," near the.tart of his tenure in Nkaragua, in which he had propoeed a broad economic plan for the U.S. to impl&ment in lAtin America. Elliott noted that talks were then underway between tha State Department and Nicaraguan Preeident Adolfo Diu "on lines proposed in my memorandWll..~ AppaNlntly, ideaa that Elliott had foml\uated during and after hie brief tenure in Nicaragua. were already lubetantially ehaping U.S. economic policy in the region.

R. N. Eworr'8 MASfU'IfOIWJ

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The main purpolI8 ofEliiott',letter wu to obtain the bl__ ing of the State Department for publieation of another volume he had begun writing immediately after the publicetion of hi, reataurant book. The 1000pelt' typeacript (a carbon copy orthe original with handwritten emendation.l) that Elliott forwarded to the State Department constituted about half of the planned book. Ita theme Will a l~r exjl<)Sition of hia pnlviOU51y propolled U,S. economic policy toward Latin America. Elliott ex· plained that he had founel a publiaher in New York who .....hed to proceed. but only if the State Department approved the tellt. perhape becaU8e the book dealt with CUf'nmt and potentially aenaitive policy mattel"e. The Department'. ",ply Will pointedly

•

Bi"llruphy

noncommittal, thanking Elliott for hi. courl.ely in bringing it to their attention, but declining further comment. If indeed the Department had beeD engaged in talks with Prelrident Dfu, it may have preferred to preRnt the id... aI thoM of the Stat.. Department rather than fL one individual. The typelClipt wu eventually filed in the United Statell Netiooal Archivell. SixtylM!Ven yelll'1l after it Wal lent., it wu discovered dW"ing rnearch for tm. biography. TM Futun of Latin A/Mrica ie a remarkable doewnent, not only beeauee it is a hitherto unknown work by R.N. Elliott but a1JK> becaWHl of ita content. For one thing, the volume is. treKBun! trove of information on Elliott the man, revealing him aI an individl18l of wide.ranging experience, u indicated by the excerptl quoted earlier in thie biography that were taken therefmm. VIlriOUll pusagell eIpreM a deep undentanding of Latin American culture and a genuine love of the region, ita arll!l, and ite people. The tl"eatiAe further revealA Elliott'. knowledge of the various idioms oftbe Spanish language, Spanieh literature, "the richnl8ll and beauty of which treaeure: he.said regretfully, ·are eeldom .UlIpected," and the region'e mulJic, whoile "gayest meaeure," he noted, "hat: alwayll an underlying and undefinable note of pathoe." Elliott identified the Latin American aI "a channing and puuling mix of incollllietenc:iea, the belt of good fellow. when properly approached, [with al pefteption and intuition little .hort of marvelous.- His occalional blunt criticism. of the region'e euetoms and character further attelt to the objectivity of hie obeervationa aI wellu his compelling deei", to deduce the meaning of thinp:

[TJhe Spanish American i. unfortunately rather a man of wordB than of action. There have been. of COurN, many thou· sandi of Btrilr.ing er.ceptionl, but I I a pneral rule L8tin AmenCII.DII Hem W1able to oven:ome that .....ntal inertia that h.. led them to .urrer for centurietl under the oppreIIion of political abuee, without any orpni&ed attempt at reform. A study of IIOme of the COIlIU'\Irtionl of the Spanish lan· guage i.I 1100 of gJ'Ut interelt in attempting to undentand. oomething of Latin American thought. A IeJ'TI.nt, ruilty of baving dropped a plate or g\llIll will invariably lay, ". ell"'" (it fell). He will never ny,·1 dropped it: hut prefen to endow inanimate objectB with life rather than admit that he bimaelf

,

R. N. EUJOJT's MAn"UWO#lU <:
the downwud ptIth whiCh they h.ve choRn, the..., ill in lilbt but economic lUic:ide.

DO

end

Elliott'. analytia of the .ucial and economic problema of Latin America Nt the .~ tor hi. comprehenlive propoeal tor creating economic ability and luting pfOlperity in the region. Sofore beginnilli' he dillmiaRd the tradition.l view of the U.S.'. role in the region with relpect to the Monroe 1lQetrine. the ori_

,

Biography

..

gin ofwhich. he pointed out, wll8leu noble than commonly believed. -AJJ far .. the writer can _ : aid Elliott, "there h.. never been any attempt to outline a eonstnlctive foreign policy along pl'8.ctiCllllines: To achieve that end. Elliott outlined II plan to be implemented., not unilaterally but by mutual agreement, "whenever a Latin AmeriClln country approac:hee the United. Statea with a request for financial or politiClll aid, ...Iwhen it;'J:in luch dire financialllb'aita that ita very national exiatence il threatened." The plan required the hoet country to a110.. unobl".r'uftive yet thoroughly inteerated. U.S. developmental adminiltration in exchange for a number of reform•• including ...lriatanee in the iafluanoe of natiooal debt payment bonda guaranteed by the U.S. government, the retirement of old debt to European O'l'lditora, full payment ofintemal debt, to. reform, the reviaion orall tariffl. civil aerrica reform, and thfI chutering of an American bank to handle the financeaofthe rl,!jfi0D. Money raiaed from the U.S. guaranteed bond &alea would then finance development of the country'l infraatnlctuno in the form ofrailmada...uerwaya and porta, all to the ultimate end ofbuilding a lItrong ellOUll"h economy to payoff the bonda. The bolIt country would gain the Itnlctural ba.ae for economie growth and atability, and the U.S. WOIlld gain -new outleta for IUTplua production and capital" through increaaed invelltment and trade. Neighboring countries. he preaumed, would recognize the benefita reaped by the first nation to adopt the plan, and followlluit. He advocated. a corTfl8ponding public information campaign in both Latin America and the United Statea, designed to overcome the Spanilh Americans' jWJtifiable averaion to foreign preaenoe .. well ....hat Elliott ..w aa the U.S.'I provincial attitude in not involving itaelfmore .ubetantially in -promoting good will [and] mutual proaperity and advancem"nt" overae.... and in "initiatillB Latin America into the secreta oftbe proaperity of the United Statea," which he ....... a .....oral obligation to mankind.' That duty, moreover, involved -ab80lutely no right or juatifiClltion in attempting to influence national thought [or culture] in any way whataoever: Given thO' mutual benefit Elliott envaioned, he concluded. "it;' simply a buainell/l propoaition: It il not \llU'eaaonable to aMume that Elliott'. m"moran· dum and manuacript bad a role in Ihaping later U.S. policy toward Latin America. In many way. hi. propoaed program

,

.

R. N. ElUOrf'l MMnJlWORQ

reMmble. later effort.t ,uth .. the "Good. Neighbor" polic:y afthl! Franklin D. Rooeevelt IuIminiBtration and the more l'ea'nt prodevelopment ""liei"" of the World Bank. Certainly. Elliotteamed the reaped of the Coolidge Adminilltl'ation, u an internal State Department letter dated FebrulU)' 2, 1929li,ted him all. po,>tentill 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\lnteTe<;l by abundance of another eon. Thill idea binta a~ the rhythmic, or dynamic, balance that he later found in the atoek market. In a 8f!rt;on deacribing the huard.t of political .u~ion in the retPoo, EUiott writN, "By a curioua coincidence, while writing thi. paragr.ph, the author received new. afthe death afthe president afthe country where he haPpeJled to be relIiding." Thill atatement inoficat.n that Elliott waa writing then in September 1926, when LUato Chae6n llUCCeeded to tbe prelIidency afGua~moIL

Elliott wu worlring on TM. F'utlln of Latin.Ami!riaJ u he brought hi. career in the region to a eloee. With one book IIOld and a new one in progren, Elliott had two promiaing reuon.s to

BilJgrophy

~-

.~.

return to the United State.. There Wall a third relUlOn, though, one not nearly all happy. After decadea ofbealth and vigor, and ironically jUlt .. he Wall preparing t.o return for an UDlIpecified time to the U.S., Elliott auddenlyfound him..elhuffering from a lNlVere alimentary tract illness caUlled by the organiam lU7IOO!OO huttJlyti.ca. Though Elliott'llifeatyle had been rather adventu:roua for decadea without Ilerioua repercuuion, time and eh.t.nee had alught up with him, and New York offered the promi.lle of an eJ:pert medic:al review. Unfortunately, the illness Itubbornly peniated durin.- the month or two that be WBll developilli book promotion lJb'ate([y in New York. By January 1927, Elliott had left New York City and taken up reaidenee in Lo8 Angelee, hi. old home hue from ten yean previoua, in an apartment hotel euite at M8 South Spring StreeL Having left behind all hia old bulineu oontacta, he oonc:entrated every effort toward Nlloeating hie ooDluiting bUlineu while attempting to reoover from the m.lady that had

. .tricke" him. Curioldly, for a man woo later connected the Fi_ bonacci lIeCluence mnumben to human life, this change of ca· reen and lifMtylea oc:eun'ed when Elliott WaJI 55 yean old, 21 yea,. before hia death.

OPEN A TEA ROOM

Wave Four. The Craab 'I'hrougbout 1927, Elliott remained inteIUJely active. He lIeDt the aforementioned letter and manU5Cript to the State Department in Feb.....ary and continued to market Tm Room lind ,kri4 M~tMlU, which 801d fOT $1.50. Elliott Mnt the book to reviewen, got. copi" into boobtorell, obtained liatll for the mailing of cireullU'll, and UTaIlged for advutieementll in RV-

ear-

er.l magazinea, including the January and June 1927 i.$tUeII of Good Houa{'II.Npi"ll. Addit>onal 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-

-,....--

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.

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 re<:over. Hia prof_ione] photograph inFinoncial World magui.oe a decade later abo•• that the relentlees aflliction took ita toll, leaving Elliott much thinner than in earlier yeara. ",.

"""""'"

o.pite being phyJlieally debilitllted by hie malady, Elliott needed IIOmethina: to occupy hi' acute mind while recuperating between ita wont attacD. All cin:umAtanee. would have it, he wu living then through the IOOllt eJtcitine period in U.S. IJtoo:k market hilltory: the peak yean of the """;ng bull market of the 1920lJ and immediately thereafter the _ t dramatic bear mar_ ket amuh on record. Th""" event.. IJl'll"lcing hill interest, he read Robert. Rho'. 1932 book, Dow Th«>ty, 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 eJem.ed ruIllI and guidelines ofwave formation and coJ'TeCted initial errol'l in their formulation, they began to amue him with their accuracy. Thouah Elliott never enjoyed full recovery from hia illnllM, hill health improved after these IlOveral Uyingyean, and hill old energy began to return. However, after yean of abeence from hie lifelong profeesion, h~ previoua aucceas and renown were no longer a ticket to further advancement in hi. fanner field. At thia point in his life, Elliott'. financea were at a precarioua 10..... HUllI8.vinp, which had appeared more than adequate nearly .even ye&l'I earlier, were aIm""t entirely m-ipated due to the npenRl of h~ illneaa, the impolll!libility of punuing hia counaeling bwrineaa, a dependent wife and several _mingly aafe investments that had suffered tremendOWlly in the 19291932 bear market 1ID8IIh. Hi. depleted financial condition, hia developing faacination with the atock market, and hi. undeni· ably important dixoveries combined to prompt Elliott'. deci· lion to undertake a new profl!l..!lion. He decided to "begin all over

" again," as he put it, "e.peciaUy in work that I like, whieh i. half the battle." So, at the age of64, Elliott launched a neweareer and IJtarted what he later referred 10 u -Wave number five of my own life.'

WI"' Five: The Wave Prineiple Revealed By November 19S4, Elliott'. confidence in hi, ideu had developed to the point that be decided 10 present them to ,t leut one member of the financial community. For quite 110m" time, Elliott had .ub.cribed t.o • market .ervioe founded and edited by Chari.... J. Collirul and publiAhed by Inv""tmentCoun_ lIel, Ine. Oater Invelltment Letters, Inc.) olDetroit. He wu partkularly impressed by it.. Elliott felt that he had learned enough .bout Charles Oollil1l through hi, ltoek market publielltion to tnat him with hill dilJeovery. Thill usurnption, to Elliott'. great .d.... nlai", PP'OYed. correct. AlUr an 8-year receaion in fortunea, Elliott 1VN abo\lt to embark upon a l3-year riee.

On December 2, 1934, Collin., prHideot of Inveatment Cov.neel, received from Elliott a letter marked 'PERSONAL and CONFIDENTIAL," dated November 28. Therein Elliott flS:plained that he had d""",vered three DOvel f...tUfWI of muket aetiOD.; recognition of wa"" termination, classification of wave degree and time fOrealllting, wbich were "a much needed compl. ment to the Dow Theory: He even fo~ted that the market advance then wtfolding would be followed not by a oOtiec:tion, a. bad been the case with the two previo"," Wit" ofadYanOl!, but by "a cajor bearcollaJIH."(Thil il eJUld.ly what happened later, a. the dramatic market decline of 1937-38 erued 60 pe~nt of the market'l value in twelve months.> Emo" lllIked Collin. to finance a trip to Detroit 110 that he could preaent hia obaervationa completel,y to him, in hopea that Collina would decide to UlIe the technique of the Wave Principle in hia atoek market letter to their mutual benefit. Elliott flVen commented that Collin&, if he prefeITed to keep it eecret, need not inform hie readera that he wu uaing the Wave Principle lllI a balis for hie inveatment advice. Collina WlllI intrigued but not convinced. He filed Elliott's letter and returned a .tandard reapoltlJl to the effect that he would be happy to monitor Elliott's "calls- on the market, by telegr.m collect or by air mail letter, feN' one complete market cycle to 1M iftbey had sny real merit. If they JlrtIved aoxurate, then he would oonaider further ItepL

" Collina had developed this method of putting off the numenlWl """",,,poodenta who continually offered him 1IY"1Al1IUI for beating the mllTket., on the 88lIumption that any truly worth-

while Iyltem would 8und out when applied. in current time. Not lurprilringly, tm vallt majority of theee proved to be eIilmal failurea. Elliott'. principle, however, Willi anot.her.ft
.,..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'<:'af\er began to write Elliott mo.... frequently and llent him several boon, book recommendatiol13 and artidea

" or interellt, inc1udingOn The &/atioll 0{ PhyllotruU to M«lw.n.ic:cl LaW6 (1904), a pamphlet by ProfeMOr Arthur Henry Church of Oxford Univel'llity. PhylJotuis R the term for the a .....nK... nant of leaves 011 • stem, which in ..:line plantll had. been (\lUnd to

follow the Fibonacci ~UI!noIl. Th_ mailinp indicate that it

wu Ch.rles Collint who introduced Elliott to the eo_Pi of Flbonaeci numben and their mllllifell.ationa in nat.ura! phenomena. TInw, 1M! mlllt have been the lim penIOD to notice that the D\lIIIber of Elliott'. WBveII ..,produced the Fibonaeci l!equenc:e when counted at NoceBIIively lower degrees. theile oblIervatioll8 ultimately provided the apark needed for Elliott'. theories to gel into their final fonn five yeara later. One book that eolliJa MDt wu SirJamea Hopwood Jeane' 'I'M My.kriolu UlliwrH (1930), wbieb contained the follO'lliing pasuge: Many would bold t.hat, from the broad phil"""PhicalRand· point. the outstanding ..,bienment aft..entieth century phy. ia i.o not the tbfJory of relativity with itl welding together of apaoe and time. or the tbfJory 0( 'Iuan18 with it. preMot 41>' pannt nepotion or the law, of ea\!Muon, or the diseeetion of the atom with the reml.t&nt diocovery that thinp not what they -.:n; it ;" the general """'K'rition that we DOt yet in COlltaet. ";th ultimate ....ality.... To bot Iow Locke'a phrue, "tbfl real_nee of aubataneea" ~ forever unknowabl.. Wf <'Gil on/:I PrrJtP'f!" b,. dUc"Ui'W 1M klw. wltic1l gowrn 1M eha. . . 0{ ,,,b,fanor,, GIld '" prodlUY tit. pMIlO""'1I4 uf 1M uUtrnal world.

In referring to the tflpetition of the five wave pattern in tbe atock market, Elliott reaponded, "Pouibly the rea!lOn why I have DOt yet, and pouibly never will know why thia..nell oa:un ia beeaWle it ia a law of nature. The la....a of nature, and incidentally ecooomiCll, aM ruthlua, which ia .. it should be." Collirul' traditionalakepticism wu abruptly dispelled with the next oec:wTflnce. The Do.. Jon" avf!J'888ll had been declining throughout early 1935, and Elliott had been pinpointing hourly tuma with a fair degree of a<':WIlley. In the _ d w.....k of February. the Dow Jones Rail Average," Elliott had predicted, broke below ita 1934 Jowof33.19. Ad..vora were turning negative and memorl... of the 1929-32 <:ruh were immediately ndondled u beariah pronouneementa about the future coune

" oClhe eeonomy proliferated. The Dow IndWltriaia had fallen about eleven percent and Wen! approachinr the 96]_..1wbile the RaU., from their 1933 pull., had f.lIen fifty pereent to the 27 level. On Wednesday, Man:b 13, 1935,jl18t aft.ertbe c1_ oftrad· ing, with the OowJonN .ve~ tl.nillhinjr ....... the 10W1l for the day, Elliott Hnt hi. famoWl telegram to CollilW and flatly .teted thefollowing;"NarwrrHSTANDINGBEARlSH(DOW)IMPLJ-

CATIONS ALL AVERAGES ARE MAKING FINAL BOTI'OM." Collina read the telegram on the morning of the nen dll,y, ThUJ'8day, Man:h 1". 1935, the day that marked the cll»inll'low for the Dow IndWltri,l. that year. The day prior too the telegram, Tueeday, Man:h 12, marked the c1""ing low for the Dow JODe. Rail.. The precise hourly low for the Indu.triala tXCW'I'f!d at 11 Lm. the following Monday, thirteen trading houJ'lI after Elliott', telegram HDt, with the Rail. holding above their prior low.

w"

The opening HUing puahed the Industrial. just eenta below Thunday'alow and a hair', breadth above Elliott'. target of96. The thirteen month <:ornoctive wave was over, and the market immediately turned to the uplIide. Two month.late"r, Elliott'. call had proved 80 pTetUely and dramatically COlTeCt u the market continued on iu upward climb that Collina, "1mpreeeed. by hi.8 dogmalUrn and llCI:\U"8.cy," wrot.e and pl"O)Xllled that Invel!ltrnent Couneel mb.<:ribe for payment to Elliott'l fOl'ee<l and commented, "we ani oftbe opinion that the Wave Principle il by far the best fo..--tina approacll that tu... rome to our attention.· Elliott Rlponded with a proposal that GoDina mbAcribe to hi.8 market timing eervice for II period of two yean. Then, iflnvestment eoun.el wereltilleatWied witb Elliott"m~,f\er the two year period, Collinll, whom Elliott coD8idered II muter writer, would prepare II book on the Wave Principle auitable for public diatributioD. Elliottat;pulated that the book lhould carTy Collina' DIlDle U luthor, but Elhott wU to receive full credit for the diecovery and development of the Wave Principle. The copyright wu to be in both their lUUIll!ll. Elliott appllTl!ntly felt tbat ColliD8' name would be uaeful in giving tbe book wider acceptance and diatribution. He added that ifColliD8 wiahed, be would h.ve the option to m~itute Elliott'l D8me u author but Collina would forfeit any copyright claim lIB a ruulL

,.

" Colline aceepted Emott'. t.enna and invited Elliott to Michigan to be hi.8 boWIe llUest for three d-.ya over a weekend in the INtllmu of 1935. Elliott went over h~ theory in depth and thoroughly familiamed Collins with the worlring details of the Wave Principle. For the next two yelU'll, punuant to their agreement., ColliM received and monitored Elliott'. call. on the market. Hia a=aq remained true, and at the end of the lM!ClOnd year, in March 1937, Collina began working on Elliott's fiJ'IIt monograph, TM WlIl't Princip~. which WQ ba-.l on Elliott'. originalt.reatiee. ThroUihout this time, Elliott had maintained contact with IIIlveralaequamtanee. &am hie _11Il.ting ...~, notably George P. RobillJllln. RobillJllln had. financial con.wting firm in New York City that Hl"Yed corporate clienta. While commWlicating with Collina, Elliott had .. lao prellented the theory of the Wave Principle to Robineon, who had become i~uingiy intel'l'llted in the lIt.oclt market aa a tool for corporate financial inveltment. Miele £rom Collins and Elliott, Robill8On ia the only penon known tol have Wled the WI"'" Principle prior to the publication of Elliott'. book.. Robi...,n and hi• .-aciate Todd II B..c:ker (later an invntment ItlalUllfel' for a IlTOUP of ore e;q>IOllltion oompaniea in Toronto) took EllioU'. work lIerioualy and apent time atudying it. In MarclII937, .. Collina began work on The Wa~ Principk, Robinaoon and Beckel', probably while co,,",sponding with Elliott, pN!ciaely caUed the 1937 top UJling Elliott'. new diacovery. ,.. Becker recalled in a telephone conversation, "It ..... 1IO clearly the fifth oft.he fifth wave up."

The Rood to Wall Street By 1938, Elliott WIllI eo involved with the Wave Principle that he inafated that ifhe wen! to be taken into Collina' organization, Investment CounBeI'. atocli: marUt. Hrvice would have to UJIe bia ap~h en:IUllively, a propoul that Collina could DOl. aealpt.. However, in appreciation of Elliott'. deciaion to confide to him the detaila ofhia dillCOVeT)', and in fulfillment of their qreement, Collina completed The Wa~ Principle, which wu publiMled on August 81, 1938. The 8 1/2" .. II" monograph wee coPyrillhted by Elliott and printed in dark blue lIOfteover with no cover markinga. An estimated five hundred copies were printed.

•

Bi
The tint chapter of The WalH! illlJ .tatementa:

Pri=ip~

. makell the follow-

No truth m""ta more general acceptance than tba~ the universe ie ruled b;y la..... Without law, it ie aelf-evideDt there would be omoo., and ..hen oba"" ie, not.hins I•.... Man ie no leu a natural otUect than the Bun or the moon, and hie aetiona, too, in their meuical occurrence, are aubject to anaJ,y· m .... Very e:deMve research ill conneet.ion with ... human act.ivitie
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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

-'.....-nom.

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<15. Elliott initially pric:ed hiJIlnterpntive Lette....t $60 per year and continued to make available hi. monograph, which he called "the Tn.tise: for $15. RN. Elliott wu fmally back in the ...ddle, and .. independently in bUllineN" he had planned elev.n yean bero.... For. number ofyeara, Inveetment Couneel'. advertiaementll in &uron.', had deaeribed CoIJim,' market letter u"A weekly lIervioe bued on TM Dow Theory." Immediately following publication ofrM WOIll! Principk, new ada appeared referring more generally to "an.lyse. of significant economic and technical tnmd•." Clearly, Collins no longer depended only upon Dow Theory but U8ed the Wave Principle .. well. Yet Collinll never mentioned the Wave Principle in hia market publication or ad-

Biography

vertUing. Hill reu
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ie U>o r.woU 00<100 110 tho 11_ioJ. .0.1<1 _ bo ..,,_ 01010 pobllcl'l fo. ~o .,...... t hd ... "'"(\lO ~ . . . . . or I< . . I tI>oID1q OIl00.. bl'Ood..-u. &IML>..... ol boo . . &1<1 I.. SO..olo ,d>l.Io1tl..... " .boo _,,~ or _1Q\>.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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" revealing knowledge had already been artieul,ted in 'I'M Future of LDtin Anwrieo ""hen he Wl"Ote that, "Gone are tlwo day1l when happily revealed IIfICretli jealOWlly parded for the penonal .dvanOllment of their pooI.e...ra. It bu been proved time and time again that true and lutinr lIUceMa lies in tbfl diMeminaUon of knowledge ,..thet than in itt oonculment.• CoIIiIW bad been writing regular feature artielell for Fina,,· eUd World map.zine lUId in flUly 1939. at Elliott', wging, he contacted the ed.iton and inuoduoed them to Elliott and hd work. N • multo Elliou .u c:ommiNioned by ~ World to write twelve articlea 00 the Wave Principle. After their initial "anIlO\lIlCemtlot" on March 29, the maguine opened the..mel! with the following atatement:

w_

During the put .even or eight )'eVI, publilhfn of financial m~ and O
ror ...

•""'*'

The fim of Elli~'. articlee appeared in the April 5 iasue, and the;,. publication continued regWllI'ly into July. Theae definitive utidell elItllbliJIhed Elliott'. nlplltlltion with the invelJtJnent com.mll.D.ity. They had great lItaying power and lIWVived in vanOWl (CJnll.lI OVer th" yean, whil.. the monorraphR ...re .... v..r reprinted.

BroalkninIJ 1M PrilIcipk In late 1939, after the pIlblicaUon of the FiIWnCi4l World utidu. Elliott bepn writiq in-d..pth folloW-lip ~I on van0UlI technical upectlu well u bl'Ollder implicatiol1l oftbe Wive Principle. TheM quickly evolved into. (ann'" Edllcatioruol Se... vioe, whicb he pIlbliahed £rom 1940 to 19« and for whicb he charged $60 per yeu. One Elliott" earlieet. -U\lU.t;"ne! Bill. I.. tin," wu a JI'OIlnd-breakilii work that lifted the Wave Prin-

or

•

Bfugrnphy

.

R. N. ELLIOTT, 1939

....,*" .... _ ciple from a comprehen.sive catalog of the market's behavioral pattel'tl8 to a broad theory of collective human behavior unparalleled in the fieldB ofeoonomiCll and lIOCiology. Since 1935, Collirul had been lIendillj'boob to Elliotton the role of the Fibonaeci l!equenl':fl in natUl'l!. By 1940, Elliott had read Baldauare Boncompagni', publication of Leonardo Fibonacci'. original worb and two boob by Jay Hambid,ge on the ,ubject of "dynamic ,ymmetry; a tenn u.lled by Euclid to deecribe the deeign. that reeult from nature', purpo.eeful employment ofwhat are now ealled Fibonacci mathematic.. Hambidge wu an American artist who until hi.d.ath in 1924 applied the principle. of geometry to art and architedUl'l! in aevere.l boob. Elliott.lao readNoture'. H ~ Unity: A 1'rMtiu On 1" &l4tioll to ProponioMJ Form (1912) and ProportioMl Form (1920), both by Samuel Colman and C. Arthur Coan, and ~

o{Uft (1914) by Sir Theodore Andnol Cook, III of..hich di.ec:uMed the role of the Fibonacci ratio in nature'. patterne. EUiott'e additional important observation from hie 1938 book that the Wave Principle applied to data lienee outlide the atoek market waa another impetul to hia inveltigation into the broader meaning of bill ID!IroVery. By the early 194<¥, Elliott had developed to oompletion hi. ooncept that the ebb and flo.. of human emotion. and activiti"" folio.. a natural p~on governed by law. of nature. The culminatioo ofthia train ofthought wu a treatille of a tl'anKendent importaneeequal to thatofhia original book. On October 1, 1940, Elliott publillbecl hi8 finltdiacuuioo olLeonardo Fibonacci'. "Summation Senea of Dynamic Symmetry" in an Educational Bulletin entitled -rile Ballia of the Wave Principle" Wlder the aubheading "Ho.. the Wave Principle Worlr.a, and ita Cllrrelatron with Mathematieal Lawa." In it, he tied the patterna ofoolleetive human behavior to the Fibonacci, or "rolden" ratio, a mathematieal phenomenon known for millennia by mathemati· clane, lICientiata, am.ta, arehitedl: and phiiOllOphera All one of nature'a ubiquitoullawa ofform aod pl'O£fSl. Thia ground_brealcing p.........,tation led to what may have been an incident of intelledua\ piney. On May 19, 1941, leN than eight montba after Elliott'a treatille ..u diseeminated to hia aman liR of aubacribera, Borron', publiahed an article authored by"Etbon Been." E
,

Biography

"

Bran.ching QuI

Elliott'l lubHquent Educational Bulletillll eltPl'nded further upon hill theaia .. he came acrnaa new observationa and ideo. Titlea included '"I'echnical Featurea," MAiternation," "TIle Buill of the Wave Principle," "Duration or Time Element," "Inflation," MDynamic Symmetry," "Two Cyclea of AoHrican Hi.. tory," "TIle Law of Motion Mand "Nature'a Law" (I. p ~ to hie IIeCOnd monograph). Elliott'a other ael"'ticell included: - Forecut Let.ter8 marked "Confidential,Mwhich were .,ld at Mconventional feea." Tbeae one paK1l bulletina provided inveatment timing recommendatioD8 "for thGlMl who deaire prompt advice when important reve....a1.a are due in averaj;l!II and individuallJtocb.~

- Special reporta for "bueineae e:teCUtivea" deaigned to ..... aiat in detectiq "peUI and IllIWn ofproduetion." - A "",rvice called MInformation" wherehy nOllllubacribera were allowed to !lind I atamped aelf-lddreMed envelope and uk Elliottanyqueation about the Wave Principle. Elliott .....ponded with a quotation of the fee he required for hill reeponae and, upon payment, the an_ft". "'Iltil novel aervice," Aid Elliott, "fill. a long felt need." - A 61.8'11ruler, which Elliott probahly created IJ5ing a drat\illlil: inlltrnment called a "proportional divider," the fulcrum of which can be moved to obtain different ratiOll of meuuremenL Elliott'a ruler enabled the u!IIr to ucert.ain without the bother of cakulation when the ratio between two lengtha wll 61.8'11. Elliott offered it for nle at 25 centa. ElIioU Mid in 1935 that ·wa~ do not make eITOn. but lIlY vereion may be defective. The neaN!r one approacheB the primary law. the leaa I!JTt' 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 <:rer, Tubbll' surviving literat>.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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published and updated every two month&. ObviOUBIy hil Itudentl needed ch........, Ind F.W. StepheDJI, the diJItributor, felt that Elliou c:ould luppl;r him -.e buaineIa by recommendina them .. ideal fur illWl1rllting the principlea IIf wave muvement.. AnnuallUboo::riptioDJI""d fur 160. How ironic it _ml tbat the owner lIfa challengina market analylil buaineea and I man of inere&$ingly expanlJive philoIIOphical thOughtl would take the time to write I dry practicll booklet, billed on hia earlier career .. an ac:oountant, entitled "Farm Tax Aecountina M. You publilhed in January 1945. It ia aa if, with only a few yearaleft to live, Elliott w.. not only br&JKhing out in lIeVeral avenUN ofinvestiption and thought but alao flniJIhiq project.a klnll planned yet previowIly left undone.

Go'-

The Fin.ol Ytora

Durilll the IlUIt three yean of hiJIlife, Elliott'a clientl rontinued to call him, ~y for advice on the very abort term lDlIV"" in the market.. However, he celllll'lli to IIOlicit new bU8ineu. Elliott wrote the I..t a hia Inter'pn!ti..e {.etten m Augun 1945 and apent the reat otthe year and th. flnt five muntho of 1946 puttilll to(rether what he obvioll8ly coDJIidered hil definitive work, No/u.n'. Law - TM &em of/M U,.illflrw. No.tu.n'. Law incorpDrstn part of The WON Princip~ and indudn the additiWlal...u-veriea and obIoervatiOIlll that in the intervenilll yelll'B had been detailed in hiJI Educational and Interpretive Letten. Thia final monograph irn:ludea almoat every thought Elliott ever had mnceminlil the theory of the Wave Principle. The reader of that volwne ahould keep in mind that Elliott w.. a pioneer. Much of hia diacovery ..... ream:led .. it .... formulated, and little time w... available to .pend on CC>lIllMltic ed.itilli. At 75 yelll'B or.,. and &till aufI'erinll; from anemia, Elliott undoubtedly felt a aenae ofurgent)' about liletUng hiJI final thouahta on the Wave Principle into print, an urpnty that took precedence over a well orpni.zed terl. In an effort to pt the book out bef",", age and ill health finally cauaht up with him, Elliott opted for apeed and irn:lusiven_ over the metieuloua orpnization evident in hia previ0'U8 ..-tic1ea and boob. Indeed, many of the ~ were iIllleJ'ted direct1y from hia Educational Letten. Deapite the lack of cohea:ion that more time for plannina would have allowed, the book ia neverthel.... a ml,jor contribution to market literatuno.

n

BinlJrnphy

The publication date of the book WlUll June 10, 1946. It wu printed in an ~. :I 11" buff colored 80f\.c0ver rina binder, and the I'f!ported 1000 copillll BOld out quickly to variou6 members of the New York financial community. While copiee of The Waue Principle and each market letter E11iott wrote had been meticu10Wll,y IIIlnt to the Libl'8.ry of CongN!u, Elliott apparentJ.y neglected to IIIlnd a copy of NQture'. Law. For nearly five yeartl, Elliott had been living alone. By thi.t time, the only immediate relative o(Elliott'. atillliving hill aillter May, whoee laat name at one time (from an apparently brief marriage in her youth) Wall Nul'tez. Relativllll through marriage included only hia wife'a niece and nephewa, Mrs. Marcella Thomplllln Makinaon of Upper Montclair, New Jeraey, and her broth""" Milton, Jr. and Ralph ThomJlllOn, both ofwborn lived in California. Howard Fay deacribell Elliott .. becoming quite lonely in hi. apartment at the Standillh Anna Hotel during thia time. Neverthelell8, he waa viaited ooeaaionally by a few Wall Street friendll, one of whom waa Robert M. Macl.ury, a broker with Lord Abbott and later a vice president of Kidder Peabody. Mll.et.ury often brought him hia buainesacorreapondeDCll when he w... too ill to come to the city to collect it. Elliott managed to iMue at leut tW
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" One (onnu tnder claimed that Elliott'. fiiendll took up. m1Jectioa (I common pn.ctice.beP. ~..., Ietl. no immedia\e re\ativM) (or Ilia awDatioll,.hidl tool< pa- two days later at the ..... b PoacI. Crematory ill Middle Village. New York. Reconb olF.irchi16 SoN ~ Home indicate that arra.np. men\e (or tht' cremation 1l'l!ft made b)' the Eliiou.' Marc.Ua M.kjneon, .bD teOI!iYed ElliaU'1 am.. .. ,be had Mrs. EUiou'.lUyean~.lnie.ie.iDatbe"-'lII1 file at the liuMnl boclot. • I ept ntati.... I"BDal'ked that in all her yean at the (Killt)', abe bad hal'd1y..en I 'btdlier..-d, the (_ detail. ~ by IllS. N,nnllML A death DOticIlPpeared in 1'IIc N_ Yori 7tma 1111 JllDuary17. INS.

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On December 18, 1953, EllioU'lliAe!" Ib.y, who bad lived aixty yean in 1M Angele., died.~ the ~ 0(88, 1eavinr no ehi'. d,..,o. Elliott., bel...- cbildl_ himMlf, thu. had no dinlCt or indi-

rect deKendantt. The WIve Prinelple After EWott Af\er ElUott'. death, nODe o{hla Itudentllttempted toean· tinue his publication where be len ofI'. Yet hla Iej'acy . . . 80 powerful that hla method aided the _ohhree of the greatNt r ~ in tbe m.t.ory olmarket anaIym: Ed80n B. Gould, E. Georp Sc:baef'er and A. Hamilton Bolton. EdllOn Gould, who developed the "Th.... St
won.

uplIide, lIepart.ted by two col'nlditlDJI. Moreover, eorrellpGndenee between Bolton and ColliDJI that mentioned Gould a1w~ referred to ru.. .nalyaia u ·implying th.t w....e III may not yet ha...e ended," or concluding th.t ·the rise from June 1962 inaugur.tea hia W.ve Five,~ and the like, implying tbat they knew he wu uaing the W.ve Principle. Gould Itarted with the Elliott W....e idea th.t bull market. have. trimilarity of form and then "'-rved the time IIlId price ratiOll between them to make lIGme of the mOllt IICCIll'ate Iolli term foreeut. in .tock market hiatory. FCN" inlJt.anc:e, in 1963 he forecuted. major hiih forthe Dow Induatrial. of"l066 in July 1966." Thf! orthodox top of the bull market was ....ched in February 1966 .t 996, while the priee pe.k wll regiatenld. aeven yean I.ter.t 1061 (the "theo...tieal intnlday" high Will 1(67). In October 1972, he predieteli a low in the 640-660 rlUlie fur Auguat 1974, which he .d,jueted in M.rch 1974 to "550-650 in October or N(lVember." The double bottom of OctoberlDecember of th.t ye.r rej'iatered an intraday luw .t 670. In November 1979, with the Dow depreseed in the three-digit range, Gould foreeaated • Dow pe.k of 3475 for J.nuary 11, 1990, fully indic.tirli the IleOpe of the uplide potential th.t II,)' .head. Nu .ppro.ch other than Elliott's Wave Principle baa ever allowed such bold furecalting. It ia perhlpll ill&tructive to note, moreover, th.t all three of Gould'. moo famoua: forecutll had been I!MeIltially made previouely (and more .CCW'.tely, u tlMy ultimately turned out) by Iclmowledj;ed Elliott WIve InalYltl. In 1960, Bolton forecuted ·Do.... 999" (h.ving forecuted "Dow 1000" .. early u 1963); in 1970, A.J. Frost fOl'llCllllted"Dow 572" (Collinl and Bolton hIving CIllled for 635 as early u 1968); .nd in 1978, Froet and Prec:hter forec:aated • Dow near 3000 in El. liott WOIlO! Prindpk (which Prec:hter reviaed in 1982 to Dow 3885, with the Dow then in the 900II). Thouah the Wa...e Principle .... never credited for Gould'i forecaetl, it .ppean to have merited • great deal. Dow Theory ,",pert E. George Schaefer kne... Elliott and bepn publiahing the Dow ThftJry Truckr (1948-1974) the year Elliott died. There illIOOle evidenee, but no proof, th.t Schaefer kept. tloee eye on the market'. mesaage from the ItIndpoint of the W.ve Principle. For inatanee, .uthor.nd technical ana!yllia innlMltor James Dillflll, one ofSchaefer'1 early .ubecribe.... recalia th.t Schaefer mentioned the "three phUH" of the 192Ol1

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R. N. Eworr'tI MASTUlWO«U

bull market. ThUll, jWlt u one Dow Theorist (Robert Rhea) bad iMpired Elliott, woo began publiahing the year after Rhea died, Ml Elliott may have provided ilI8piration to &:haefer, in effeet returning the favor. In .. Dearly perfect loong-tenn performance, Schaefer turned bulliAh on atoda in 1949, e.tehing the entire postwar bull market rliht up to the orthodOll top in 1966. He turned beariah and Rayed that way throughout the Cycle ..ave IV bear market Wlttl be died in the Bummer of 1974. Hia t ..o long-term lignala were thUll identie..l to <on'. (_ d~ion below), The influence olthe Waye Principle upon DowTheori.tlI eamed through more explicitly to Richard RUlIHIl, who while c:onfening with AJ. FI'OIIt publW1ed • number of remarkable Elliott Wave foreeut.8 in hiADow TMoty utknduring the bear market yellnI o:>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

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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 ..... <»mpleted. The neIt several weeu were de. voted to produetiQD detalll IUch II drawilllf the iIluatratiOllll,

,.

" photorrlPhilli them and developina the photoll in the buement

darkroom at the home of 1t.ati8tical market analyst. pioneer Arthur A Merrill. By Augu.st the rnanu.eript _ at the printer, and in November it wu releued. In April 1979, lien my pHilion .. Market Specieliat with Merrill Lynch and began publishing 'I'M EUio« W(J~ '!'MrNUt, which I hope will track the fifth wave in the e:tlf'n'nt Supercycle .. well all Elliott tnlcked the tint and IJllCOnd, Bolton tracked the third and Fro8t the fourth (and .. CoUina baa tracked them all).

In 1979, I began uaembling Elliott', original writings for publication. The ruult i. this volume, which I hope huleft. DO IJI.mUl untumed in helpine make Ivailable to R.N. Elliott the wide audience tu. pioneerilli ide.. .cl richly deHrve.

- Robert R. Prechter, Jr., 1980 19lN1Addendum

Moo famoUl.we1r. market raean:ben made their careeno in the market. R.N. Elliott wu an excepl.ion. He wu not primarily ••toek market guy, hut. buMineuman. All hie biography attut8, he "u competent, uprtlUive, QOnfident, independeDt I.lld "e.... tile: truly an Ameriean ren.i....nce man. Can you imagine -.meone coming afreIIh to your field and bnlaking brand IHlW ground when he wu67 ye..... old?That "'u howolll Elliott wu when hi. first. monograph on m.rketl wu publilbed. After building an international tt!putation u I. buai_ accountant throu(h corpor.teI IetVice, magazine columDl, boob, and even a government conuniMion, today he ell,joyl. I. fllr larger tt!putation for having made and developed the.uilring OOHtvl.tion that mVNiment market behavior ie patterned. It ill diffieu1t to appreciate the geniua behind Elliott'a diathey atudy what covery. Moo people can apot wave )Hltteml. to look for. But what kind ofpenon loolu at price nuetul.tiOnA cold and di.acerna the )Hlttem8 in the lint place? Only Benoit Mandelbrot, the father ",ffractal eeometry, bu aeaxnplil.hed a eimilar feat. He obaerved the phenomelHln in mountain ranf1!l, tellcoutl and riven, in other wordl., other natural phenomena. He noticed it in market pricee, too, but R.N. Elliott wu ahead of him, both in that diecovery and in ita depth. Mandelbrot bu become flllllOWl for l'et1Olfllizing that in nature, the emaller flue-

0_

•

tuations, which he considel'llotherwiee unpattemed, are euetly .. compln as the \argt!r one., ju.t on different _IN. Elliott oriIfimikd that same idea, in the IIOCial realm, and then went far flll"ther in di$overing that there are actually potU,.... to the nuetUlltions. Thia idea h.. not been recognised in natural phyai· ali phenomena by chaoe theoreticiana, but given that III proC8Il8N are governed by naturallawa, it ilIlibly tbat it will be. It ia only a matter of time. TocIay, tbouaandB ofinatitutional portfolio managei'll, traden and private inveltol'll employ the Wave Principle in their inve.t.ment deciaion making. Ralph Elliott undoubtedly would have been gratified to aee it. Even now, however, Elliott'alepcy haa only begun to manifNt itlelf. Hia contribution to knowledi:e ill far greater than limply a useful method of m...1uIt analY"a, .. graat .. that ill.. Elliott'a di.lIcovery pertains not only to market movements, but to the dynamiCl of alllOcial mood chanp. In thia biosrapher'a opinion, it will lOme day be recognised that Elliott'a contribution to lOciology ia a breakthrough equivalent to thole that oocurred in the 16001 and 1700a in the phyaiea.l lciencel. BecaUlle he .... both meticulOWl and principled, Elliott may bava been the fil'llt aociallcienwt. in the Met eel1llf! of the tenn. Given time and attention, the Wave Principle will ultimately live lIOciology frum the realm of meandering apeculation and place it flTlllly in the aphere ofacienee. AJJ a bonua, it affonh a rare opportunity to appreciate the aesthetic beauty of the human erperience in the abetract. Surely, few contributiolll to our knowledge have been greater. In 1987, A. Hamilton Bolton became only the eighth penlOn ever to be awarded the FAF'a higheat honor, the Nicholu MoladOVllky Award, which ia -preeented. periodically only to thole individualt who have made outstanding contributions of aucb liillifieance as to change the direction of the profeuion and to raiee it to higher atandanh ofaccompliahment.· Simply for applying the Wave Principle 10 ..uctellfully, Bolton ia parha"" the only man who allO deeervf!ll the Market Technicians AlIIaociation'a higheat awan:!. Thi.. month, on May 18, 1996, the Market Technicillll AJJ.. lOciation honond Ralph NellOn Elliott, the man who diacerned the Wave Principle in the firllt place, with ita award for ·out&tandingeontribution to the field oftechnicalanalyma.· The MTA preeented ita firat lIUch Innuallwatd in 1974, the year the Dow

JOntltl IndUlitrial Average fell to i~ Io r clumnelline..,d Ucl<ed olfth.. great bull marketofour tim It hu pre...nted itl award to R.N. Elliott in the year that the Do... hu finally, 22 yl!al1l later, reached itl upper ehannel lin... That Ii.... datee bad. to 1937, the year Elliott began writing hi. fin~ book, 'I'M Wow Principk. There o:ould be no better time to honor R.N. Elliott ~han when the IlllllHt version ever recorded of hi. five-wave pattern i. up on the wall for all of UI to_. - Robert R. Prechter, Jr., 1996

PUBUSHER'S NOTES AND REFERENCES For an uplanation oftbe market'. fractal nature and ita rela. tion.hip to cb_llCienoe, _ Robert Pncbt.er'. 1986 report. -n,., Fractal Deeign at Social Prosreu" and DT. S.J. Goem...... artiele, "Und~di"lr The Order Producing Uni""....• (.vail.ble from the publaher for $10 each). The lim letter from Elliott to Collin., lI&n~ in November 1934, i.reproduced inEl/iotl W""" Prindpk{New CJaAicsUbrary, 1978; upended 1994). '"I'be 8llsiA of the Wave Principle" and "How the Wave Prin_ ciple Worb, and ita CarTel.tion with Mathematical La....• an . . printed in the &l«t«l E....y. eection of tbi. book.

All available copi... of Elliott'. lnt.erpretive Lel.tenI and eduea· tiona! eIIIYJI have been republi.hed, along with. F"""... ord providi"lr a 1DClre complete dilCUllion of Elliott'e aerricee, in R.N. EI/ic(t'. MllThl Ltlten, 1938·1946 (New CllIIi"" Library, 1993). All of Bolton'••nnual Elliott W.ve Supplemente to The &nJo CrediIAAaly.t, .. ... ell .. hi. book, The Ellidl Wa"" PrilSCipl.-A Cril'iaU Appraieal, bave been republilhed in TNt CompJek EllicU Wa"" Writin,s'.o( A Hamilt4n Bolt<:HI lNewCllllics Library, 1994~ A.J. Flwt'. 1967 and 1970 Supplemente to TM Bank Credit AAaly.t, RUM H.II'. 1968 Supplement, and all of Richard RuMell'. Elliott ....ork will be included in The Ellictl Wa.,. Writillgl 0( AJ. F1wt (New Cllllli"" Library), due in 1996.

•••••• In Elliott'. original printing of The W""" Prin.t:ipk, moa~ of the charta and diagram..o weno placed in tbe back oCtile book.. For euier ...ference. we have ...lUTI.Ilged their pl.acem.pt ip the eo.. going material to appear within tbe text wbere they are di8Clll8ed.

MillOl'editipg, including comma placement, letter CQ/!II, apell· ina: ohome pumeral. alld an occaaionally .dded article, w.. performed tbrougbo\lt Elliott'. material. No .uhatanti"" chang... were m.de. Where ••ubstantive edit i. required, the oririnal teIt baa been left. intact and. ch.nge .~ted ip • footnote.

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p
If a nlader Elliott memorabilia, or has any additional knowledge, no matter 00.... trivial, about the life of R.N. Ell>ott, plene ronte.ct the publiaher. The neIl two JNI8N have been left blank to accommodate any information obtained in the futunl.

•

Copyrighted material

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THE WAVE PRINCIPLE by

R.N. Elliott

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......

,.

I

RHYIllM IN NATIIRE No truth meetl more ~neral aeoeptanee than that the universe it ruled by law. Without law it i8 Mlf-evident there w0\I1d be chaOll, and where ch_;", nothing ill. Navigation, chemiatry, aeronautiC3, IU'Chitecture, radiotnnmnillaion, aurgel)', mWlicthe gamut, indeed. of an and lIcie~ _ .11 work., in dealil1lJ ."..jth tbinp an.hnate and tbingJI inallimate, under law becauee nature henelf worlu iJ:l thi, w-.y. SinCf! the very character of law ill order, or c:onBt.ancy, it foUOWJI that all that happen. will repeat and can be predicted IfW1l know the law. Columbua, maintaininB that the world ..... round, predicted that a weetwatd OI)une from Europe rnu.tt eventually bring hit ahipe to land and despite KOlfen, even 1lm000g hill own crew, AW m. prediction rNliud. Halley, calculatillll' the orbit ofilie 1682 comet, predicted its return which Wall atrilringly verified in 1759. Man::oni, after hi. d\1diu in electrical kuwni..ion. predicted that eound could be conveyed without wi..., and today we can oIit in our homee and listen to musical and other p ~ from acrou the ocean. TbMe men, u have counlJeu more in other fieldll, learned tbe law. After bef;,omi.., thUll potted, prediction wu euy bealuee it became mathematical Even though we may not undent.and the cauae underlying a particular phenomenon, we can, by obeervation, predict. that

pheoomenon'. recwTeOO8. The sun wu erpeeted to reeurrently riee at a fixed time tbouaanda ofYIlllra before the callH operating to pMduce t.hi.t reeult wu known. Indi.arul fix their month by each new moon, but even today cannot tell why regular In. tervall chanlcteriu thia heavenl,. eign. Spring plantinga are witneMed the world over hecallH summer ia expected u next in order; yet how many plantera uooeratand why they are afforded thia cormancy of the Huon&? In each instance the rhythm of the particular phenomenon wee muteTed. Man ill no I... a natural object than the sun or the moon, and hiJ actiona, too, in their metrical O«IlITenc:e, are eubject to analy.ie. Human ectivitiee, while amazing in character, if approached from the rhythmical biu, cont.in a preciee and natural answer to some of our moat perplexing probleml.

•

. Furthermore, becau.ee man i. aubject to rhythmical procedure. cakulationa havm, to do with hi. activiti... can be projected rar into the future with a juatification and certainty heretofore unattainable. Very utenaive reaearch in connection with what may be termed human activitiea indicate. that praetieally all develop~"" which result from our lIOcial-eeonomic p.oce...ea follow. la. that call8e8 them to repeat the"""]""", in .unilu and CODaLanOy TeWl'Ting lIerial, ofwave. or impuIeM ol definite number and pattern. It ilIlikawi8e indicated that in their intenaity, theee wavee or impu\eell bear • conai.tent relation to Doe another and to the passage oltime. In order to beet illu.trate and expound thill phenomenon it i. neceuary to take, in the field of man', activities, .arne uample which fumishell an abundance ofreliable data and for such PurpoBe there i. nothina better than the stock escltange. Partieular attention has been given to the stock market for two rellBOllII. In the first place, there if! no other field in which prediction hu been "geyed with Ineh gnllt intenllity and with 10 little reIIult. EcollOmiata, statisticiana, technicians, ~ineell leaden, and hanken, all have had a try at f......telling the futunl ofpriCl!ll over the New York Stock Exchange. Indeed, there hall developed a defu\ite profeuion with market forecaating .. ita objective. Yet 1929 came and went, and the tum from the greateat bull market on record to the greatellt bear market On re<::ord ",light almOllt every invutor offguard. Leading inveatment inAitutiona, epending hundre
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90

R. N. Eworr'IJ M~B1!'/tCIWI

atepe, or lig-ua: IDOYemen~ of. number of monU\8' duration. Theae lelllleT awinp afforded even greater opportunity for profit. Delpite the attention given the at<xlr. market, auCCNlI, both in the aceuraey ofprediction and the bount.iea attendant thereto, has n_....ril,. ~n haphazard becaUH tltoAe who have at.tempted to deal with themarltet'. movement. have to reeognile the ntent to which the muket il • paythologiea' phenomenon. They have notrruped the fact that there i. regu· larity underlying the fiuetuatioM of the market, or, .tated ath· erwille, that price movementa in lItoc:ka are lubjecT. to rhythmA, or an on\end lMlquenoe. Th.a market predictio~, as thoee who haytI had any experience in the aubjed well know, have lacked cert.-inty or nIne of any but an accidental kind. But the market has ita law, jlat .. ~ true of other thinp thn;l\ljloout the Ilnivene. Were there no law, there could be no center ,bout which price_ could revolve and, therefore, no market. In.tud, there would be • daily fleriu of di.,rganWld, ronfused price nuetuatioM without TI!UOn OT order anywhere apparent.. A dOH ltudy of the market, however, as will be aub.equently diaclOHd, proves that thia i8 not the eue. Rhythm, or I'fIlI'Ular, m&Uurtld, .nd harmoniOUl m.,..elMnt, ia to be diacemed. Thi8law behind the market an be diJJeovered only ...ben the market i8 vie...ed in it. proper tight, and then ia analyzed from thia .pproach. Simply put, the stock Darket i8 a crelItion orman.nd tbeI'flfoI'fl reflecta human idia.yncruy. In the pagee which (oDow, the law, or rhythm, to which man reapondl will be dillCloIIed u registered by market moyement. that fluctu.te in accordance with. definite w.ve principle. The W.ve Principle i. a phenomenon th.~ hN a1....y. functioned in every human activity. W.yea or different degreea 0ccur whether or not recording machinery ia preeent. When the machinery dellCribed below ia preeent, the pattema or ....vn are perfected .Dd become vilrible to the experienced eye. A. Enenaive commercial aetivi~y repreaented by corporationa ..h_ ownenhip i. widely diMbuted. B. A genera\ market-pl.ce where buyer and aeller may contact quickly through repl'elenUlUyea. C. Reliabl.. ncord and publicatioDl of tranNCtiona. D. AdeqWlte _ti8tica availabl.. on all matten relatillll to corJIOI"IItiona.

r.ned

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Tiu W...... Principk

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E. Daily high and low raD&" cbar1.lld in IUl:h a manner .. will diKIOft the wave- ..fall degreea aa they occur.

The daily nmge of stock tr"annctiom was inaugurated in 1928 and the hourly record in 1932. TheM ..... nac:!aary in order to oboJerve the minor and minute waVelI, elIpecially in rut market.. The Wave Principle doea not requinl confirmation by two averagee. Each average, group, atock or any human activity is interpnlted by ita own waV(!JI. Behavioror ..avell has ~n fairly well explored, but application ia in ita infancy.l

FOOTNOTES I Hen. Elliott luggeota. a>rTlIrt1y 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'"

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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<1 .

N nlO¥Wl"

R M

~01

M

,.

III

IDENTIFYING THE WAVES In the preceding di8cllAion the wave movement in .tock priaoa wu rather generally trNted, the mllin point elJtabli.hed being that. movement consUlt. offive wavee. and that the five wav"" of Dna movement eqlal the lint "ave of. next higher movement. At thi. point. lIeCOod bame fact with relIped. t.o the wave movement ahould be introduced. Thil concern. a difference between the odd numbered and the even numbered wavee. Wav... Om!, three and five, it will be recalled, are impu.l_ in the main direction, whereu wavy two and four are reverse movementa. Wave two Mrvu to correct. wave one, and wave four HrveB to correct wave three. The difference between W1IveII in the mIlin direction and ".veII againat the main direction il that the fonnllT are divWibl. into five ...velI o f l _ oUW-, wbenllUl the latter aredivillible into but three "avell of the l _ r degree. In the Precedilli diKuuion, the movement M to N ..aII .-hown all in Figure 3.

N

•

" N

3

,

M

Were thie movement alM! broken into wave. of one lower delfree, it would appear u in Figure 4. Note, in Fi(unl .., that the second wave (wave 1 to 2) and the f"ourt.h wave (wave 3 to 4) an! each made up of three amaller _VN, where.. "aVeII one, three, and live each have five .arnaller The relu to be derived £rom thw illuatl'ation - and these rulell an fundamental to the whole wave a\1bjec:t _ are: 1) Wavee in the direction of the main movement, Ol' the odd numbered waYeII, are made up offiv., l_r WaVeB. 2) Con-ective waves, or wavetl agaiDllt the main movement (even numbered ..avell) are made up of three 1 _ wavo. To further illuatrate the abovt! rule., Jet UII take the movement 1 to 2 in Figure <10. ThiJI Wall . .ave number two of'the five-

_veil.

wave or complete movement from M to N, and wu made up, lUI all COllective movementa .hould be, of thrM ..avea. The three ..avet of the movement 1 to 2, however, fonned, when ~Iated, .. dilItinct eorreetive movement, and, under the above rul,,", the odd numbered wavee (or waves .. and c). Irina! they are in the direetion of the enm <XIlT1lCtive movement 1 to 2, ahould eaeh be made up of five lallilei' wavee, whereu the even numbered

,.

. ....... (01" wave b), which iA again8t the direction of the movement 1 to

2 and thWl ia a correction in luch movement, .hould be made up of three wave.. If we now pte8llDt the movement 1 to 2 in terms of itl lower "'IlYN, it will appeu ... in Fipre 5. For puI'Jl
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lower degree, whereat the COI'Tective w ........ will oontain three wavee of. lower degree. Other rule. and pnintR ofintere.t with I'Npect to wavee follow.

The wave movement appliH to atocll.veragel, lJUeh u the Dow..Jones, Standud Statisties, New York Timn; to groupll of Aocb, auch .. the ateela, the COppeR. the telltilell: and indi_ vidual ata<:b. 2 When individual atocb are Iwdied, it will be found that /100m" an advancing while othen are declining or IlDdl!l'iOiDa • <Xlilective movtlment. The great mDjority of indi-

vidual iMu. will, at any lfiven time, be (ollowinll the "me pattern, however, with the relIult that the averagu, 01" general market, will break down into the wave phenomenon. It follows that the greater the number of .tol:k. in. market .verap, the more perfect will be the wave pattern.· W.vea are not of unifonn leDith or duration. 4 An entire movement, colIJI.U;Ung of five w.ve., is .lw.Y' due to some one or more controlling influeocel, but the three upward .... v... (wavel one, three, .nd five) which, with their two corrective W.veI (W'veII two and four), go to make up the entire m0vement, may lCCODl.lll.od.te themJllllvell aomewb.t to curreot developmenu.1 The fundamental ClWNl behind .ueb movement is generally not recogniud until.ner the effect haa played out in the fonn ofttle complete movement, where.., durinr the coune of the movement, current ne..... i••vail.ble to every one and thua modifilll, both III to uumt and duration, each of the five w.vea going to make up the completed move.

" M a gllneral rule. it may be UlJumed that wave three will reach a mlher level than wave one, and that ....... five will IfO higher than wave three. Likewise, wave fout ahould nol. carry to u low. level u ill attained by ..ave two.' Wave two rarely can· cela all of the ground gained by "ave one, and "ave fQW" rarely cancew.ll ofthe vound gained by ..ave th~.' The completed fivlI>-wave movement, in other words, ill normally diagonal in W...acter, u ill....tr.ted III Fiaunl 6.

To properly obeerve a market movement, and hence to MIgrepte the individual wavel ofauch. movement, it i, neceQU)' that the movement, u itpn:.gl !Uel, be channelled bfltwMIl paf. allel lines. Moo IJtationen' ,hope carry in stock parallel ruJ.ers and the WMl 01: 811th • device greatly facilil.llta the channelling. A channel cannot be.tarted until way. numbers one and two have been eompleted. In Figure 7. __Veil one and two have ended, leavillll three e:q)Oted eontactl, or pointa which lland out alone. The fil'llt u",*"" lXlDt.aet i' the atartinll point of "ave number one; the IMlCOnd upcwed contact it the termination point of_v., number one u well u the .tarting point or ...,,!! number two; the third erpGIIfld contact ill the tennination point of

. w.ve number two. Theile point8, for PurpoeelI of illuatn.tion, have been dNip.ted M, N, and O. In pnparini the channel, a hue line .bollld fint be drawn between upo»ed c:ontactll M and O. At:rou lIxpo1!ifld contact N m8,Y then be drawn • line parallel to the bue line, dHignated all the "upper channel line.•

Thia upper channellio", ,hould be extended 110m" distanee to the riihtofN. When thi. operation h.. been completed, the channel will appear all in FigurelI8 and 9.

M

M

Wave number three .boold DOrmally terminate at around the upper ehannel line. lfw.ve number three exceed, the upper channel line, the upmovement has taken on tempo:w...,.lItrength, whereu if wave number three terrnilatea below the upper channel line, the uprnovement hu developed temporary weaknea. In any event, when wave three hal terminated, the old channel can be abandoned in favor of. new one. The new cha~l ia ""t.ablillhed by drawin( an upper channel line to eonneet point.lJ Nand P, or termination pointll of wavee one and three. A liM,

IltiU dNign.ted .. the hue lin", puallel to the new uppercltann",! line I, drawn ac:rou"polIed contact 0 and utended to the I"iihL It i, .bout t.ru.line that wave four .hould terminate. Firure 10 abo.... both the old, or di8earded, and the new ehannell. or OOurM, if the third Wive terminates at elUlctly the origin.J

•

"

FltJUrB 10

u.pper channe1line fi.... t drawn frnm point N, the discarded channel and the netr; channel will be one and the same. When wave four h.. terminated, either on, above, or below the new hue line, the final wannel can be drawn. Thil channel ill quite important .inee it heJp8 to locate the eDd ohbe fifth, or lut, wave. It ill on the termination of. IOIllf movement that invuton and speculaton mU5t chiefly conaontrate if their operations IlI'll to prove 8WXl!Mful. The (lila! channel ialoeated by dr..rilllf. connectil1lf line bet......,n the eItn!me terminal or upoeed contact nrwave number two (O).nd the terminal or eJ(poeed contact of..."e number four (Q). Parallel to thie hue line, and touching the terminal of wave number three (P) i, drawn

another or upper channel lin•. Thie is ahown in Figure 11, the diecanled flf'llt and RCOnd channelt of the diagram above baving been erued for clarity of illU5tratioQ.f. Wave fi"e ehoold nonnal1y terminate at around the upper channel line. although tbiJI aubject, becauae o{ita importance, will be tnlated in detail in the wcceedinr diKuMion outlinilli wave chanacteriatica. When the fifth wave hu terminated, there will be. downward movement or COfTllCtion ofgreat.et' proportions than \.hoee previ0u81y recorded durilli the progreM of the ehannel dilJeuMed a1xrve. Tbit wave become. number two of the nut. hirber degree or movement, jlYt .. the fim five waYee previOWIly

a.n-

,.

'00

neled are DOw renumbered u "ave number one of the nen higher order. Channelling on • highl!r -e:ale QUI be lItarted at the tel'miNtion of .... ve number two under the same principle. u laid down in Figure 11. FOOTNOTES

u..

"Cardinal" iI origin.aI ~rm. l.n. the Fi""""itJ W" in N<>tww·. Low, "impulae" ...y . . . Elliell W...,. l'ri"",pk gi th_ c.enna dif_ ferent, tpecific: mean.lnp. • Un or t.M Wave Principle with individual otoc:k. ill_ reliable than with averagft.ince the pben""",non ... nec\.l mau poychol. "81. or u Elliott put it, "eztenai.a public participation in price I

moyement.o••

• &ridJ,}' apeaki"l. thU atatOI. tn1lI. An uerag. made up of IBM and G.neraI Moton alone mi,ht better rebet the Wn. Principle than an u."'p of ten t.hinl,r traded two-doll a\OCb. Moreover. I am oonYineed Wt tile publie vmbility of_ m bt index IDoIJ enhance itolutllit1 with reprd. to the Waye Principle. 'I'bua the Dow, which iI m.de up of only ~ 'loch, .....' boo .. m~ ...J'lril.iVtl

•

'" than u.)', tM Value Un. Compao;it
or til_ Wave

Principl~

Sub-Minor detree_ • Loowr Elliou. "',,\.ended that W . .I ' .bould not """p be!Mf tIM

peak of ....... 1•• ..u. tbat experien"" ...eril'ift. • If the W...... Pri"cipl.;' to have • ..,. "'IWmtenoy or value, tIM "'
,.

IV

TERMINOLOGY In dallllifying the wave movement .. applied to the awek market (or as diKerned in any otherfillid ofhuman activity, for that matter), it ia nllcelllary to dll~ .ame n(lUlllnc:l.ture by whith the WIVY of any OM delllW will be distinguished from the waY""" of. greater or lower degree. For all p...ctieal purplIfIfl& the following degrees of movement will COVel" Illch atudiell of the ,tocl< market &II are herein preaentecl, or lUI the student of IIlIlrket trenda will need in hit own rneanh work in the phenomellOn, The followina' order ia from the lower to higher degreea, five wavy OrOM deiJ"H aoing to make up th. tint Wlvt! of the nut higher d"!l""'. Five S\lb.Minuette W.VetI, for eu.mple, eompollll wave number one ora Minuette movement, five Minuatt......ve. equal WIve number one ofa Minute movement, and 110 on. The order folio. .: Sub-Minuette Minuette Minute Millor

Intermediate Primuy Cyele

Sllpe. Cycle Grand Super Cycle

To avoid confUllion in the letterilli of WI vel on chartll preMOted herein, .. that the movementll of any one degree can be readily diffllrentiated, at a glance, from the lD(JVement.s of another degree, the following number deflignatiOnll have been deviaed flll' the nine movemenb! cl....ified above. L

__ D
Sub-Minuette Minute

'"_

Intermediate

.... ,. ,

NUm«r

A.. E , .. V

®"0

Dtu:riptwn SmaIlletten Capitalized Arabic NumeraiJI Roman Numeral' Romans rit<:Ied

•

Tiu

""_

Wa~

t'fi::c~

Cycle Super Cycle Gt"and Super Cycle

'"

PrifICipk

KltoKV pel to pc: V

Double cif'ded Preceded by ~c~ Pr..ceded by ~K" Preceded by 'pc"

The reader need not pay too much attention, at the moment, to the above nomenclatUrtl and itll nurnl!rical designation, but will rmd itnfincreuing u.efulneAlUI hiJI8tudie8 into 8tock prir:e mov",m",nt8 P1'Olll'M8. A Grand Super Cycl", in 8tock prices got under way in the United Stat...s in 18ll7. The tint wav'" of thi8 d"'llJ'M of movement ran from 1857 to 1928. The 8flOI)nd wave_ repreaentiDi a correction of the first wave- ran from November 1928 to 1932. The third wave in the Grand Super Cycle atarted in 1932 and baa many y"'lU'II to run. The Grand Super Cycle wave from 1857 to 1928 ia refel'1'1!d to lUI ~No. I~, but it may have been No.3 or No. 5.~ A lIeVere depreeaion oamrred from 1864 to 1857 similar in duration to that of 1929-1932. Wave nwnber one 3 or the Grand Super Cycle, the upward wav", that ran from 1857 to 1928, WIUI made up of five wavetl whicb, together, may be deeignated IU one complete Super Cyl:le. Thi8 Super Cyl:le may be 8ubdivided .. follow8 C_ Figure 12):

.

...,

OM

.,

""

•

••

lLw ... 1 Co. ...)

F"ogurs 12

,.

". 1867-186<1_ Super Cycle waYe number one 186+-1877 - Super Cycle correction (wave two) 1877-1881 _ Super Cycle wave nurnbet- three 1881-1896 - Super Cyol" <:orTeetion (wave four) 1896-1928 - Super Cycle ",ave number fiVft.

The only reoord ohtock pricee available as rar back as the beginning of th.. prNllnt Gnnd Super Cycle is the Axe-HOI.Ill'hton Index of repre8entlltive inues (publilhed in the New Yor. n"",a AnMlilJll which records movemenUi from 1864 to date. Let UlI, in further iIIustZ'ation, now take Super Cycle WIlV" number five and break it down into iUl next lmlalJer degree. This "'ave, running from 1896 to 1928, under the pnvioUllly stated nomenclatunl, would be desipated u .. Cycle, and thi. Cycle would be made up of five .... avel. These wav"e were .. fOlJOWB

<_ Figunl13):"

--

~""""'~"e""-'"~~~'l"'e<,·!"CI~,~w~-"'l·""'''''k",.I

-

.

;'l

"

•• - - - - - -,."" - - - - - - - - - - ' 1896-1899 1899-1907 _ 1907-1909 1909-1921 _ 1921-1928 _

Cycle ..eve Dumber one Cycle <:on'eetion (wave t ....o) Cycle wave lIumber three Cycle ClIITIlCtion hoave four) Cycle wave number five.

If Cycle wave number five _ the wave nmning from 1921 to 1928 - ill now reduced to iuleaser degree, it will be found to have been compoaed offive Primary waVelI, 8.8 folloWll <see FigIInI

14):

,

TM Well,. Principl.

""

DJIA Monthly Range

.........,""

Pi.OUt: Auguol 1921

,4

I June 1921 to MarclII923 - Primal)' wave number one Man:h 1923 to May Ill2/. - PriIlUll')' ~OD (....VOl two) M..,. 1924 to November 1925 - Primary wave number three Navember 1926 to Man:h 1926 - Primary C
In lib manner, the Primary wavu of tba Cyclical wave "mning from June 1921 to November 1928 can e.. th be broken down into Intennedi..te wavee; the Intennediate wavee can each be broken down into Minor ..... v...; and.a on through leuer and leuer degree until the IIlOlIt minute movement of record i8 properl,. analyaecl and clauified.

,

·'"

R. N. EUXJJT's M,..,.;n1tJfO/Wl

November 28, 1928, with the

Dow-Jone. Average of thirty industrial stocke Blanding at 295.62, came at the end of the fifth Minuette wave of the fifth Primary wave of the fifth Cycle "'ave of the fifth Super Cycle wave of the lint Grand Sllper Cycle wave. Stated otheoole, one who wu uacing the .toek market'. pattern in 18l'1li8 of itll decade by decade, year by year, month by month, week by week, day by day, and hour by hour nuetuatiOIlA, wu notoon1'u8ed as to it. Inlnd during any part ofthe palIt decade but wu able, even,

to fill not only the year and nl<;lnth ..hen the iJ'Nt bull mill'-

!let terminated, hut oould even d......nnin.. thfl day and hour of

the end - and evt!n the minute. From the Super Cycle down F/gU,. 15 through every l _ r degr.... to thtl most inlinitesUn.llIll1Vement recorded, the market, before reachins ita fmal peak, had to complete a fifth "ave or each '-"1JeJ" degree. The fint revenuLI downward in Dec;ember 1928 wU lignalled by the extended minor fifth wave up to November 1928. It will have been noted that the top ofthe fifth wave of the Super Cycle ia IlKJwn u having ended November 1928 (the orthodoz top) and not September 1929, the extceme high. 5 8etween th_ pointll are registered (Me Figure 15). _ _ve A from November to December 1928 (down) and _ wave B from December 1928 to September 1929 (lip in three minor wave.), in an irTegIlIar reversal. WaTt! C ruM from September 1929 to Ju.ly 1932. Wave C WaB IIUbdivided into five waVl!ll down, and the irregular top lipalled • rut, Itraililht down movement..

,

'" The same irregular pattern occurred at the top of A\lilUIt 1937.I Thi. in'egular pattern is detoeribed in detail uDder the caption "ColTectioJa" FOOTNOTES I

Fro.t and I prefer. labelittJl; .yo...... iJI. .hiob latun ....

I'MaT'ftlCl only for OOl'TeI:tive "'IV,"" . . bile numbllln ..... uoed for all impulo.e WUK. • Elliott', lIM of 18117 . . . Supercycla wave \ow i. aboolut..ly ~ but at!bi. time, be lac:ked!.be data \0 be",,", ... bieb Dwnbet' it .... u• ....". firml1 to the oo....... t """,cl""ion that 1857 .... the low of 1.aIlld .... ve of Supercycle de/ll'M in l.be lnterp'etiVI LetteJ' dated Au(IUt 26, 1941 (_ F'igIuio 98 in NlIlure'. Lawl. I ThTee, aetually. • FI'OIII. and I pref.... the count ~ted in EUi«t W..... Pri,,· r:iph, although we UN' difl'erent data to arri.... at.ourmnd\Wione.. • I prefer the interprelatioo that 1929 marked the onhodo:z top, alabelina that EllioU in fart..- once, in 'Tbe Fut,,", P1Itlarn .fthe Market" £rom 19-12, .hich is reprinted in the Selected Ena,1 oection at tlu. book. • Qu_tionable. See footnote 3 in eh.o.pW> 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~.

<_

-

\

FIgUf8 '9

,.

c........~ While the wave principle is very limple and uceedingly ueeful in (orecut.ing, neverthel.."" there are refinementa within the priDciple that may baffle the lItudent, llIIpecially when wave movementll are in p ~ offonnation. The betlt ....y to IlIplain what ill meant by refinement.- ill to chlU't them all shown below. The e:u.mplllll are theoretically perfect apecimellll; the student will fmd the actual developmentoftheee pIltterm not eoaimple,

in all cuetI. 2

have three waver which fall into fOUf areneral typee, but while in formation it ilIllOmetimell diffieult to rorec:ut the end pattern and extent.. 4 Once completed the patCom!cliOJlll alWI,)'.

tam indieatAlll the strength of the ensuine move. The typea shown in Figunol 20 through 28 are thoee of very amall eolftdiollll. The general outlinee ofpatteme an the aame in an degrees.

",,'"

V\ A

C

rl(/lXfl21

,

,

~C A

C

•

TM

Wa~

Pri...,ipk

The n.me typeeu above, but for larger degreetl, are ahown in F'igu.rell 24 through 26.

•,

VA

c

c

FI""02'

"""'•"

c Stilll&r'lfer typee of corredione, although of the earne general pattel'Il8, are thoee aeen in Intermediate and Primary degreea (aee Figuree 27 through 29).

,

... c """27

---•

E:l:telYio... Enenaiolla may appear in any one of the three impulau, .ave. 1, 8 or Ii, but ranI!Y in IlXIO'e thaD 0lWl. U....-II, they occur in _ve5. I Eumpl. anowwn in ~ 80.

w.""

WSlI8 3

, ,

"""30

,

,

The nme ruIn lJOVerTI both exteWlioWl Ind uteWlionll of ertelllriOlUl. In Figure 31 will be found three typea of e:rtenaiollll of utellllioni Ind the atandard type.

Extension of Standard

1s1 wave

Extension of

Extension of 5th wave

3rdwsve

Beh.vior of ar-rket PolIowiD. E:rienalons A thorough l,llldentaoding of uteMiolll ill very importent. Wamin,p ofthill phellOlUenon have been IOUght without ~oeelII, end for certain nlUOM it is probable none uiat. I However, w.-

ClIn be avoided and profits obtained by learning the behavior of the market ~beequent to their OIXUft'enoo. The rules,,",:

,.

n.

R. N. EUJOfT's MMrDft(}M;3 1) ErlenaioDJI ooeur in new territory of the current cycle. 2) ~teMione an retraced twice. 7

3) The fint retraeement will oocur immediately in three Way" to approximately the becinniniofthe extension (wave 2 of the extension). 4) The second. retraeement will oceut in the IlJUaI progre88 of the market and trnel beyond the e:rtemion.. 5) Howeve!', when an e:tterulion oceun, for eumple, at the end of a fifth primary (....he!'Wl a m¥r Mve....] ia duel the first and IJeCOnd retneementl herome _vee A and B of an irregular «J!Tel:tiOD. 'I'IWI eomplifll with the double retracelJUlot ruleL Wave C will be ""m~ offive ...avell downward, fast and probably to the beginnin(f of the fll\h primary of the precediog bull markeL I The only eu.mple l of true JIflrticu1ar ltind ia downward from November 1928, upward to September 1929, and downward to 1932. (See Figure 15.) 6) Occuionally extelllliona occur in bear markete under the _ ru.lee, $lIeh all, for example, during October 1937. 7) An extension ill never the end of" movement. '0 This does not inflM' that higher 01' lower level. may oot be _0 even

without an eWlI8ion. 8) Ret.raeement meane that the travel of. deecribed movement between two specified point.ll is covered qain. For example, a COfTeCtion and "",umption oftlM trend i. a double retracement.

If a uader i. holding "Ionge" when a downw.rd exten.ion appean, he .bould not...tl then bee"..... the market will immediately retcaoe the uteneion in three wav"", before eeekm, lower level•. Important exteneione have ooxurred .. followe; I/ldUBtrilm Upward July-NOTember 1925 Octobe.... November 1928 July 1933 March 1936

In
RoUt Upward FebOllllY 1936

•

m While the rll'St llltl'acement will ocroT immediately and in three waves, the lIeOOod might not develop (or a conaiduable time, but it will eventually lIod in the CUI'l"eot cycle. The ~ttem of an eIteollion ll and double TeU.eement i, illustrated in Figure 82.

11t'lII'!IH+'MJ

Figure 32

1rTeJU,lu CoJTeCtiolY EI&Illplf!fl of COrTeetiODB have alneely been shown but not as a part of the waves of the previOUll movement being COrTeCted. S....:h exunpleallre ahown in FiIJl.U"" 33 and 3<1. The letten -A," "B" and .C" indicate wavl!8 one, two and three of the corrective

mov"ment, il'Telf\llar pattern. Note that the second wave "8" ueeede the orthodolt top (5) ofth. previoUll movement.

Figu~33

,.

'"

8tl"onf Coliectioru can prove UlIeful u warningll of !Jtrnng mov.... menu. Figure 35 i, angular zig-zll& pattern, whith indiClll.e8 ordinary lItrength of lIUt.equent movement. Figuno 36 it a flat, indicating strong lub.equent movement (Me wave" Primary, July 1933 to July 1934). CotTectiOll8

/Jf'<Jinory

, Figure 87 .hoW.I pattern where the end of the correction at "2" i. higher than the end of_ve -A" ofthl! eorTeCtion, indio cating unuaualltrength of the lubBequent movement. (The_ and eonection shown in FiIP'"' 37 la weaker.) Correctione of bear trends, that it, correetionl following downW1lN movementll, _VII! the aame characteriMtia all thoMl of advl.llcing movementll, but in revene (_ FiIJUl'U 38 through 40).

•

no

3

c

\

A

"" IlTellUlar c:orT'lldiOIUI in bear t.".ncb aNI alIlo _n, but very nrely. Note that af\er I five-wave down trend, an irreguIu eorreetion wo"ud appear .. in Figure ""1.

Foll_ in the pattern .hown in Figure 42, the fifth wave failed to naterialiu, and stock ahould be IJOld at "B." Note th.t there are five ..avell down from the top It -3; whereu .. corred.ion should be c:om~ ofth.- w.v.... n... ~l!r i. that "8- ill the noll top from whic:h only three wav. downwanl.-..e repnered. That ill, the decline IItole two ....vetI from the advance. Put in another _y, the regulu number upward ia five plus the regular number down ill three, total eight.. In lhia cue then! were three upward and fivedoW!1ward, aame total eight.. Such pattemll art! rue but are • Mri0u8 warning and abould be acted upon immediately.

,

". When the Student b In Doubt In the po*tion shown in Figure 43, the trader m~ not know which of the following patterns will develop, i,e" an uteMion or an irregular CO!T'llCtion. Volume may fumiah the IMWer. EJ.ee. where it ia .tated that volume diminiah" during the varioue W8ve11 of correction (zig-zap, nata. triangle.), therefore if volume ill extnlmely light in the lut wave .hown, then it ill wave B of an irreiWar oorreetion. If relatively heavy, aD extenaion ia generating,l2

,

Trion,... Wave ~mentll oceuionally taper off to • point or broeden out from a point in the form ofa triangle. Theile trian(lll1ar for. matiorw au important ainee they indicate the direction the market will take at the conchUlion Ill" apPl"O';'mate ape,; of the triangle. Triangle. ..... of two daues - horiUlntal and diagolUl. HoriUlntal triangle. repreMnt hesitation on the part ofpriceB. At the conclu.ion of. borUontal triangle the market will ... Iwne the urne ~nd _ upward or downwanl- which it wu pursuing previ(lUJI to triangular heeitation. Horizontal trianglea a.re limply hellitationa and have the lJaIlle significance u f1atL

,

". Ir. dB-zag appelll'a lUI wave 2, a nat or tn_llile will appear as wav.. " (_ Figure 44lY' nat or triangle lICC'\ll'1IlIJI wa...e 2, a :ug_ug will appear ....ave" (Me Fiiure <1.5).1<

u.

,

Eumples of horizontal trianglell are ahown in FiiUJ'e 46. They are of four typ"o

Ascending: lOP liar. IJoItom ~ng

Symmetrical: bot!om _xing, lOP d6s0tJncjng

Descending: borrom liar, lOP descendng

Rewrse Symmetrical: widttns from st.ltt ro finisll

•

T1ul Wa"" Pri"",pk

'"

Eumpleaaf diagonal triangle. are ah<>wn in Figure 47. 11ley are af twa typea.

Flgvre 47

1'rianglell, whether borizantal ar diagunal, .. will be noted from \.he above iIllllJt.ration, contain five ....v.... Where \.hereare leu than five waYea, the triangle falle outllide the wave pheIIOlllenon, ae herein di.e<::u.Med, and .h<>u1d be ignored. The mOiltimportantthing to be noted withreepect toa bon:wnW triangle i$ .. here it begin•. TIt•• i$ beealIMl weYe number twoaftbe triaIlilemuet be defmitely fixed, aDd to fa wave number two it becom... _ a r y to id~ntifY wave number one. Wave number twa ie important, becalIMl when the triangle h.. ended the llIerket will move from the trian(le in the ume direction .. wave twa tnlvelled. If In Figure 48, the direction ofwave two of the horizont.a.l triangle ia downward. At the conc1uaion of the fifth triangular ..ave, the market, which hu been belritating during the couree ofite downward travel M·N, will reeume the deeline.

Figure 48

,

,,. In Filr\ll"l49, the reo:ord oCthe five triangular wave. iI liPward. The rnulr.et bottomed at M and ill heaitating after the Ilpward movement M·N, prior to relIumilll the advance. In Figure 50, wave two of the upward diagonal triangle ia downward. The market will AVenMI its direction at the end of trn. diagoMJ (that U1, ..hen the fifth triangular ......ve has terminated) and will return to about the baH of the triangle, lUI illul-

.......

The fifth wave of all b!.J.t revenMI triangl~ fl'l'lQuently falb; .holt of ita channel or triangle line. Oeeuionally, however, .. ,bown in the iIlunration above, the fifth wave will penetrate ita triangle line. Irthe I..t Wllve (the fifth Intermediate) ora Primal)' movement develope. triangle,II be prepared £01" • rapid revenal. All .... vell in a triatlll1e must be part. of a movament in one dirfletion. OtherwilMl no trillJ1i\e ill present., only a coincidence. A diagonal triangle oa:un only ..... fifth .... ve; that ie, it lIhould have four ".VelI back of it of the n.me degree .. it will

bo. When the range (weekly or daily) in a triangle embracu the entire width of the tril.llgle, the end hu about arrived. Confinnat.ion .houId be requ.ired in .ave number five. A throw-over i.I not _ntial. UlIUally trianglee arequite small, and all wavea tmI not d.... veloped in detail. For the tint time, between October 1937 and

•

February 1938, one ClC:turred of lufficiently large proportionR to demonRtrate that all five waves should be compoeed of three Mi· no.... Each ofthelle five wavell formed a diffe.... ent pattern, I? The Do....Jollelllnduatrial Average doeR not Ihow WI period .. a triangle, but the Standard Statilticl, 348 ltoclul, ...eekly range, makeR a perfect picture .. shown in Figure 51, a perfecl; triangle and the lugtllt on .....,.,n1. Being a weekly range, the chart d~ not show FIgu,. 51 the oompollition ofeach of the five wavea, but another average daily range displaYI them all lhown in Figure 66, chapter IX.

."

FOOTNOTES I EllioU adopt.ed I 1 _ form of Wullntion in order 10 make more eoonomical UN ot.erticaI .pace in hil boob. I h..... chllllled p~onR _ionally to adhere more cIOH]y to oormal wave ch..... aeteriBtica. EueptioNl are the figureR in tba Fjltmmen~ belJII mocl..... te chll1'iW or Elliott'. doc· matilm. ~ UnI_ they are triangI... Later Elliott dixovered double thJ'MtI and triple tbtees. TheM letter variation•• along with double ~g-up, were later added in NtJlunt'. Law. • See fOO\.nOte 2 8bo't'•.

• ONpite Elliott', tontentioo, eKperience lbo.... that wave lhr-ee ill m..t ofWn ~be extended e. Elliott'. ezperieoee wi~h tbe le'll_ 1929 and 1932·1937 bull m ket&. both of ..hich oontained elttended fittll w....... rurely inlIuenoed hil thinking on \hil point.

"

I Tru., .. fer .. I can WI. 'f'heN .... 10m. JUid,elineo, .. Fro.t and I point ""t in O\U' book, but flO rull1. See rClOtilOte IS itI ehapIM IX of tho FiNutci4l World Ntida and the
Low.

I U.ually, Illtbou.rb nOl. n.........uy. An ~Ar ..,..,...,uoo will lOIl1atimN bold tho boplllling of tho rlftb primary or t.ba prececIing bull mart 8M EUion W..... l'I"iMipk. I Thia eumpll io """ a partieularl)- poelunt rul•. 10 Tha orthocioJ: .nd al. """"'emell~" ill the diTec:ti altho maill U'lnd ie the termiIIlll poitlt ohbe fif\.b "ev. of. five""'I......... What Ililiotl 'PPM" to be I&)'in( here il that .. ben an .otenoion llCltUn ill the rlft.h ...... up. an ~ar top will <:an)" the marlt", illto ne" bilb IJ'OUIId, tbereby ..tolld"" the "movem.nt" booyood the orthodoo top or the fiftb ... y •• II Elliott'l UM or'lll" to..-t1 an ••tend..! "u. i.uMI"ul.'... Itudenll bay. IDIploy..! it. II Tbio It.I.~nt io true ror Imall d...-. but not tN. ror ..evil 0( higber than lntennedioto d The 1961-62 rally _ mn'tlCI. on .~mdy hillb lumeand '11" ....... The 1930 rally, a ....,...,uy...ev••dy." , occurred OIl yolume bia;ber tban thot .t the peak in 19251. I' 'nU. rule ie poIrt h.t ..... l.w dubbed the Rille orAlternation. ,. Elliott later moclifi..! hie rulll to inclieate that a trian,g:I. a1..~ P""'"'!.. the Ibt.aI impulH ....... itI • ""'lU...... Tbuo, a tri_ ...,to ..... n _ oeeur ........ t..o ill a five-...... eeque....., only .. ...... rOW" (or .. "ev. B itI &II A·B-C corTettion). to Thia
or..

•

VI

SPEED, VOLUME AND CHAR11NC

I

Hij:h apeed by the market in one direction .l~t invariably produces. torreepondinr high.peed in the r'lrIeru.l, all for example, the midJrummer 1932 advaJK:e covered forty point. (Dow-Joll.elI IndUBtriai Average) or lOO'i1> in nine weeIt. This wu equal 112 pointa per week. Note the der:reuing speed of .dvam:ee from 1932 to 1937 in Figure 52.

to"

(1) ~- ~, ... "' t N>.5 H<Jy

~ 10 """"" W37

Figure 52

,.

In fast marketlllike th~ advance of 1932 and 1933, it is 118Mntia! to obeerve the daily .. well .. the weekly TIlIlge8, otherwiee chancteristie. of importance may be hidden, auch .. fO!' eumpl~, trianglea and entlrWollJl. In a .ub.sequent headina entitled "Charting," a reference ia made to -linea." In the average market, alow apeed and the
Vohulle Volume dlllCTeue. gradul.1ly from the beginning to the end oChorizontal triangles, flata and other typea ofClOl'ndiona. Volume often helpe to cl.rify the character of. movement. Ho..._ ever, when marketll .n .bnorm.lly "thin," the u.u.1 volume eignalll are fIOmetimea de<:flptive. Chancterilltica of volume an very imprellllive when conaidered in conjunction with the five ....ve cycle. For e.Iample, during an advance or a decline ofllOme importance, volum~ will intreIIH during wave number one, diminieh duri"ll number two, increue during number three, deere...... during number four, and increue durilli" number five. Immediately following number five, volume .bauld be fairly well maintained, with little, if any, further progreu in price, indicating reversal. Henin nfenllOll ill made to volume and ratio. "Volume" i. the actual number of.barM tranaferred, wherelUl "ratio" i. the ratio ofvolume to listed on the New York Stoc:k Exchange. In ita bulletin for July 1938, the New York Stock Exchange ooted in chart fonn lIOllle intereet.ing comparieona of volume and ratio. An upward nltio Cycle .tatted In 1914, completed five PrimIlriN, ending in 1929. Then began a downward Cycle, endina June 18, 1938 (eee Figure 53). Precieely the ume phenom. enon occurred in the price of Matll on the New York Stock EllCh.nge Ieee Figuree 54 and 55).

.hare.

,.

'"

....• ..

, •

, , • , , , ,

,

,

,•

"" '" ,

~

,• The ratio ".vee an not eM}' to follow in minor detail for the reuon that volWDe variee according to the momentary di· rection afthe market. However, ae fll,lct;uatio... in.tock exchange .eats are not affected by the momentary direction of the maTket, theM become. \llIeful guide to the ratio aeale. See chapter X, "The Wave Principle in Other Fields," Aooording to tlHl bulletiM of the New York Stock Exchange, page n. the ratio for May 1928 was 12.48~, and the ratio for May 1938 wu 0.98'lt. I calculate that the ratio for the forst 18 ~ of June 1938 wu 0.65'1.. On Satunlay, June 18, 1938, aetual volume wu 104,000 Maree, equivalent to My 200,000 Ilharee for. five-hour eellliol\. FotaeveraJ. ween previoua toJune 18th, volume WaR .., 10.. that long interval.a frequently occurred between WllII of important Itocb in the aVerBgetl, with the result that occ811ionally Sub-MinueUe ..avell failed to appear in the hourly wav..., or regiHered when they ahould not. Hourly vol· ume wu occasionally deoeptive for the Al'lttle N!ll.lJDn. Fort\lnately IIUch low volume .hOl,lld not re<:\1r for 110m" twenty yean.

,.

On the fint page mit. monthly bulletin for November 1937, the New York Stotk Exchange DOted volume ratio to price change of the period between A~ 14th and Oetober 1937, and aeven other periods ofequal duration. I have reduced the comparison to pen:entag1! and find that the 1937 period Will, by far, the most remarkable of all. lloII>;I, "' ... 5If, ......... - - . . .. ol><...

=

-r"'--""'"e-",.'''''-'''------------,

• •"

:L

• --C~''___=__=~,(;!.LJ

'"

TM W....... Principk

Data obtained from the Puhlic Relatiollll Department relative to money value of trana.ctiollll are ahown in Figure 56. The following outline of compariaollll i.a interellting: ~nt ~r

mar.hl

Top. Man:h 10. 1937: Bottom, Man:h 31, 1938: Deeline:

195.59

Time:

1 yeu, 3 weeo.

ilUJl 98.13 points, or 50.1'1>.

MoM)' lIOlue 0(.1ocIe trolUGCtioM on 1M N.Y.S.E. March 1931: $2,612,000,000 May 1938: 499,000,000 June 1938 (eaL): 187,000,000 Decline: 92.9'1>.

Time:

I year, 4 montha.

Pria-VollllM Rillio for 64·Day PtrWd& (which wu the dUflltion of decline from Augwlt 14th to October 19, 1931. Compvi.tollll of thia with other period.I ia u folloWll:) AugwIt 14 - October 19, 1937: 22.2'1>. Mareh-May 1931: 10.9'1>. Late 1929: 11.1%. Febl'\lal)'-April 1934: 6.5%. Other periods: 2.1%to1.0%. NtllJ York Slot:k &:c.oo"llt &au Top, 1929: Bottom, June liS, 1938: Decline:

Time:

"",000

51,000 ",.,

9 yellt1l.

Volume decline from March 1937 to June 1938 .... 87.5'1>.

,

%~:t:* .$IIxi £cJu CI*

,...",

.YadIl9'.Ub ....1938 L....,...~, ..

.saa

.....

FOOTNOTES 1 Baaed on the abrupt chang. in orpniUlUonal.tyl.. (and "u,e• ......n point., IUch U lpellincl, I conclude that chapten VI, VlJ and IX written by Elliott and in.1Ud by him al\er Collin.' manu_ IICript _pl,ted.

,.

VII

MISCELLANEOUS NOTES: CHARTING 1) Topll ofbig mOl/eli aeauer or fan out in different lP'OOplI

and lItoclu, whereu bottoms of bill moVeII coll8Ol.idate; that ii, differentgrouJ18 and .loeb tend to eetabllah Iowa lIimultal1eolWy. During July 1932, for iMtance, bondt, stocke, production, in· IIIlJ'lUlee salel, Ill\d many other mljor spherel ofhuman activity bottomed together (He Figurell 69 through 79, chapter XI. That. of eourae, wu" bottom to wav. two l of the Grand Supereycle,

and therefonl the pheoomenon wu naturally drutically emphuized. 2) When, in the coune of .. mov., the numberilli become. confuae
tact. (that ill, cluumelinJ: them) ehould help to clarify the movemM' 3) AIw">,, connect O!" channel two eIp<.lIle(I. contaeu. 4' Alway••wait development of point number (our and the dtawing of the final channel before determining culmination of the move (that ill, the apprGIimate point wlHlre _ve five .hould end). 5) Width of channelll mUllt be pl'(!lll!rved in an mOl/emen", of the ume catellOfY, or, atated in other wonU, the width of a channel of the aame movement mWit be preaerved,l "",,""pt th.t number five m&y not reich the top of the chlnne!. 6) The larger the c:.teJll,lry, the more probability of. throw~

•.

1) In channeling: on .., .dv.nce, the b.ee line Is bel... w; on • decline, lhove. 6) Strength for the mlin move i. indic:.ted when the hue line ill huwed. See the movement from J"'llllry 1921 to Jllfle 1926 in Figw'e 1<4 .. one ilhatrlUon. 9) In order to properly visualiu the wive phenomenon In iularret' upect.I, certain m.thoda of chll1.ing are _nt;&I, U foil.......: - Weellly rl.llge of the daily e:ltreme high..,d low, on log.rithmic lCale, preferably .~rlted two or thl'M WoN the l1Iu&l pnc:tice.

"

R. N. EturYrT's MASnR'rfWIJa

'"

- One .heet for each complete advanee of five primaries, and itll correction.

10) Theae rerommendationa apply to the three principal Iveragea (Induatrial, Rail, Utility), to email groupB and indi· vidual.1tocb. The daily range of the three avemges, of groupll and ofindividual,toeb in which the investor may be inte~, 'oould .t.o be maintained, and ordinary arithmetic lIl:ale ia lilt-

iar_etary. 11) There are three important realIOlI8 why weekly range chuts are ne<:tls.ry: - Only by thia method ia it poalble to Dbeer've the movementover I aufflcient hiatorical background in order to judge the nature of the lMlveral degrMI of W1lVN, ""pecially the Illl"geT.

ScH:l.1led "linl!fl" are ronverted into PD.ttel'Tlll of nat.ll or tnang!elI, composed of three or five waVN, respectively, uaeful in determini"i' or oonfinning future movements. - Any d_ptio~ of the aman daily range are obviated. -

12) AlwaY" pl."" the pou1.ieular movement under supervimn, whether it be a Minute, Minor, Intermediate, Primary, or even gnoater degree, on one cbart. OtherwiH the numbering of wav.,.,. their Nlative mllillitude, and the ehanneling of move-

menta become distorted and confwled. 13) The beat time meallUTflll for Primary ..nd leuer move_ menl.lare ...eekly, daily and hourly ~hartII. Never be guided en, tirely by any ooe ol th_ three important time m6UUfl!8, but keep them all ill. mind ill. I.IIIl)'%ingwave numbera. In fut marketa the hourly and daily movemenl.l are the beat guid...; ill. .10... muketl, the daily and ...eekJ,y. I') For the first time eill.Cl! 1928, .toc:b, bondll and volume ratio got mto gear JUDe 18, 1938. Only with. knowledge of the W..ve Principle me,y theae phenomena be oboerved and followed. 16) Some itema appeu to have declined in five ...avea. In .uch cuel, all. "irregulu" top oocurred and .....ve "C" thereof ...... oomposed offive wn"",,, ""plaine
16) Ill. lOme CUM it ie impouible to obtain fii\l1'l!l rorchart. ing, such .. rell.l eetate, for the reuon th.. t there ill. no oenl.l'1l market; the itemt are not atandardized, and pricellepecified in t....nafen are Oftell "nominal." The IOlution ia found in "for&-

•

'" clOfled mortgagM.~ Reliable fli\llU of the.e ant available. When foreckwluree ..-e at .. bottom, real .... tate il at .. top, and vice versa. 17) In other~, while reliable flgurea are available, it ia difficult to define the millO!" degree_. An ezample il volume, whieh fluctuate. in minor degree with the momentaty direction of the market. The K11ution is found in prioea orNe... York Stock

_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
sition in stoeb. Many invNtolli prefer to operate through a Primary movement, and it i. thi.8 type of movement which will be diKueeed here. although the same principle. that llpply to W. movement will Iikewiee apply to • movement of lelJlleT degree or greater degree. Let us UlIurn.. that the investor hu OOITtICtly ""tablilhed. Iollll' poeition in June 1921. From hit atlldy of the Grand Super Cycle (_ f'iBure 12) he _ that the mar1r.etatarted u a Super Cycle movement in 1867 and that Cycle movementll one, two, three and four of the entire Super Cycle movement have been completed, The fifth Cycle movement IJtuted in 1896 and ia nearly completed, in that four Primary wavea have aIapeed from 1896 to 1921. Primary movement number five iajuat commentin,s. It wiD be made up offlve Intermediate movementll.lntermediate movement number five will not only terminate the full Prima.ry movement, but it willal.. tenninate a full Cycle and a full Super Cycle. The period .head, in other WOI'da, promi8ea to be quite intereatiq. Baaed upon hi. atully ofPrimaJ:y movement. one and three preceding the fifth one now getting under way, the invNtor baa ..me gauge .. to the anent ud length of the movement, alt.houih, .. previou.]y mentioned. theN are but rough guidf!ll due to modifying eventl whieh If)rVe to differentiate one wllYe

,.

'" 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' 1OM<:.d.1973

,.

".

Tlu W""" Principle

"'leo "...kile t.b.3

MJr)92~ 10

Nov.192S

.

"1' , "

,.'I /

l

l •• "

,"

,..

i'"

"

""I/'y!'

FlfJUre 59

lrWr"*'ate t.b.S Mar 1926 10 Nov.19'28 f'.l
FIgure 61

FOOTNOTES le., Inl.umecliato! ..ave four. Tha abrupt to!rmlnal.ion of lJtia diKunion leada me to belieya tlLat a page omiuecl fJoom the lIIOIlocnpb .. pllbliohecl. In any cue, the laat t o ~ or
"

IX

RARITIES IN mE 1937-1938 BEAR MARKET M:rdI ma: 97.A6

II I I II

'"' f"" "" 00

no

-

III

11 0

.,. 90

The 1937-1938 Bear Market ( _ Figuru 62 I.I1d 63) provided .. Dumber ofnoveltiell, rOT example: ParaUe10crlUll

AllgU8t", 1937,Ilt 187.31, Wall the·orthodox" topofa raUy.l Then followed .. dip of three wave. and an advance of three .... v... to 190.38, AIlgIl8t 14th. Between thNe two dates wa"elI A and B of an irreguI~ c:orTeCtion were formed (_ Fiaure 64). Wave C

wu very rapid and IoJlf, down to 1115.82 on Oetober 18th, and Conned .. perfect parallelogram. It hu DO particular significance (or that reaeon. The lpeed and utent were ~euJu, and indicated by the "irreguJIlI'" top, the ..me u that of 192&'1~ 1932 (_ Fi&'unl66).

,.

'"

-~ 10

\

t>oiI'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-<: In FigI.In 64 indicatell that the OOI'Ted.ion lublequent to C in Figure 65 will be. flat or triangle. The triangle ehown in Figure 51 reconfirm,lowef level• . . per Figun 66, February to Much 1938.

•

OJ C

,.

., HalfMoo..

2

'Thill. it II. name given to the pattern which developed be-

tween February 23 and March 31, 1938, 132 to 97. It curved downward and at bottom WQJI almOllt perpendicu1u (lIN Figure. 66 and 67). The eltteMion down to 115.62 (refer to Figure 65) foreeallt thia lower level The lint advlI.nre, from 115.82. beillll'rompoeed of three waves, confirmed. The triangle recoofumed. The same pattern occWTed in April 1936, 163 to 141. Both were ret.l'll.cementa of exteMlollll. On account of the high speed it it necelll8ry to refer to the hourly nlC:Or'd, ....pecially during the latt&r half.

From SeptembertoNovember 1929, wave 1 {rom38I to 195 wu extended and immediately retl'aced in 1930. No exteOaiOllll appeared in waVIlfI 3 or 6 becalUM! one OCCUlTed in wave I ujU4t deecribed (_ Figure 19, arithmetic _Ie). Hthe eItellllion had

DJIA 00iIy~, ~ So*

3

132.86

...."'" , Oc~ 1937

115.82

,,,. -"'" ,

'"

R. N. Eu.JOJT's MASRI/WOlIn

, ;

,

•

97.46 ~ F/gcJre 67 0CCUJ'Ted in wave IS inatead of wave 1 during 1932, the appearance of the decline from September 1929 to July 1932 would

have been the ume u the "half moon~ ofFebroary-Man:h 1938.

Supple-.entuy Cycle.3 lMofar .. reronb dilfClote, 1938 witneMed the first Induatrial Supplemental')' Cycle (_ Figurn 66 and 67), February 23 to March 31, 1938, 132 to 98. Heretofore termination (If wave "C" with five _vee h.. been the end of mljor correctiona, III in 1932!Thi, u.me phenomenon occurred in the Railll and UtilitiM between Detember 1934 and March 1935. The movement from 97.46 to 121,5' (_ Figure 68) ie comPQIMld offive "Ivell and 11 the lint I.lpwud five "ave pattern of thi8 degree ainu Marcil 1937 and ocmfirmll that 97.46 of March 31 w.. the bottom of.ave A of the bear markeL 6 11Iel06.44 level oeMay 27 ill the end ora typical f1atcotTeCtion from 121.54.

•

'"

FOOTNOTES 1 Elliott lbouid baYe mtMpftted tin. entire pkwN ditrennUy. The IUppoHd ...... A and B.t the upper nEbt ofFicur- 64 an w~ out orproportion to the bUl" C wt folio.... W... C .. be l.bel. iH. IlCtually ""YI three artbe fi............ doclin. wt be label. "I'" (l in Figure63. 1'lMorthoclOJ< toporwave twoi. Au«uaf. 14 at 190.88 and i. folio..... by fi... _avlll doWll for wave three,,, it.bouId be. A 0ClI'TICC. oount for Fi«ure 64 would. be AI foU.,..1: WM... Elliott bue@,putl; ..ben be bu b, put 2, completing an irTwllular C
14 h4lb

on tho top or. d".... niJI........ .-I

(Ii...........

with utenmn). • Tb_ a>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.en<:8 clurl,r indicaw oU>el'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 dire<:tion, but alway. in an orderly pro~ion.

Underlying this prognuion, however, in whatever field, ill a flIed lUId. rontrolling principle, or the muter rule underwhich Nature worD. It hal been the purpoee ofth.ifl volume, finIt to p........nt the law and then to IIhow it.ll praetical application in one of the mOlJt baflling fielda of IInlllytical..-rch. Merely aa C'Ul'IIOI')' uampl... of the operation of the Wave Principle in other fieldIJ, we have pr1lIMOnted .,me grapha herein, ehoeen at rand.om, which rudily ilIuatrate that the law ill at work wherever motion emu (aile ehartl 69 through 78). It ill reeommended that thie lIUbjeet be Iliven further attention by atud.enu in fie1dIJ of activity outside the atoclr. market., .. it Ibould lIimplify and clarify their particular work...

,.

,..

...

". ,~

'"

.. ,. .

~

•• •

~

Gasoline

con~ption

.. II... U. S.

5 3

, 0925 SIM' ""tput

• >937

'"

•

." 5 3

" •

•

o L-

-----'

"" /'bpojoIioII

1200

dOC .., ...",

"-::;C""C"C'C":':':;'' ':'·--

-,

800

"lO

3

•

10 J." ~-----_::!:! 1921

1932

,.

R. N. ELU
""

~_Iftc_~

,•

,.,

s.

•

,~

•

~ 125

.,.,

,

,

100

, m,

.......

"" "'" "'"

'" j

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Fl(llJrfI

"'"

7'6

"" Fl(}CJrfI 75

.. r:-==-c--'h • l..I\ H, , US OeUcjh

:I

.f

, ~,--------:::! 1931 1931 ,L

---' 1921

FlrJUffI 78

1937

,.

'" By no meaN do cyclee of dilTerent itemA top and bottom ~ther. Two or mOre may top together but bottom on widdy dilfe",nt datell, or vice versa. A few iteD1ll are noted below:

S"".. B<>m" Produdion Activity CommoditiM Real EAtate

Orthodmc Top. 1928 (not 1929)

,,,,-~

''''' '''0

>8" >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 signifi<:u>ce 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<'nli. Th.is eventu.;Uiy re!lulted in his di&covt>ry, wltich h.e has named "'The Wave Principle. During the past seven or eight years, publishen of financial rNIgatines and organizations in the investment advisory field have been virtually flooded with "sYlItema for wltidl their proponents have claimed great KCUracy in forecasting stock market movements. Some of them appellred to work for a while. It was imInediatelyobvlous tNt others had no VIIIIIe whlotever. All hIove been looked upon by Tht FinDlrill World with great ~pticism. But afteT investigation, we became convinced that a series of artldes on this subjert would be interesting and instructive 10 our subscribers. We IelIve 10 the individual reader a determination of the value of Mr. ElIlott's principle lI!I a ~1s for market forecasting, but believe tNt it is likely to prove atlell5t a useful dleck OIl conclusions based upon economic considerations. M

M

- The Editors

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PART I INTRODUCING '7HE WAVE PRINCIPLE" Sinoe \he beginning of time, rbythmie l'l!gU1arity bu been the I.... of creation. Gnldually man baa ..cquired Imowledge ..nd power from lJtudying the variou manuetitatiOIlA ofthiA I....... The t!ffeo:tll of the 1.. '11' are eli_mible in the behavior of the tidee, the heavenly bocIi".. c:ydonee. day and night, even life and death. Thil rhythmi<: ",gularity il W1ed .. cyele. IIiMorical Siplfteanee The lim great ..dvance in the lcientulC .. ppli.clltion of the law wu m..de in the time ofColwnb\LI by Leonardo cia Vinci in hill iUumin.. ting etudy ofthe behavior of "'avee. Other great men followed with lpecial appli.clltiolUl: Halley with hiA OXlmet, Bell witb lOund wavee, &iiacm with electrical wavel. Marooni with radio "'Ivee, and still otbera with w.. vee of payehology, COlmlie .....Vell. teleriaion, etc. One thin,&: in common th.. t all th_ wavel or form.l of energy have il their cydical behavior or .bility to ",peat them.aelvea indefinitely. Thill cyclical behavior ia charae-terUed by t... o fol'Oll - one bu.ildilti up and the other tearing down. Today Hitler ill aid to be timing hill OXlnqueat8 in _ . dance with thill natural I... u interpreted in the movement8 of the atan - but the deatroctive fol'Oll a", aa:umulating, and at the proper time will t-mne dominant, completing the cyde.' BecaIlH of thia phenomenon of repetition or rhythmic recurTence, it i.I polIIible to apply the leaaon lellmed from other manifestationa of the lawin a very practical and profit8ble way. The tn.de cycle and the bull and bear movement8 of the stock market are alao pverned by the urne naturalla.... Some fifty yeara ago Charlea Do", through h.iI obIervationa of the important clIangea in the atoc:k market gr..dually built up the Do... Theory, which now ill aoeepted in many quart.era u having lpecial forecutilli" aignificance. Since Dow'a atudiee, the aton of information "'llantinll market kanaactiolLl hu been greatly multiplied, ..nd impon&nt and valuable new fore<:alltiDi infer· encee can be dnIwn from cer1.ain behavior. 'I'lIroqh .. lone iUneee the writer had the opportunity to lItudy the ..vailable information OXlnceming stock market behav.

,.

'" ior. Gradually the wild, HIlMI. . and apparently uneontrollable eh.angeiI in pricea from year to year, from month to month, or from day to day,linked themaelvel into ........biding rhythmiQ

pattern of "aves. 'nit. pattern .-rna to ~peat i!.H1( over and over again. With knowledge of this law or phenomenon (that I have called the Wave Principle), it ill PQIlIribl., to meuure and rorecut the varioua trend. and ml'nletioIUI (Minor, Intermediate, ~ and even llIO'Iemente of.... till grellter degree) that go to complete .. grut cycle. 3

5

•

2

Thi, phenomenon it di"doeed in Figure 1. The full_va or progreAive phue of the qde colUriBtll of five impulaes: three moving forward and two moving downward. Wavell 1, 3 and /) are in the direction orthe main trend. Wave 2 co.. a.-tI "ave 1 and ..ave" colTed.l wave 3. Uaually the three forward movemenu are in appromnately plU'aUel planes; thit may abo be \.nle nfw.velI 2 and 4.

, 2

3

5

•

Eaeh nftbe three Primary waves that together make .. annpleWd. movement ia di'fided Into flve ..avell otthe next lIIl&1ler or Intermediate degree. 'nIit lubdivilion i. ahown in ~ 2. Note carefully that then are five smaller or Intermediate _Yea'

making up the Primary wav" I, five in Primary wave 3, and five in Primary "'ave 5. The Primary' .... ve 2 OOlTt'Cta the completed Prim...,. ".ve 1 oolUlillting offive Intermediate wavea; w.ve 4 in tum 00ITecta the five Intermediate ......vea that make up Primary ....ve 3.

,

".

R, N, ELUtTrr'. MMTUJroIfD

wave i, in t\1TJ1 divided into five Minor wav. ushown in f'iglaA 8. When the fifth Minor wave of the rlfth Intermediate ph_ of the fifth Primary mOYelllent baa 'pent it. force,' ronnidable top bu been coM1Zucted. Upon completion of a movement of trul magnitude, the deatructive fo~ becomtl dominant; the Primary ~nd ~ downward and • bear market UI in progreu king Won the economic, political Each

Intenned~teforwvd

.., 01"

(mandai......,,,,, for the chal1jfe in outlook

an!

clearly IIppar-

, 3

,

•

FOOTNOTES , ",. "d..tnu,ti.,.. r.........• ......\id....ced by l.hfl bear matUt, whid> ,,"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. S
•

'"

Fj""rlCUJI World Article.

........ or happeninp, or even decreee or act. ofi
FOOTNOTES 1 When minuta-by.mi11ut
,.

PARTlIl BecaWMl after the fifth wave ofan advaneina' movement has t-n <;<>mpleted the COJTeCtion will be n>onI MveN! than any yet uperienced in the cycle, it ill desirable to determine beforehand where the top of thill wave will be. With Neb knowledge, the investor can take the 0'" atepa to lllllIUlDf! a defenaive policy and convert profit. into cuh under the uu:..t favorable OlllI'ket conditione. He will 1110 be in a 1trOna: poeition to repurchase with confidence wbeo the coiieetion baa run itll eourtNl. The previoua article auted that '"!'he complete measurement of the length of a wave il therefore ita continuOUA travel between two eorreetiollll of the aame or greater de,ree.· By repeatedly measllrina: the le~ of th_ wa""" as th~ develop, under a method known al ebanneling, it ill po8IIible to determine at the time of oompletion ol wave. approximately where wave Ii loouid "top.~

-a,.,

Figure 6.howa a nonnal<;<>mpleted movement or ~c:ycle" in which wav... 1, 3 and Ii each have appro:timately the IlIme length.. I Forecalltina: the ultimate movement by the cbanneling method mU5t wait until wavl!lll 1 and 2 have t-n completed. At RlCh time it ia pouible to ucertain the "hue line" for the lower limita of the channel by ""tending a ~~~~~ atraightline from the etarting point .' •• olwave 1 through theltoppingpoint J ' of wave 2. Thil ill in Figure

wwn

7. Wave 3, normaUy para1lel to wave 1, ahould end in the Ippro:timate vicinity of the tentative or duhed upper line of the channel.

..

~~

.-

_!-~~::>f:-"2

'" Thil tentadve upper line it drawn pIlr"l"l to the hue line from t.be top of wne 1 and extended forward. But ",,,,d.itiona m.,- be 110 l'avorable that wave 3 takes on temporary ~h and e>tceed.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"" <4 ill abown, lUI well u the ae\"'] terrniMtion.

With the aeeond reaction. or wave 4, terminated. the final and all-important channeling .tep can be tabo. The base line of the channel ill extended acrollll the stopping point.. of the two reactionary phuu (......velI2 and of), and a parallel upper line ia drawn ~ the top oe...ve 3. Wave 1 ill diaregarded entirely,

,.

·.. \lnJ_ wavll 3 wu uoeptionally atroog.:1 When the hue and upper parallel lin"...... drawn u augguted, the approJimate tennination (If.ave (; will be foreeut, .. ahown in Figun 10.

F~'O

Thitcllanneling method it, ofcoune, lubordinate in importance to the rhythm of the varioua ph. . . that make up the completed movement. Waves 1, 3 and 5 IhouJd each be compolled offive wavell of the nut lowerde,ree. Theoretieally, wave 5 .thould wind up at,bout the intel'NCtion with the upper parlIl_ lei line drawn .. above deecribed. Sometimes, however, wave IS dev"l0~ eueuive Ib'ength. Patternll in. which this "throw~r" ahould occur will be diaewMd in aubllequent articlM. FOOTNOTES of omiuion, no chart l.ab.led "Firur- 15" appeared in tho. anitl.., poHibb" due to ild.il.l... by t.he mac''; ...· • Elliott _ tc> 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 marl
en'Or

-

,.

PART IV A completed price movement hu been lIhown to fIOrain of five waves, with the entire movement teprellenting the firat wave of the next larger dei"". By clllallifying the degree of the vanoua phuea, it ill poaible to detennine the relative poIIition of the market at all times .. wen .. the economic changea that should follow. l The longeat reliable record of Ameriean ltock prieM il the Ax&-Houghton Index (published in 'I'M New Yor. TiMt. Annal· ut) dating from 1854. Long nmge forecutintr u.nder the Wave Principle m\llt therefore start with the _pletion of the bear market that terminated in 1857. The great tidal movement that commenced in 1857 and ended on November 28, 1928 (the orthodox top) reprelentl one wave of a cycle of the largelt degree. Whether this utended movement wu the Firat, Tbif'd or Fifth wave oCthe Grand Super Cycle neotll,rily depend. upon what hlppened previoua to 1857. 8y breaking thil historic wave down into ita component lI8ries offive..wave movementa, and by breaking in tum the fifth "'ave of the next lIIJlaller degree into ita five wavee, the .tudent will have actual exampllMl of the veri· oua degreea that marketa traveree. To lvoid conflllion in claa8ifying the vanOU/ll degreee ofmarket movements, it is Suggl!llted that the namell and .ymbole devilled below be uaed in their"," epective order (lee table, nen PI8"). The Iongeet of theee WIVf!ll luted for Over seventy yean and included along lI8riee of "bull- end "bear" marketa. But it i. the combination ofthesmaller hourly, dlUly and weekly rhythmll that complete and mee.eure the important Intenned.iate and Primaty cycllMl that are of great practical importance to every invelltor. When the Dow.Jonell lndu..etrial Average reached 295.62 on November 28, 1928, the price movement completed the fifUl Minuette impulee of the fifth Minute wave of tha fifth Minor phaae of the fifth Intermediate movement oC the flfth Primary trend In the rlfth Cycle of the fifth Super Cycle In WaVil 1, 3 or 5 of tile Grand Super Cycle. For that reaaon, Ilthough the actual top of386.10 Will not reached u.ntil September3, 1929, the point reached 00 November 28, 1928, ie designated III the "orthodon" top. Tbia may .allDd confUfting to moetreadera, but the patterIUl in which "irregular tope" higher than "orthodox tope" occur win be ~d in due CO\ll'1Ie.

,.

'" Duration

Grand super CycLe, 9"" I {?) ••••••••••.•• lB57_1928 1857-1864 .1:1 ••••••••••••••••• 1864-1877 III. ••••••••••••••• IB77-1881 IV ••••••••••••••••• 1881- 1896 v .•..•.•...•..•.... 1896-1928

lie 1. . . . . • . . . . . . . . . . . .

ae se sc

Super <:yet •••••••

ae

Cycl••••••••••••• {

c 1 ••••••••••••••••••• 1896-1899 " II ..••.••••••...••• 1899-1907 Q IlI ••••••••••••••••• 1907-1909 " rv 1909-1921

" v...•.........•..•.. 1921-1928 1921-Mar •• 1923 ((I1)l •••• Kar •• 1923-101..1', 1924 ((III) .•• Kay, 1924-Nov.• 1925

{(I)

primary.......... {

.•.•• Jun••

(Uvl) .... Nov .• (IV) 1 ••••• Mar..

Intu..-.:liau (I}_(V)} {price

Minor

Minut

I-V

1-5 ~inu.tt•......•.... A-E Sub-Minu.tt•.......•-.

.t.

1925-M.. r .• 1926 L926-Nov.. 1928 ,"",v_ot. illu8_

trating the Int.rmedi-

.nd ll.r degr••• will be di.cu •••d in .ub.equent articl ••.

FOOTNOTI!S 1

Only • tn>1 technician would make thie COlDIDIM.

,.

PART V The IICOpe and duration of any price movement are influenced by what happened in the PrevloUll cycle of .irnilar or larger degree. The movement th.t .tarted in 1896 .. nd took 33 yee.n to oomplete, culminating on September 3, 1929 ..t 386.10, "ae ItO dynamic that the cor....ctive bear cycle wae corre.pondingly .evere.

Orderly Decline Within leu than three yean, pricee were reduced to 10.5 per cent of the peak level. Deapite its high lpeed, the downward OOIll1l8 of the bear cycle followed a well-defined and rhythmic pattern of .... v..... Furthennore, it kept within the limite of the pre-meuured channel. It was, therefo...., pouihle to determine beforehand ..pprorim..tely ..here the be.. r market would end and the new bull market begin. Becauae of the amplitude of the previoua qcl...., the new bull market would n«:eNtIrily be of a large degree, luting for yean. When taking .. pomtiou for luch a movement, the long term inveetor ..ould be warnnted in maintaining hill investmente until the end of the fifth Ml,jor wave wu in meuurable .ight. From that point he ahouid be extl'emely careful. Previo.... dillCu"ion. have dealt with the f...ndamental theory of the Wave Principle. It ill now appropriate to ahow the application of the th",,1)' to an ad...al market. In Figw"e 11, the completed five-wave movement of the erlnlme monthly price rangea of the Do.. ~on.... Industrial Average from July 8, 1932 to Man:b 10, 1937 ill charted arithmetically. The eeri.,. oCMin...ette, Min...te, Minor and Intennediate wav.,. all te80lved them· ....Ive. - in the monthly, weekly, daily and ho...rly record. - to fonn and oomplete e.ch of the five Primary w.v.... W..v.... «I)), «UI» end «(V) were each oompoeed of[fivediatinct phlllletl, and wa""" «II» and «IV) ot]' three diatilKt phuea, as ehown by the A_D-C patteme. The e:ltent and duration of each important phue are ,ho.. n in the aa:ompanying table. When wave «IV)) ia fini,hed and wave (M) ill under w.y, mIlCh cloeer attention to the market i' required. Accordingly, the ehannel wu carefully noted. A bus line was drawn from the bottom ofwave «ll)) through the bottom of...ve «IV)), and

".

R. N. Eu»n'1S MMTI'IIIJOllD1 ~

oJ lhePr;mcryMovemenI 1932-/937

\fave (lIll f~"", 40.56 July 8, 1932 to e","pletion of Wave (tV») at 195.59 on Ih.rch 10, 1937. (Dew Jone" In~u.trial Monthly ~ver.geal.

~"

,.,. •

'.'. ••

((I») •••.• 40.56 July «U)) ..•. 81.19 Sept. A •••••• 81.39 Sept. B•••••• 55.04 ~. C •••••• 65.28 Jan. U. «(III»). •• 49.68 Feb. H. «(IV)) •.•. llO.53 July 1< •••••• 110.53 July B•••••• 82.20 Oct.

,.

". ". n.

C•••••• 111.93 Feb. «(V») ••••• 84.58 July

,. ".

ro •

• 1932- 8l.39 1912_ 49.68 1932- 55. O. 1932- 65.28 1933- 49.66 1931-HO.53

Sept. ~O.

","0.

Jan.

•• H.

,U..

•

1932

19)) 1932 1933

Feb. H. 1933 July 1933

". ". n. ,. M, ". >C.

1933- 84.58 July

1934

19))_ 82.20 Oct. 19n~1l1.93 F"b. 1934- 84.58 1934-195.59 Mar.

1933

(WI)

FIgure 11

1934

1934 1937

'" upper liM parallel thereto wu utended forward from the top of ...a". ((III». So. the aceom.,.nying tabla and chart.

I.ll

Be.n..h lndleadon? In November 1936, immediately an..r the President ...... reelected by an overwhelming m8jority vote, eJ:temal conditione appeared to be IJO favorable for the bull market that it wu Rtl'emely difficult even to think of being bearWt. Vet!ll:. oordilli to the Wave Principle, the bull marlleteven then ...u in i1.8 final atage. The Iona tenn movement that It.arted in 1932 bad by November 12, 1936 .-dled. 185.52, and the variola flv. ""VII .dvaneH of the prec:eding 53 Ill
widely followed market theorie. therebr -reaffinned that the nu,joT trend was upward: The indU8triaJ. ruch«l 195.159 _ compared with the N... .....m ...... l929 panic bottom of 195.$ and the February 1930 rally top of 196.96.' ln that week the advancing pricea met the top of the channel. The Pre.ident's remarks about pr1ce11 for copper and steel beillll' too high did not take place until April. and by that time the be... movement Willi well under way. FOOTNOTES I added the words in bncl<.eta, .. tbey appeared to be miMing_ I I.•.• the Dcror 'I'heory. I Elliott ......... iJ.ad thil ~ype of IUppoftlreoiatlLn.. 1eveJ. in the ............ ",. mart~ Olt.olll cho<-eo lovala an>Und which to turn continuaU1 DC to break on!}' dramatically. Uouall1 the.. IeVeil have 1IO
,.

PART VI In the 1932-1937 Primary bull movement (_ Figure II, Part V), ",aVIM «Ill and «m)) ran at high speed. Natllrally they terminated in a abort time. But wave (M) w.. .., gradual and orderly that it t..ted longer than the time interval required ror the previoua rour wave. combined. In the dilJcuaion ofthU: movement, it ..... atated that by November 1936 it wu evident that the bull merket wu in an e:rtl'emely advanced etage, but that it required anotber rour montha to compillte thll pattern. Althongh thlllargMt p~ of"the Fifth Primary went in the culminating atap, the amalll!llt componllnt phaaee (Minuett.e, etc.) were atill developing.

, •

I l-

.----

F/f1UrfI 12

Figure 12 iltua1ratM how the fifth wave of an important dearee become. extended by the development of five wavee of thll nut amaller degree, and five more of a "';\1 amaller dllgfM. Tbua, an Intermediate trend will end on tha fifth SIlb-Minuatte impulae or tha fifth Minuette wave of the fifth Minute phue of the fifth MmOT movement of the fifth Intermediate awing. Note that .. wave (V) advancea, the con aetiona tend to hec::ome amaIler and ofahorterduntion. Compue with 1935-1937. The termination or a fifth wave mar" the poillt at which an entire mnvement of the aamll degree ia to be lXln"ected by a ",,,,,rae lIlOVe.Dlent of aimilar degree.

,.

Ccallting, 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.

,.

F ,

~~. Yb ~ J

A

,.,.. "

,

.,

~ , ", JS , •

I

,,~, 1

r

b

'3)

An irTel(Ular c:ornction ill diAtinguiahed by the fact that the _ d or "B" wave advarJ
ment. Clannelm, (tee Part Ill) ~ help in determininll the extenL 1he applieatioll of tbe8e corrective pattern. to apecific market. will be 'hown and di3eUlled in lublequent article-.

PARTVlII Triangular COlTllCtiOllll are protracted trend hee::itatio~The main movement may have I'JDe too far and too fut in nllation to the alower economic procnaee, and prices proceed to mark time until the underlying fOreell catch up. Trianglea have laBted u long u nine month. and have been u abort u _ n hoW'll. There are two duaea oftrianglee, homontal and diagonal. Theae are ahown in Fi&urea 16 and 17.

Dioponol Triogles

The four tyPM of horizontal trianglea are Aeeending, 0. _ndina", Symmetrical and the rare Rave.... Symmetrical. In the Jut named, the apex ill the beginning of the triangular cor-

•

redion. In the other fomul the ap« ill the end of the correction, whieh, however, may terminate before the apez ia actually reached.

All trianglell contain five wave. or lep, each of which ia com~ ofnot more than t.hree l _ r .avell. Outli_ that do not conf"orm to this definition fall outllide the law of the Wilve Principle. All waves in a triangle muet be part ofa movemell.t in one direction; otherwille, the "triangle· is only .. coincideooe. The entire tnavel within the triangle repreBell.1.8 a wave of the main movemenL The horizontal triangle occun .. wave 2 01' wave 4. Uit occure aa wave 2, the main movement will have only three wavea. At the conclueion of a horizontal triangle, the market wil\ reaume the trend that w.. interrupted by the trio angle, and the diredion of that trend will be the aame u that of triangular wave 2. The "hree.k-out" from the horizontal triangle (in the direction of tnal1jf\llar .ave 2) will ueually be fut and repreaent the finlli .ave of the main movement, and be followed by revereal of the trend. The extent of the "hreak-out" will ueually approximate the distance between the wideat partlI of the triangle. The diagrama in Figure 18 illuetnlte the "hreak-out" from horizontal trianglee. Diagonal trianglee 8ttl either upward or downward. They can occur .. either wave 3 or wave 5 of the main movemenLI Uaually they occur .. wave 5, and are preceded by four main wavee. But the completion or the diagonal triangle repnllll!ntll the end of the main movemenL The lIet'Ond wave within the diagonal triangle will be in the direction oppoaite to that of the roain movement, and will indicate the direction of the reveraal to follow concluaion of the triangle. At the conclusion of the filth wave in thisform of triangle, the rapid rtlveraal of trend willu.ually return the market to about the level from which the triangle atarted
,

'" FOOTNOTES , B&Hd on tbe diKuuion of diqonal trianll... in TM WOlle I'Iindpk, tliliI oo:m.mant;' aJmo.t UlIlJ"Idl, unintentional. Diqonal trilll\lla. II....... ort;ur thrw. Third ".veI ..... Ch.aracl.erilti· ...u, ottoill'. whill flftb t.enninal tnOvetDenti. There ;1 ...."., mile""" tn.t u..y aomM.imM .p~" tint ......., bu~ in that """ they aubdivida a bit di1l""",,,l.1J'. See EUi«r W",w Prilldph.

,

PART IX The "extellllion," though not frequent, ill one or the moet important market phenomena meuurable by the Wave Prin. ciple. In an extenaion the length (and degTe&)1 of' the _ve becometl much larger than normal. It may occur u a part10fwave 1 or 3, but ie .anally a part of'wave 5 of the main movement. I The erlended movement ia compoaecl or the normal fiv..-.....ve phalM!, followed by a three-wave reb"acing colTflCtion, and then by a HCOnd advancing movement in three ph.... or the norma! five "avetl, the fifth vibration ill .aually the laJ1r&llt and most dynamic of the aeriea,4 thUll becoming, in e!Teet, an enenIlion of the extension. A warning of the approach ofthill dynamic phlllM! of wave 5 ia conveyed when wav'" 1 and 3 are abort and regular and confined within the cllannel,6 and when the fint corrective vibration of'the erleDllion iB completed near the top of the cbennel. The length of important extenBiona may be aeveral time. the breBdth of the original channel. Channelling ill a1BO UlM!ful in meuuring the tnvel of the extel>llion. ThUll, in Fiprea 19 lind 20, the line "h-d" repreeenta the baee line, and the dashed upper pareJlelline "c~" meuW'ell the nonnal f1Xpectan<:y for the "tint top" of'the extension. The completion of the normal 01" fint five wavu of an ex· ten1Iion ia never the end of the cyclical movement but doH conatitute a diatinct warning that the bull cycle ie approaching an end, U only two more broad waVetl (one down and one up) would fully reflect the maximum fon:e of the bull market. Aft.er the fint five wavee of the ext.enaion have been rompleted, a aevere correction (thBt iB usually in three _vee, but may be triangular) IM!te in. Thill correction beeomea wave A of an irreiuJar cyclical correction. Wave A generally carri... the market down (breaking the erlerurion channel) to about the beginning of the exteMlon, a1thoUSh a protracted period ofbaeking and filling may serve to mitigate the IM!verity oftb\$lXlI'!'eetive pbaae. The duhed line marked "X" in Figure 20 indieatee the average expectancy for the completion of wave A. When wave A baa been completed, the main or cyclical movement ill reumed in three broad phuee that carry the market into new high ground - even though "e" in Figuree 19 and 20 may have been the "orthodw< top· or a MIjor or Primary bull

,.

R. N. Eln<J'rT's MABnIlrtOiWl

movement. But \.hie new top, Of "'iJngular top,. is the final hiSh point for the bull market. Thi. three-w.ve .dv.ncing pbue be-cornea wave B or the irregular cyclical conation.

The completion orw.ve B marka the bellinoing ofw.ve C of the ilTflgular cyclical correction, that in this phase ill a bear market or major importance. W.ve C abould carTY the market down in five fut waVIN to about the bottom of Primary wave IV oftbe preceding bW.I movement. Enmple: follo1Vingtbe dynamic enenaion in 1928; w.ve A, down from November to December, 1928; wave B, upward to September 1929; .... ve C, down...ard to July 1932. Enellllionlll .Jao oceur in bear marketa. ThUll, the five "'.ves ofan utel1.lion ...ere completed Oetober 19, 1937, with the market reachina 115.83, fonowell, in thia_, by. broad tri.ngular correetion (instead of the irregular A-B-C pattern) covering a period offollt monthB, eventually reaching 97.46 on March 31, 1938. W.ve 2 or thi. triangular correetion wu in the nme direction u the downward cyclical trend. A tremendoUll extenaion occurred in commodity price movementl, particularly th.t of electrolytic copper, in the ~ring of 1937.

". In individual .tocb, the ~OrthodOI top' of International Harvelter wu reached at 111_112 in January, 1937; wave A, in • baclring and .filling movement that reduced thlllMVerity of the correction, carried the .welt to 109 in April: .ave B reached a new cycliCJl1 top of 120 in August (the general market topped in Marcil), and wave C brought the ,tocll down to about 53 in November. FOOTNOTES 1 The liD of an ulended wave

........

to \atgff, wI the dqroc (Minor,

Intermediate or Prim...,.) to the _II ... !.hal of l.be t1O
the term 'exten.ioD" 10 refer to ....... 3, ...

and II ofthe_ded

v•. • S. ~ 5 in. e three impul.. _v., it (0"0_ tJult when wav.. 1 and :1 at
,.

PART X FolloMq the completion of the bull market fl'Ol11 1932 to 1937 {aN Figure 11, Pan. V>, a thne-phue cyclical correction wu in order. The fU'St phue ahould and did 0Gn8istoffive large _ .... The lint ph.... of thia COII ....t ion "'II the decli.... that ran from 195.69 (Dow.Jo..... lndlWtrial Average) on Much 10, 1937, to97.(6oo Marcb 31, 1938. 1 The aoootllpanying FiiUl"e 21 abo. . the ",eekly range of the market dlU'ing this period, on an aritlunetk Kale. neapite the higbly emotional nature that prevaileclat certain 1tageI, the rhythmic forec:uting principle eon· tinued to f'u.netion. 'The minute detaila ~lItered in the daily and hourly pattern! are, or 00W'lIe, not entirely visihle in the weekly range. For WI reaIOn, the eNelltial detaila of price and time of the five big "'a... making up this fll'lt eyclieal pbaH are given: Cyclical Wave W - from 195.59 on Marcb 10, 1937, to 163.31 on June 17, 1937. Cydical Wive (8) - from 163.31 on June 17, 1937, to 190.38 on Auguat 14, 1937. Cyclical Wive (C) - from 190.38 on AquJlt 14, 1937, to 115.83 OIl October 19, 1937. Cyclical Wave (D) - fl'Ol11115.83 on October 19, 1937, to 132.86 on February 23, 1938. Cyclical Wave (E)- from 132.86 on February 23, 1938, to97.(6ooMarcb31,l938. Cyc1;cal ",ave (A) "'II compoaed offive Minor wavee, II follo",a: 1- 196.59 on Much 10 to 179.28 on March 222 - 179.28 00 March 22 to 187.99 on Marcil 31. 3 -187.99 on Marcil 31 to 166.20 on May 18. 4 _ 166.2001'1 May 18 to 175.66 on June 5. 5 - 175.66 on June 5 to 163.31 on June 17. Wave 3 in Cyclical Wave (A) ..... compoaed offive vibratloIll. Cyclical "'ave (8) "'II compoeecl of three "'avel, and an "il"regular top·: A - 163.31 on June 17 to 170.46 on JUDe 24. 8 _ 170.46 00 June 24 to 166.11 00 June 29. C -166.11 on June 29 to 187.31 on Aug. 4.

,

".

F'fJUrtI 2'

The "imlgular top'" wae completed on AUguJlt 14, 1937, fo,.. cut.iq a Mvere cyclical decline. Cyclical "ave (el wu compoeed of fiv" large _yea, with an ~extension·developilli in the fifth ..ave. Had it not been for thia: utenaion. the normal compllltion of the fint phue of the cyclical iXHiec::Uon would probably have been in the neighborhood of 135-140. Thtt analysi, of...ave (e) ill u follow": 1- 190.88 on Aug. 14 to 175.09 on Aug. 27. 2 - 175.09 on Aug. 27 to 179.10 on Aug. 81. 3 - 179.10 on AlIi. 31 to IM.IM on Sept. 13. ,,- 154.94 on SepL 18 to 157.12 OD Sept. 30. 5 -157.12 on Sept. 30 to 115.83 on Oct. 19. In Cyclical ....ve(C). there were three~..,b1· nrftv" vib..tioD/l in the downward trend, with the rn.t, t.hird and fifth Minor "IV" each heiDi compooted or five impulae8. Wave" ..... fairly important upward correction, in th"fam.iliar A·B-C formulan. The uteMion that developed in the fifth vibration of "ave 5 indicated that the iJ'OWMI. thllA loet wouJd be immediately recovered, !.hat the IIeCOnda.ry decline would carry the market into ne.... low llnlund for the cyclical c:on-ection, that followil\i tbia _clary decline, the nOl'1N1 protncted period of backilw and filling might fonn. triana1e, with the final down thruAl completina the tint phase of the cyclical COl rection, and tha~ a very

,

'''' Ihlbatantial r&WVery would follow in at leut five large wavea,'

thu. forecasting the 1938 March-November "bullmuket." Cyclical ",ave (0), . . indicated by the "exteMion" that oc-

'Ii"

or.

cu.rred in wavo {Cl, compoHd huge triangle: Triangle wave 1 _ in three vibratioll.l (A, B and C), from 116.83 on Oct. 19 to 141.22 on Oct. 29. A· 115.83 on Oct. 19 to 137.8200 Oct. 21. B - 137.82 on Oct. 21 to 12-(.56 on Oct. 25. C - 124.56 on Oct. 25 to 141.22 on Oct. 29. 2· 141.22 on Oct 29 to 112.64 on Nov. 23. 3 - 112.54 on Nov. 23 to 134.95 on Jan. 12"-134.95 on Jan. 12 to 117.13 on Feb.
~"""'" Cyclical .ave (E) ..... eompoHd offive leMer W1Ivea," fol· Iowl:

1 _132.86 on Feb. 23 to 121.77 on March 12. 2 -121.77 on March 12 to 127.+4 on March 15. a- 127.44 on Mareh 15 to 112.78 on March 23. .. - 112.78 on Man:h 23 to 11....37 on March 25. /) - 114.37 on March 25 to 97.46 011 March 31. The fJnt laTgtI phue of the cyclical correction of the 19321937 bu.ll market wu tho finally completed, and the market wu tefldy for the IIeCOnd import.nt IIpWard phue ofthe eyclical corTeCtion. Thia correction eninguilhed 63.3 peT cent of the 156.03 point. recovered in the 1932-1937 movement.

FOOTNOTES

._twoI }.,.

Here Elliott col'T«t!y foreelll~ wt tIM beaJ' ID&l'ket that IIarttd in le37 . . . not ....81'". The 0CC\lJ'I'..t four)'1&1'1 later iJI. 1942. '8M footnote 1 iJI. chapter [X of TM Walle Prineipk. I 1.1., ...... (El. I

• I think tbiJ abould read "tA,.. larp .nH."

,

PART Xl In UlIiDg the Wave Principle &I a medium for forecutin&" price movementa, the etudent ahould recogniu that thenl uti cyclell within cyelel, and that eacll web cycle or wb
,

".

R. N. EUJO'TT'II MtU1Uff'OJWl

clarifying the JX*il.ion of the prieto Ipiral.· Volwne tenda to inc:ruH in the third wave of the cydl, and to maintain about the AIml activity in the rd\;.b _ve. N the bottom of the volume cycle i, approached, emltic pm. eht.ngQ: in high priced .uJc:u, OT inactivtllJtocb .nth thin merbta, can dimrt the amall waves in thetl'end afUte Ivetll&" to Neb an enent u to create temporary uneertai.ntiea. But !.heM ""aVH of volume are aWo W1eful in determinina: the extent.nd tUne for _pletion ofprice phuN, and aOO in determining the time and direction and even the .peed of the followinr movemenL nu.. it tnIe in r.... .-i~ 1l:1Ilrk"tlI like u.o.e that chancterized 1938. The bellt I'eIIIIlta tberd'ore will rouow from COmllation of the volume and tim" cycle. with the component pbuet oftbe broad price move.ment, u the price pattern. and aU desr- ofvolume" are governed by preciaely the _ . WIve Principle phenomenon. To maintain I proper penpective, the IJtudent ahould chut at I,,&at two and preferably more broad averagu, W1iD.( tbe weekly rance, the daily ~, and the hourly record, and ahow_ ina the aeeompanyina volume. The weeldy ruae ,hou.ld be auf. ficient properly to evaluate the hru.d cllangu in trend, hut the

_ped.n,

monthly I'lU1P IItudie. will II.> undoubtedly appeal to many

inVNton. The daily rail&", by atrQrdin( eIoIe observation of the mna1lerehangu, ilI_ntial in correct interpretation orthe cyclical prollTe..ion, and ia quite nece..a..,. for determininK the preci.M time ofimportant revenala in ~nd. Critical Point. The minute ch.anie- recorded in the hourly IJtudy not only doni valuable and extell8ive material for practice in wave interpretation, but are _pecially uaeful in timN when the market ill movin&: at Nch high speed that the pattern ill not clearly resinered in the lonpr-time c:hartll. Thua, the Iman triangle that appeared in the hourly record of October 1937 aignalled an immediate aocelention or extenIion oftbe downward movement; the dynamic October 18-19 wpanic" followed.. At other critical pointa the hourly Itudy baa allO proved valuable, .. in locating the"ortbodos: topW before the final irregular top, thUilleleeting the time for atrat.egic liquidation near the creaL A. the lint hourly phue following the break in March 1938 developed in five Minute _vea, it thua afforded a ItnIng confirmation that the important trend had actually changed.

,.

." FOOTNOTES l Here Elliott ~ r"...,.,..1.1 tha~ OM mon new hiab will be mad. (which it ...... in ].r,1.I 11l31i) t>.fon tIM lItW bMT m.ark," low (which <>ecUnWl ill 1942). I Thia ......... tio" ill "'nabl., Ii...,. ' .... ry wave ill itaolf both an """tire cycl." and , "ocmponenL' I Thia i. anottw Npect of r.h. RIll, of A1temalion. • Hen Elliott 118M tM word ".piral,· ...nectin& tIM IUbjed.i". f.-lm, on. pc. tnc.k:inc "'''eI. The theory of tb. l"larithmic Ipi.nlU. mod,l for WIve PrincipiI bad not occ:wTtHI to him. • My muti.. do not IUpport c.m. UHr1oion.

n""

.hU.u..

,

PART Xli PreviouI articlea have diKuued the thlllQr)' of The Wave Principle Illld ita application to brnlId market movementa. The broader the (;8tegory, the more e1eu1.y the _ve impressiona are outlined.. The ..ave pattern of the romprebenaive at.ock price averapa auch u the DoW..!onelI, The New York Tlmell, or Stand.ard StatilJtica averapa will correctly reflect the eyclical paoli· tion of the market u a whole. Therefore, pun:hallell and ..lea of a divenified liH of repnaentative Hoelu in accordance with the movement. of the averagee will ...ult in profit.e, u their aggrepte market value will ewing in aympathy with the general market. But for the _Iter of muimum proflt.e conaietent with ..fety, it ia not enough to buy or eell a lJnlUp ohtocb without eeparate analyeie of each individual Hoek. TheIle individuailltudiea may ..-veal that IIOrne com~...... experiencing a cycle differing ereatly from that of the market u a ..hole. A prominent IlltlUllple ..u the cue of American Can in the epring of 1935. The accompanying charta depict the lUUIlyaie of American l Can byThe Wave Principle. In Figure 22. the complete monthly price I"llll(e hi.etory ;., ehoWD from June, 1932 - the beginning oftbe bull movement - to JUDlI 1935, the time when the -ortbodo", top. ~ . The action or the Hoek from that point on to completion ofUM cyclic:al correction in December 1937 ia ehown in ~nd lin....• Th;., monthly rec:a;rd cond",_ th'" weekly IlIld daily detail. into the five broad Primary W:IV" that complete a cyclical movement. '111_ relatively broad charta allIO help materially in maintaininj' the proper perspective. When the important fifth Primary _ve of the cycle commenced in 1934 - or in other warde, when the Primary ...ave@reaction ..ucompleted-it Warne neoellllaty to Hudy the market action more clOllllIy. Hence FiiU"' 23, which ehowe the ....,kly pri... record of the fifth Primary wave. After thia Primary _ve bad prosreued througb Intermediate wave of, it became important to follow the daily price rangee, u ehown in Fii\lNl24. The fifth Intermediate _va ataned in March 1935, and five Minor wavea we.... completed by June 1935. ~ lIignailed the ·orthodox top" of the main bull movement in Ameri· can Can at 1«.

M.,.

,.

Flgum22

Dow ""'" /wtria' A~

Following the 'orthodox top· of the bull cycle in American Can, there developed. reaction to 136-137 in August 1935, formina" wave ®. Then • rally to 149-150 in October 1935 Corming wave@, the irregular but final top. From thie point developed the IOIli wave in five Intermediate movementll, terminating at 69 in December 1937. At the time Qithe ·orthodox top' in American (An, the in~tor would have oblIerved the etriking diffenmCll between the cyclical """ltionA of thet and of the general market.. See Figure 25, which outlinetl the trend linee of the important Primary ".veII of the Dow.Jonea Indumial Averages. In March 1935, American Can Willi in the final /It88f!tI of. bull cycle (FiM Intennediete wave of the Fil\b Primary). On the other band the i"nen1 market willi juat commencing the Fifth Primary ""a"e,

e,

.toe"

,

". and mil ~d to uperience five upwlU'd Intermediate waVelI. By June 1935, the long term invelJtor in American Can wO\I!d have realised that any further appreciation in that Iltocl< would be highly uncertain, and t.hat mueb greater profite Went avail.bl.. in the general market with minimum rillb. FnJm that point the general market advaneed nearly 80 pointe or 65 per cent. FOOTNOTES , III FicuN 22, w --...et -'nl, avoidina; o"vl.pping and rulfillina Urird waV1l nquitalllllllUl, would be 10 place tbe@wbereElIiott hu a, and (witbin ••".. @)lwherehehaab, 2 whe he h.. c. and 3 .boo... be hu 1. Wave 4 ofQJl then taIr... an .-h-e .1l U, and the rule of aI_tion ill .till ..r.wied. I In Fi«ur'e 24, ElIi,,"~ ... tbe _lappinJ and the iJauffici...1 tllird wna nahiol"" "e"). From the d......ption of the auppoHdGY .nd@wa".. wtfollow,it_m'hl.rhlylikelyloh.tthethird ...near the final "'ave 6 of ID limply Illlt
,.

SELECTED ESSAYS

1940-1942

,.

THE BASIS OF THE WAVE PRINCIPLE

l

OCTOBER 1, lHO Civiliution nlsta upon ellanie. Thdi ellanie di cyclical in origin and characterilltiCll. A rbythmic lIerielI of extreme cbangee ODn-.titutel a cycle. When a cycle baA been completed, another cycle illtarted. The rhythm of the new cycle will be the me u that ofthe previous cycle, althouib the enent and duration roIlY nry. Tbecycle progreuel in acoonIa.nce with the natunlllaw of movemenL The behavior of cydea b.. been Itudied eztensively by puz%led economi.... banken and buainllSll men. In thil conneetion, the conaervltive London Eeonomul in a recent issue, commenlilli upon the reault. of along atudy of trade cyc:l.. made by Sir William Beveridge, the noted Britiah economillt, &aid: Sir Wiliiam'l reaearcbea hIVe emphuized once again that the mOl'l the trade cycle illtudied, the more it _ou to foUow the pr'INIUI't! of forcea which, if they '"' not wholly beyond the felcb of human control, have at lent "1lOUlrh of the inoo-rebl" in their n-.ture to make the polici'" of lfOYenUDeJlta ..... ..mble the lJtruftlei or fi.b caUlht in the tideI. Sir William pointed out that the trade cycle iinono. poIitia; he might ha"e add.d. that it overridea .........me policle..

The calllN of theM cyclical chatli"1 _m clearly to have their origin in tin immutable natural law that govema all thinga, includilli the varioua mooda of human bebavior. Cauaea,l therefOnl, tend to become relltively unimportant in the kinK term P"'lliell of the cycle. Thia fundementlilaw cannot be IUlwerted or let aside by atatutes or reatrictiolU. Current newl and politica.I development. In! of only incidentel importance, lIOOn forantten; their prew.med influence on market trende di not u weigbty .. ia commonly believed. Thia II. ofnatural cban,p di inevitable, Ind applin to the IIlIIIODI and the mnvementa ofthe lidell and planetl. It hu truly been &aid tbet change il the only "immutable thinr in life.~ Beina a natural phenomenon, it neeeuarily goveme all bumln eetivitiea, even the relatively Italic aciencel of biology Ind

,.

... botany. Even time and mathematicll appear to be amenable to the application of thiA law of rhythm, from the ..mall unit of boura to the great intervalll of decades, centurietll.Ild millennia. Meuuring the behavior of eyclell ahould therefore offer a reliabl.. meana of forecuting chl.DiN, regard.lesa of the cauae, I and thua yield hand80me profit.. In an independent .tudy of the avail.ble data, extending over a period of ml.llY yean, the writer hu obeerved certain reeurring behavior of change in movement. Apparently th_ changes foUo" • natural law that inevitably influeftl)f)ll the mUll. Finally there evolved certain principlell, which were eanfully tel!Ited back over a long period of years. By 1934, 1_&11 able to reaolve the varioua trende· of changell in.tocl< priCllll \.(I. rhythmic lIeri" ofrompooomt _VelI, which l I called. "cycle." Thill (yelieRl rhythm hu oecurred regularly and repeatedly not only in the avail.bl., record. of the Vu1OW1 stock uehanges, but .1110 in oommoditiell, induatria' production, temperature, mWlic, vari.tion in ""lOT, ellldrie output, populatiOD movements to and from dtie., etc. In fact, it il manifHt Ml widely, not onlJ in human activities but abo in the workinp of nalureitBe1f, that I have termed this diseovery'"I'be Wave Principle.» Undentanding ofthia law enablea the clOlIe atudent to forecut tlie terminatio~ of cycl" by mellllll of the market itllelf. The Wave Principle;a not • -market" ayatem Ol' theory. The forecasting principle inyolYed iON far beyond the eooeept of any known formul•. The number of waYIlI .nd tile extent and d.....tion of movemenl.llllf!eIll. clearly to be allied. with the principle ofmathematice and with the puaage of time, but the number of..ay" neyl.!r yarie. except undl.!r certain rec:ognaable conditiona of a cyelieal natun. The ullilth of. waye may poMibly be affected by emotional newt, but the munbt'r of WaYe! la clearly not affected by meh t.... n.ient developmentl. nu. Principle forec&lltl and at the same time mea.8Ul'elll the extent, COrnctiOIlll and revenall of the variowl trendlland C}'clell long bef,,", any IUpporting lltatistical evidence is aYailable. A featun ofunusuaI merit is the faet that the experienced ltudl!nt knoWI at all tim. the CUfTflnt poI!ition of the market in e.ch cycle and therefo", ;1 forewarned of the apprc.eh ofreYenall. By meanll ofthia rhytlun~ anal";". the

,

R. N. Eu.IfJn"tI MA..'I'/"UJfO/tu

1"

end of a movement;' known all it approillehea, and the type of the nm movement w.llIO known. It i. therefore pouible to predict with confidence when a bull market ill tenninating and a bear market i. beginning, or viee vena. The Wave Principle hu now been u.eed IlU'X'eMfully fOl'" 1IeVeral yean in the management of inveatment fllnd8, and in fon-

euting the import;ant m-Jor and intermediate trenda. A IIeriell of utielM, revealing the broad workings of The Wave Principle, W1UI publiahed in TM Finandol World during June, July and AllgU8t 1939.

How 'Ibe Wave Principle Worb. ud It. Corre'-Uon With MatheDUltical lAo_ ~.. Fibonacci Summation

Seri.. ill the bui, orThe Wave Principle. The numben thereofare IIlI followl: 1- 2 - 3 - 5 - 8-13 -21-34 ·55-89 .1"", etc. The IJUm of any two adjoining numben equal. the nellt higher number. Forexarnple: 3 + 5.8. The wavello(every move!mnt coincide with the.e nwnben. Any ODe of tb_ numben ia approllimately 61.8'10 of the nen higher number. The ratio of one wave to it.. COfllpllnion i, approximately 61.8'10.

F'ipnl 1 ahowl three gT_ph, of •• tock market cycle, including the coll8tructive phueB of a bull market and the de8troctive phuetl of a bear market. The nwnber of wavy in a cycle i8 abo CI'Impared with the IIl8thematical principle. laid down centllriellll4rO by Pythagoru and Fibonaeei. The graph .t the top outlinel the fundamental or larglllt ....Vllll ofa complete cycle. There are five "'aVei in the bull market and three WUelI in the bear market. In the middle graph, theM ellllle eiiht fundamental WaV" are amplified to 8how their component W.VM, totaling 34. Note the coll8tancy of the "five-three" rhythm. 1'bi8graph Ibow8 the Intermediate 1!.ageI af a cycle. The third graph i8 8imply a more detailed .n.\yaie ol the ..me 8 fundamental, or 34 intennediate, _VelI of a cycle, including the 89 minor w.vel of a bull market and the 56 minor W&YelI of a bear market. The total il 144. Again the "five-three"

,.

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ret.tjonabip boI.&. b'-. A COt I«tif. pbaM 01 the cycle will_ IiM.lly '"V)' the rhythm IJ.i&btly for the mincw _ ..... and ill -.eh. i"st,!M'N. the eou,nt will be '7 (/I' 11,' -.iiq: 10 the type Dr ,.ttarn. wbich iDcIicats ... bat ia happeDinc.

""

R. N. Elll
The !lui. of The Wave PriDciple ia very old. Pythagoras in the airlh century B.C., Fibonacci in the thirteenth century and many other Kientillt&, including Leonardo d. Vinci and Marconi. have all.boWD that they were aware to IIIIlDe anent ofthi. phenomenon. Fibonacci was an Italian mathematician, allJO known 8.1 Leonardo d. Pin.. Hi. "Summation Serle. of Dynamic Symmetry" qreelI in every rapect with the rhythmic count of the Wave Principle, and the number of.IVlllI i8 the 8lllll1l. Fibonacci apparently derived hi. Summation Series (rom the £amoua Pythagorean d;agram of.. pyramid, ronaiJItina often Wlita, beginning with one and ending with four.- Thill dia.iram. Pythagoru &aid, wu the "Key ILl the Seeret of the U nive,...· Notonly can thill diagram be applied to the MUOns oBbe year, but ,I.. to the sreat inner cytlN of the well-known ten-yur cycle.The .imilarity ofTha Wave Principle, the Fibonacci Slimmalion Seri811 aDd the Pythaaorean diagram i. shown in the tabl... on the nut page. It should be noted that when I diaxlvered The Wave Principle action of market t>:elldl, I had never bean! of either the Fibonacci Sena 0<' ortbe Pythagorean Diagram. It it naturally gratifyine to me that theae old mathematical principlee that were laid down centuri... /ISO simply IJUbI;tantiate the validity of I preeent dly IppliClltion ofbuic I8.w to pncticlll UlIe. All to the eonfonnlnce of the time element, or duntion, of marltet ~n~ with the rhythm of The Wive Principle, IDllll,)' "ooincidenoee" Clln be cited. lG Duration en' 1'Ime ElelDent

In the analytiCllI diKUll8ion of the buill of the Wave Principle, the oompollition of the .... v.... ofvaryiq dl(l'Mtl wu ehown to be identieal with the numerical relation.ahips of the unita malting up the Fiboneed Summation Seriu of Dynamic Symmetl'y. Thie eeriee ill repeated, u foliowl: 1, 2, 3, 6, 8, 13,21,34, 65,89, 144, etc. Th..., relationahipl are very uaeful in identifying and meuuring every ....ve and the extent of eech movement, and when UHd in eonjunetion with The Wave Principle are aIao uaeful in fOl'eCUting the duration oftren~ in the vanOWl perioda of time (day.. weeklI, montba or yean). The time element .. en independent devioe, however, oontinulIlI to be baffling when atte:mpta are made to apply any ltnown rule of_ quenee to ~nd duration.

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R. N. EUlWT'. MA.'I'T'P1I1OJIX1j

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Flgum3 An MIImple of th.. uee of the time element in eorliunetion with The Wive Principle i. given in the accompanying grlph of

TM Ntw YOf',4I~. averapof50Comhined Stocb, arithmetic _Ie, from A~t 1921 to May 1941. The VarioWl wave reveraaI point.ll in this twenty-year period are listed in TlIbl.. A, while the duration between revenal point. ilNt forth in Table B. The time relationahip can aI.8o be applied, in conjunction with wave anal711t., to otherindit:ell, lIUch as trends in eorponte honda in the graph below. The numbera 13, 21 and 1I5 repreeent the number of monUul duration of wave., .. indicated by ar· rowlI. {'lbe fiV&-wlve bull marbt. in king-term government bondB luted. 89 monUu:, m"Ul.lI'ed from January 1932 to JUDe 1939.l ]0 .tudyiOIl the time element, it .hould be noted that .. movement may.tart IUld end near the begiDnine. middle or end of .. month, and for that nllUlOD the actual time .,l_peed, when llHluured by the d.,. or week equivalent to the aummalion lI&ria ofmonUul, can terminue in a month next higher or lower than the aerie. of month. indicated.

Sc' :r.d ENG,.. /r'om 1940-1942

T.U' ·0'

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FOOTNOTES

I

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

~.ilf.

A1\

Ellion rl,Mo

h .....
I

_tion.

includ... from. pajll iuued in Sept.embftr or Cloe\oIIer 1938 alld from Ed.....tio... al Bulletin A, iuuecl in Iac.e Decamber 1939 or .....lJ' January li40, • H. mMn& PUle. that are Jllftumed 10 be CII"1ft. • Id. • Tbi.o would bet..". .....d, "JIIIW!ma." • He...-, •...• compt.te up-and-down oeqUIDCe or ...him ....• • Tbe tint thrH parqrapb& ofthi. euIIJ' are from Inl.erpretivl LeWlr No. 26,"'The Ruli". Rae.;., ofWu.... d.ated J...,u"'Y 11, 11M3. T All l\otoHi on tM i""'pb. I 8M the "P)thqotu.n Oiacnm" on tIM ....:n pap and tbe picture ofJ'rl.hqona In Nal"rc" Law, obapter XXV. I H. ia prob.bl, referring to tbe Docennial Pattern. Tbi.o and the nom parqrapb beg for e1ahorat.ion. See the ~on in Ellioct We.... Pri.ncipl.. "'Thia oecUOft;1 from.lnterpretivi Leu.or No. 18,.tate
"

MARKET APA1HYCAUSE AND TERMINATION' AUGUST 11, 1941 The total yearly volume of atoe); tranuttiomo on the New York Stocl< E:lchange bu been declining for five coneecutive yean, and apatby hu been lllOfi pronClt1l\ClfJd .me. October 1939. The l:aUllN of tm. apathy can be tneed to cyclical in1luencN and meuured mathematieany. Suatained market activity 7

40

~l

1lo• ...Ion•• ln~u ..... tol

··tC°"

,

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-

P<>inla

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 <:auae of triangular Cycle wa", IV, it ~ nec ury to review the previ0u8 yean, particularly the dynamic !pan of 1921 to 1929. Attention ill thenlfore invited to component wave 6, .hown in the llCClOl:llpaDying vrapb oftbe Au·Houghton Index, with thi.. part.ieularwave running from 19063 to 1929. The fIAh or-e- wave, runnilli from 1921 to the ortbodo:r -eIten!ion" top of November 1926, wall further ..ubdivided u ..hown on ~ 88 of the Tre.. tile. Thill pattern i.. ref"eJnd to in my TreatiM .. a "half· moon." Thi.. movement wu ertremely dynamic, accompanied by high .. peed, larp volume and wild specu· lation. Furt.hflrmore, it",.u the culminatilli ph.... in the lona ..pan from 1857. Acycle web .. that from 1857 to 1929 and containing .uch a frem:ied movement u that from 1921 to 1929 necellarily require.. an utenaive correction, not only from the ltandpoint of price change but al80 in breadth of area or duration. High !peed movement- in one direction alway! gtlnef'ate proportionally high

,.

.. .

. :~ ~

,

I

.....'1.... ··" .. •.tI .... . "".u • !lI

!

",'

-

--",1 ~

I

;

_-
0-

"I i

I • •

•

~,

•I F..".,

.peed in the enauilli movement in the oppoaite diftlc:tion. 4 The momentum carnell over, in correctiOll8, Into the ~beequent awinp. Similarly, the extent, duration lod yollU'tlll el1araeteriatica are relative, cycle by cycle. In lIUlIllIlAtion, the proportional IUTIlngement of the neceeaarily 8Xtenaive corTeCtion orthe 18571929 wave called for .honer and lhorter tJ)()Wnanw together with dem!uinj: _peed and volume. Nature'. inuorable I.", of proportion _unla for the recurrent 0.618 ratio of awing by nring OOIllpariton. The whole movement(or all the movemenla) lIince 1928 (and at.o from April 1930) form a uemendOUll triangle, and thiJI triangle wregarded .. Cycle IV of an order datIna: back to .. early u 1776.1

,

.. -

•

•

,

" •

"" _.

-_-"".

.

. " I -~ " • • •

,

•

•• •

'~

._,._..........,....

.., ...." .... ,.

t

Tri_DiII. ""ave <1l i8 well adv.. need, and ita termination, within or witbout the area of the triangle, ,hould marl< the final rorreetion of the IS-yeu pattern oftk{ftJtiam. This termination will allIO mark the beginning of. new Cycle w ....e V (oompoeed of a .eriu of cyelu of lefIfIer degree), oomparable in many reapecta with the long cycle from 1857 to 1929. Cycle V ia not elIpected to culminate Wltil about 2012.- (See duhed line in the tirat graph.l FOOTNOTES 1 TbiI....,.;1 from lnleJ'pnltiYI1 WallO Prl""lpk, all w.tI .. u.. updated ebanol 011 the nut pap. TboI flnt obowa the e count for the Or.nd Supen:ycle bull market from 17M in the Do... J__ IndUitriai A.wq:e odjlUtd {M ill/latiM (i.e., uaing ......tant

"

Two Grand Supercycles (Y_ _ - . . . ....... _ _ ~

,""-''''''' ."""'0

"'" T

-~ p-

U.S._ p-

'00

1'1

X(yf/

__,__-I 1 "...

_~ C ,m ._

._-

.

_,__-~_ _,__-C-;::·~·~·c:;;::·C·C·-,I.

'7'00 , , . 'toO 'Il1O

,~

... ' . . 'toO ,..,

,~ ,~

' . . ...,'

... .. .

Two Grand Supercycles (Y_ _ __ -'~,

~

""""'" """-""

-""'T ..... .....

U.S._

IV)

u

,.,

._~~t:::,!-I'~I~::::::__:':-__--,:=::-:~;.::.l" _(Al

,

, _ 1770 11<0 '7'00 ,,. '100 _

-"--....

0.' 'OCI 'NO _ _ I . '100 ,MIl 1110 ...,

,

I H, meanll 1696. • Whil, common in COlMlocllt, prieM. ouch beba...or i, oot aIw~ _ in lJ1e ,",,=k marke~ In (act, the OPPMite oRen nccun. I Good..n. The....,....j lhowa the low in 1784. 1 Tbie ..um..te il baMcI l:J on , \.enctb equi.elent to tlM l867-lns (GrthodGI top) ed'fance be ,talel in the nut _Y• ...". FuWTe P'ttem oftlM Muket."lrc>nicell:J, bownei'", thrult.o... be poil1t1 out ,lMwben, ..... I1O<1Ile1l:J lhort and lharp, 10 thi, time .tim.ote Ip,,"," too far into lJ1e futunlpYen hil tn'IIII, inteJ1>retation.. Eye... forpttina; thII triInIl., lifUl w......... u ~ .honer than thirdo. H. Uw:o' pol .1eI t.hiI id.. irI the ot.horwiI, but luglltl I thnolt thot io tGG briIt. N the ch.art in IOotD<Jta 2 .bow.. tlM lit\h ....... luted 17 ,.... in _ t dollaB, from 1949 to 1966. Reprdl_ of thNI tacbnic.! poi.nt.o, bio call for. mlllti-
,.

THE FUTURE PATTERN OF THE MARKEl' OCTOBER 26, 1942 The pattern of the palIt 21 yean (1921-1942) (umi.h811 a ba3UI which may be used for forecasting that of the Dext 70 yeara, 811 well all estimating ..... hat the reeord may have been between 1776 and 1860.

Gnph 1 below eov"I1I the entire period from 1776 to 2012 and abo... five WIV. of large degree. A Wive Principle eyele ia al......,. eompoeed of five WIVetl up and three .....Ivtli down, regardlelIlI of the degree or aWo.

•••• I

; , • .0 • •

,,

oi..

,

,

,t .

i

I

,,

~

•

I I

•

I

•

I

,• •

•

• I fJgo~8

,

'" WaVN 2 and .. are I.IWayJI corrections. 1HD1Iil"' may oppmr Oil wow 4, Mvcr 0lI _ 2 iMofru OlIIlKJw obHrwd. TMrefon, the pattern ofUte period l'tom 1929 to 1942, being a triangle, ia .Ive@of. Supercycl..1 W.v.~ ia .bout to lItllrt, and hued

on the duration ofwave@(l8ri7-1929),itll'louldtenninatclabout theyear2012. 1 Having eetabli.bed that wave@ atarted in 1929, wave@ obvioualy ended in the IWlHl year.- Wave \Xl of Graph 1, from 1857 to 1929, ,. detailed in Graph 2, UlIing the Axe-Houghton lod~

The 5th wave ofar.ph 21t.arted in 1896. It Ilubdivided into five WIVN, and iullUbdivided 5th WIve, atnrting in 1921. u~n.ckd. &1,lUIioIu MWr opptal' twice in 0 eyek. Themono, no uteIl8ion olt.hill deiI'M abould appear between 1942 and 2012. 6 Doubtle., neither did one appear in wave (!l. previoUll to 1850, for ....hicb period I have no record. For thelle reaaona, the two daahed lillell in Graph I,· previOUll to 1860 and following 1942, are ,,",uod IXIncluaiolUl.T

Wave ® of Graph 1 will embrace three bull market. Ind two intervening bear marketa. The amplitude Qf wavn (poon:eotqewiH) and volume will ruemble th...... of the period between 1857 I.lld 1909, u depieted in Graph 2. No one DOW living will witnellll. "New Era" oftbe 1920s type,'

FOOTNOTES , Elliott'. analywW ben (from "Edllutional Bulletin 0") Uo a repeatoltha -.....J.yai.o ... tha p'O .. djnl_Y, upd.wd ata timo wben be u..w W~ m. marlr.ot had pUMd ita SlIpenyd. ~ bottom. Tho .... wa1l anal,-oUo ramai". a .........ubl. r..~ ud w.. ahown ttl be IlllI'Tert with tho DOW availabill~,. ,,( put data, .. pnMnwd ill Elliot! WCIl.. Pri'tCipU.

w.y.

• !ih<:M>ld rud "Grand Suparqrcl•. •

Sao r_6ofm. pnoedin,--.r. • Thia ....t.a.... and tho nut three, .. woll .. Graph 2, !'eYIII that on .~ 1 _ tbio oocaoion, Elliott illt.arprewd 1921-1929 AI • atniahtforwotd "Ii...... ClInclllaon with which I antiroly . . . . 1929I~:l Uo then a otniabtforwotd A-B.C. Hio "irntcul... ttlp' tbeoio il \lllDeceuory, AI b. himHll' reyea!o ill tbio paooqa. HWttIry oha.... tbo~ tho otoclf marlr.1t olmoot illvarilbly t ..... wt on. alDple pal!.ern aft.er .....c.her, deopit.a tbe reeliq onl pta ........won.ally ill real I

,.

&~

tim. tha~

EUD.:p from 1940.1942

ne.. "trick" ia beitlll pLo.,od. N. a pa~tern ....... ita end. miMina clarity al...,. retuma in anuh of real(Diuon. • Elliott'. eumple ......... thaI oril.hin a li~. _". nruCl.UJ'a, onI,. OM .ub-or will contain an en.mion in 0I>Il or ita impulM ...b......., .. he actually the lllIITKt lIUidew.. ia tha~ only on. impulaa .. ava orit.hin a liva ..ava atnIetura oriU be an utanaion. 1'benl ia no reuon .. b, an .:rtenaion .bouId not appear . . . • "blDG'" or eacb impulaa ...... in .liva "a~. "'lu....... In r.et, i~ DHTIy al...,.. doaa. N. biatory b.. born oul, the riM £rom 1942 t.o 1966 .... en .nandad oritbin ...... @. Howe"..., if ...~........ itaelr an -.ion ~ ..
,

NATURE'S LAW THE SECRET OF THE UNIVERSE

by R. N. ELLIOTT

,

REFERENCE INDICATIONS) Referent:e to chapters, pagel, diagrll1ll, etc. will be indicated 1.1 folloW1l: (Cl

Chlpter. Forexample,"C 24· mUIll Chapter No. 24.

(O)

Diagram. For eIample, "D of· meaml Diagram No. -t.

(FSS) Numbers of the Fibonlloci SUlllIllation Senel (OT)

Orthodox top.

(Ol

Graph. For example, "'G X" meaml "GTaph X".

(P)

Page. For example, "P 5· me.1lI Page 5.

(PD) "P2IU· me.1lI Page 2, Diagram of. (PG) "P3 66" meaD.I Page 3, Graph 6.

(PPDl"Pof P6 08" me\l.M Page of, Puagraph 6, Diagram 8. (R)

Ruling ratio of the Fibonacci Summation Seriell, lIuch

u.62 or reciprocal 1.62.

Publiaber'. Not.: In lba origioal. mOD
FOOTNOTES

,.

f.-:~;;'

....

"- .. - - .r::

.-

'.

"'

~"

.

"-1'----------.. . •

r NATURE'S LltW tHE SECREt OF tHE UWIVERSE

By R. N. ELLIOTT

,.

VJ.If, J...,-I"", /w T-.~_C

__ _

F

Tact.'

".;r.-

'

.

-,10_

0

.. IIanUn" _ . . . .

•

..

•

--

'!,~...-

• -- .

INTRODUCTION

RHYTHM IN NATURE' No truth meet. IllONl geo.~ aeceptanoll th.a.n that the urnvenfl ill ruled by law. Without law it ill lIfIlf-flVidflDt thflf'fl would be ehaoII, and wbe... ~h_ ill, llOthilli ill. Nari4ration, clIlIIIlilltry', aennIautica, architecture, radio tranamiuion, aurgery, muei~ the pmut, indMd, of art and KiflDu - all work, in del.1ing with thinga animate and thinp inanimate, uoder law because natuTe berllfllf works in thiJI w~. Sinee the very clIan.eter of law ill order, or COn8tancy, it rollowa that all that happen8 will ...peat and ean be pred.ictlld if we know the law. Colwnbua, maintainilli that the world waa round, predicted that a welltwllrd ooune from Europe mU8t eventually brilli hill ahipe to land and deapita acolTera, even 8m01li hia Own ""'w, aaw hia prediction realiHd. Halley, cakulating the orbit ofilie 1682 comet, predieted ita ...turn whicb W8ll atrilril1ily verified in 1759. Muwni, after hill atudiu in elflCtrieal trammi.Mion, pndieted that ItOUnd could be eonVflye
Na/lUY" Law

,\7

rall.lUlwer to IIOme of aur moet perplning problem.. Furthermono, becaWle man i••ubjeet to rhythmical procedure, calculaUolUl haring to do with hir activitier can be projected far into the future with a jU8tification and ~rtainty he..... tofore unattainable, Very enen.ive ......utCh in connection with what may be tenned human activitier indicates that practically all developmentr which .....Nlt from OW' lIOcial-«onomic praoe_, follow I I,w thlt call1lell them to repeat themrelvea in similar and constantly recurring Mlriall orwavetl or impulaea of definite number and pattern. It ir likewiae indicated that in their lntenaity, th_ waver O!' impm- bear a conliltent relation to one an· other and to the pusage or time. In order to beat ilIuWate and expound thir phenomenon it il neceuary to take, in the field of man'l activitiel, lOme example which fumirher an abundance of reliable data and for luch pUl'pOM' the... ir nothinr better than the stock exchange. Particular attention hu been given to the stock market for two J'N.IOM. In the fll"lt place, thenl ir no other field in which prediction h.. been euayed with ruch great intenlity and with 110 little reault, EcollOmirtr, 8tati.ticiana, teehnicianr, burinelll leaden, and hanken, all have had a try at fonlte1lingthe future of pl"icft over the New York Stock Eschange. Indeed, there har developed a defUlite prof_ion with market forecuting .. itr objective. Yet 1929 came and went, and the turn from the great...t bull market on record to the greatellt bear market on record caught almOllt P:v~ in....,.tor off guard. Laadill( investment in• • titutioDll, spending hundredr oftbouranda of dollan yearly on market reeearch, were caught hy surpriae and .uffered millioM of dollars loer becallH of price Ihrinkage in atock boIdinp that we..... carried too long. A IflCOnd ""'lUIIIn for chOOlling the stock market all an iIllllJtnltion of the wave impulre common to lIOcial..economic activity i. the great "",wan:! attendant on .uall!Ufu.l .tack market prediclion. Even accidental ~ in lJOIlle ringle market forecut bar yielded richer little .bort of the fabuloua. In the market advance from July 1932 to March 1937, for iIIW1tn1tion, an average of thirty leading and representative .toeU advanced by 373'l1t. I>uri.ng the coune of thir five·year movement, howlIVer, the"", were individual atocb whOlle per cent advanoe W&ll much

,

,,, luger. Lutly, the broad .dvllllCll cited above.,... DOt in a atraight up....,-d Une, but rather by • ..,riN of upward and downward atepll, Dr zig-UK movemenu of a number of montha' duration. Th_l"'lMer awinp afforded even lJnlater opportunity for profit. Despite the attention given the IItoek market, lIllCX:flllll, both In ~ aoeuraey of prediction and the bountiell attendant thereto, hu nece5lW'il;r ~n h.phu..... beea"," thOM! who have attempted to deal with the ITUlTket'. movemenu have r.iled to recognise the extent to whieh the market i •• paychological phenomenon. They have not 1T1UIped the fact that there iA regularity underlyiq the nuctu.tiolUl of the market, or, atated ntherwi..... that priCtl movemenu in stocb ant luhject to rhythm., or an ordered lleQuenee. Thua market pred.ictiona, lUI thOM who have had any experience in the lubject _11 know. have lacked O'!J'tainty or value orallY but an aa:idenbll kind. But the market haa ita law, just lUI ia t.rufl of other thingll t.hrougbout the univel'lle. Were there no law, then! COl.I1d be no center about which pricell could revolve and. therefore, no market. IIUltead, there would be .. daily -eri.,. of dillOllI'lUlized., confUHd price nuctuatiorw without reason or order anywhere appanont. A clOlie .tudy of the market, however, u will be RUbseqUllntly diaclOlled, proVII that thla ia DOt the eue. Rhythm, Dr regular, measured, and harmonioll.l movement, ill to be diacemed. Thi.law behind the market can be discovered only "hell. the market ia viewed in ita proper light, Il.nd then Ia analyzed from thi' approach. Simply put, the .tack market ia a CI'llal.ion of man and therefore reOectll human idiOl)'ncruy. In the page. which follow, the law, orrhythm, to which man l'l!lpond. will be dillc:10lIed .. regiatered by market movement. that nuctuate in accordance with a definite wave principle. Nature', lAw hal alwaye functioned in every human activity. WaveR of different dflitMa occur whether or not ,.,,;ording JU.chinery ia preeent. When the machinery dellClibed below ill pruent, the pattemJI of _vllfl are ptrlected and become viaible to the uperierw:ed flYe. Thil machinery i.; A. E:rteMive commercial activity repreaented by rol'JlDratiOILl whollOl owne...hip Ia widely distributed. B. A general market-place wbere buyer and leller may contact quickly through repreeentativee. C. Reliable reoord and pubHcatioll.l oftnllUlaction••

,.

'" 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>
,.

..

CHAPTER I

mE GREAT PYRAMID GIZEH MillY yean ago I endeavored to Ul:el'tain the meaning of the word "cycle" but no one ODUid define it. Curillllity led to a 8tudy of iJ'llplw, and I cn.eovered rhythm in fluctuatioru: (u eli... clOMd in my TnaU.. publiabed in 1938). Later I found th.t the bui. of my elillCOVerin ..u .1... of Nature known to the delIignen of the Great Pyramid Giuh, whith may have been eonRrueted five thoooa 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 l
"..w•.

"'"

Pythagoru, Ii. Greek philOAOpher of the fifth century, B.C., vi&ted Egypt aDd on hi. return di .... \Med the diagram and title Ihown in Ch.pter 2.

FOOTNOTES 1 SiDce proved to be otbltI'WiM, of CCW'MI

,

CHAPTER 11

NA1URE'S LAW Nature'l ~..... Dxnrn at Ieut 1'1"1 ''''11M yean 1&0EcYJll. wu "Ul no...- by at __ 1,500 B. C. and ia tbI okINt vi toUTl tiatoCnltiml.lt ill DOt k-..n wben 1M Fc::fptian pynmidi: _ _ builL The at-t Pyramid. GiMh . . . eDMtr'IICUd It Mut fi... ,.......- yean ICO- SomI.wdeati ad'l'UlCe..-idoerw:e lhallt_..Wed bIf"on tblthtatvltloocll that p~pted Noah tAl build tblark. OtJ..-ltudenti belieft lhal it IIl8J' be thirty 0..-

....

,..,.""-

In W. _ ....;... (December 3, 1lM51 thin a"..,s a "ely Int.ereltinl artide eotoitW "Tbe BWldinc'vltbI at-t Pyramid.. ~ Mr. Bel 0eddeI ,",pared nxdell vi different ItqM of CIOIl#rUI> t.ion and. pictureI of them. .... Ihown. The report .... prepared for theE~C1BritcuuUca.lt ..,. that tha total_iJbt r:L material UMd wu 3,217,000 toaI, wberal the mlterial UMCl In tbI EIDpU1l State Buildilli, the tallm b...Udinr in the world. weilhl onb' SOlI,OOO tAlll.l. The mUWlIOUI I~nuit)', Ikill, timl and labor ulMnded by the ckll1rners and builders of the PY"JDIdi tAl &reel I perpetual zymbol demol\ltntel the lupnme import.anee ofthl me.1plI they d.m.d to convey tAl poIIlerit)'. That ers ...11 pre-Iitenry and pn-hieroctYPhlc, therefore Iymboll were the only mell\l vi

recordi...,. For eenwnell the pyn.micla have been eahlUltively inv.tipted, Mpecillly duri..., ~nt years. ln80far .. I have obIet wd. £cptoIO(iItI o¥erlooked aD important, perll.IpI the mCMt im· portant I)'Il1bol..1 ~ tAl the outer tme. atlhe pynmid (llieh. ~ . . . I reoo'l'FDlMl Gnlek phUo.opher of the fifth ceDt"'"1, B. C. Tbeoldereydopediuri.... I..., c1etl.ileddeecriptioD at m. 1diYitiee. The EJw:ydcj I W. ~ Ibowa a dieeram &D!I ~ tic title which ~ be the cmly..-d be left. It . . . made &ft8r be reblmId tAl Greece followiq I prvloapd. "riait tAl Ec7Pt. The &.cnm and. title appear in L It ia Wr tAl a_me lbIt the 1M Sluel 01 If. .......... I')tbqoru ref"en tAla pyramid.

ncur-

m.eram

_.

No!ure'. Low

The original meuurement. of the Great pynmid of Giaeh llnl estimated to have been: bate 783.3 feet, elevation 484.• feet, ratio 61.8'10. The elevation, 484.• feet, equaL. 5,813 incllflll (5-8-13 FSS). 3 Looking at a pyramid from any OM of the four aidflll, 3 linflll are vieible. The diaPlf/lJre 2 llTam in Figure 2 ilia ellmplll.te cycle. Via...in&" the pyramid from any one of the four oome~ .. in Figure 3, a linN llnl viaible. A pyramid hu a lIUtfacN - four above llJ'OUnd and the bo«tom From the apex, a pyramid ,howI8Ii.-, u.oown in Figure •.

6

5

F.,,,,, Fibonacci wu an Italian mathematician of the thirteenth century, A. D. He ... better known in hil day lUI Leonardo de Pin. He vilit.ed EiYpt and Greec:e, Ind on hi. return to Italy dilIclOllfld. what ia known u I 8I1mmation teriee. Thi.lI.wriee of numbers followl: 1 2 3 5 8 13 21 34 55 89 144.... Any two alljoining numben equal the nut higher number, for example, 5 + 8. 13. Any number divided by the nut higher numberlivN a ratio of.618, ror ftXIl..lIlple, Bl13 • .618. Any num_ ber divided by the next lower number givee a reciprocal of 1.618. In the lower numbera the ratiOil are not euet, but dOle enough for practical purpo5flI. To aimplify reading, I will hereafter ... fer to the fonner ...62 and the latter .. 1.62. Note that the fU'llt fiYll numbera of the Summation Seriea, 1, 2, 3, 5, aru:I 8, aruOOwn in the complete diagram of a pyramid.

,

The late Jay Hambidge, an American aniAt, viaited Egypt, Grtlef:e and Italy and wrote eeveral vel)' important and intel'uting boon. By permiMion of Yale Univemty Pre.M, I qwte pagN 27 and 28 of hill book entitled PnJctioo1 Appli«1tioM of DytlGmi.: Symmetry: Bot.nilJt.l u..ee the malt of the mnfIow.... as a ~ of general illlWz'ation ofthalawon"ahlTangllment.lt,,:rhibita the ph.... DOmenon in nearly two--dimaul:iOllal fonn. 'I'be -u are distributed over the IUl\flower diak in rhomboidal,haped lOCkete and the complex ofth... .ac:ketI fOl'1M a design ofintenectina CUl'V1!lI, the pattern being ....,,,thing lik" the old.fashioned c:huiq on wetebcll_. Thie pattern of c:urvee ill the interesting £eat..... of ttla 'unflower' aeed an'llDlIt'ment. Pint. The curve it.lelIilIa definite kind of c:urve. ,.. a matter olf.c:t it i. quite like the eurve of .bell fJ'Owth. It i. reiWar and poIIelIIee certlin mathematicel propertie& TheM propertiM Ire I _ ..ary c:oneequence of W1ifonn IU(lWth as will be uplained pruently. Second. When ~hue curvee are counted it will be r..... nd that I lKImIal.unflow.... dilIlr. of6.e or m inch... in diameter has 89. Windinc in one direction there are 55 and in the other dinc:tion there are 34. Thlt i. to..", tbe nnrmal head exhibita 56 o:urvelI crouinl34. Tbe two nwnbel'll are written 34 + 5l!i. Below the lpe" flower of the Aalk then are UBUlIlIy _Ddary flowH'1l, emall.... in lize. The c:urve-aouing numbel'll for theM .... pnerally21 + 34. Lowerofthe Ita1k maybe terti....,. flow. en Orllte development. The NTYe-a"IlUin( numbera oftheae are 13 + 21. At Orlord, In Encland, sunflowera have been nowi,hed to produce abnormal dilb and the CW"\'e Cl'OIiIill( nu.mben h.ve increased from 34 + 55 to 55 + 89. ProIII!UOI" Arthur H. Church, a l....nq modern authority on thilI fucinat\nf eubjeet, ten. III of I Nantic dillt railed It Oxford whereon the CW'Ve-CI'llAinr nwnbel'll were 89 + loU. Arour>d 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
,

J

,

2

ill

,

• A

,

Natu",'. Law

,

(])

,

c

,3>

1

•

2

~

,0

""'"o.g..

<2> 2 Figure 7

For example, -Miljar'" degree refen to thoee waVeI in figure 5. -Intennediate" degree refers to ..aVN in Figure 6. "Minw de~ refera to wavea .bown in Figure 7. See Chapter 2 for

~ak.

numben of ..avea.

FOOTN<ml8 I The tenD. "Mitior" il uoed c.ltJoou«hout the nut _ a l ehapt«a .. a lUt:.titule for the term "Primary: wbic:h .... ilttn>cl.u"""'- ilt the tint mooocraph. I Elliott hu improved tlwl ..avelalwllirtg lyatelD uoed ilt the tint IJKIDCIil'I.ph.

•

CHAPTER V CORRECTIONS Pattel'1lll of OOlTeCtiooa are the aame, ngardJeu of their direction 01" In 1 bull 1Wing, f;Ol'Tlll'tiooa are downward or lidew:ille. In 1 bear .win(. oorrectiooa are upward or lidewille. Therefore, con'eCtiooa .... U be diagramed rOl" both bull Ind bear awinga. The diagrama f1l'llt .bown apply to upward .winp. Dilgra.me underneatb apply to downewinp and will be "inverted.. Therefore, whenever the IXpl'ellllion "inverted" appean, it appliee to the dowDward main trend. In Figl,ITelJ 5, 6 and 7 it wiU be DOted that there are three degr-.of ..avee: Major, Intermediate and Minor. Liltewiee there are three degreee of corred:iooa, u I. "-tl.lra1. There are three typea of 001 .ec:tiooa: Zig-u" I Flat and Trialllie.

.u.e.

.......

Figu..... 8. 9 and 10 are OOlTeCtionl ofan uptrend. "..,

,.

233

Fi&w- 11, 12, and 13 are inverted (001 I ectiOI18 of a downtrend).

• F/gvre II

,

Fl... The nert ilIUl1tr1ltions are nata of Minor, Inten'tled.iate and 101.;0.- degree, both OO'dinar;y (FI(uru 1<1, HI and 16) and inverted

(F'ilrurN 17, 18 and 19), Th_ diagram. are given the name "flat- for the reuon that thei!' UlIualappeuance ie nat. At times, they ,Iant downW&t'd or upward.

matter off.at, th_ pIItterm might be called -3-3-5." In the lut anal,..it. they are ~ wave pattema, i,e" It. B and C, whenu II bull pattern iJla -5-U-3-&-for wav.... 1, 2, 3,'" and ~ II

••

'nle pattern or. human being i8 -5-3-6-3.• The... are 5 projections from the tono
,

c

-"

R. N. EU»fT''' MASTUJIOItU

A

• FIf}UI'e 77

~ . .","",*

o

b

b

Flflure

18

Flflure

18

,

NatUM" Law

237

eo_pin: Cm.ectiOlU A Minor lXJIT'fIl:tion would be oompaeed of three wlvea d01O'il, aa in Figurea 20 and 21.

'\\

,,

,.:' a

,,

.,:'

''0...

, ,,

,, ,

"

,,

,

A double 8idewi8e OOlTection would be o;omJlOl'ed of lleven wlvee aa in Figure 22. A triple 8idewille movement would have eleven Wlvee 8idewiae aa in Figure 23.

,:

,

.:

.

WY\

,,

,

I

,,

"'~./ :13579"

,

,,,"""2 In other wOi"Cb, a lidewilte oolTeCtion to an up trend alway. enda in a down wave', whether it i. oompcaed of one, three, aeven or eleven WaVell. They are named U {ollo.....: three waves ill • "llingle aeven WIVes ill I "double three" and eleven wavea ill a "triple three.· The aame number of wavea upward aTe oorrective, II in Figuree 24, 25 and 26.

three,.

•

,\

\,J!

...'.

'. •

...

FIfIIJrfI24

"

R.N.EUKJJT'.MA8TUf#'ClUS Oceuionally the. th.reeI are mixed in upward and .id&wile, or downward and IJide~, at in FigurelI27 .nd 28 (double ~ miIed),J and 29 and 30 (double t.hne. upward).

,, ,, ,

..

---

"""""

,, , FlgUl827

......

,,

,,

""'"

•

,

,, ,, ,, ,

,, ,,

,

F/f1Ute 29

Tri·...... Triangle. are c:ompoeed of five _Vel, or better Mid, five \ep.ln the larger typM, ucb Ietr will be compDHd of three waVeI each ...hown in Figurell 31 and 32.

-, ", ,'

~

,

,,, ,

,,

,

,, ,, , \,~f---"1

,,

,

...., ,

'-

"

'" In medium .ised typee, the fourth and fift.h lep may be compoeed of one wive eacb," in Figure 33. In the very small typea, the Iep are often composed of jll*t one .....ve. The main ~d" to the fonuation of a tri'Drle i. the outline, that ii, the 8traight linea drawn Urolla the tope and bottona. The Itudent cannot be OIirtain that. tri.n&!e wforming until the fifth wave hu .tarted. There are three typell of triangle.,' .hown in Figunl 34.

,

Descend~ lop ond

flat bo#foom:

,.

The fiM leg may terminate within or without the outline of the triangle,I u in Figures 3ti and 36.

The l\f\;h wave lbould be compoeed of three waVell unlellll the triangle ia ~ lniall. On or'\t! oa:uion I trilnille COlllUllled only HI/iln houri. The larpst trianille occurred between November 1928 and April 1942, thirteen yean.' Thia latter movement will be diKUMed in other chapten. The movement IIUheequent to the fifth leg of a triangle ia called I "tbn1.lIt." It will be compoeed of five wav. and in the direction of lep 2 and 4, of the triangle. Trianglea IInI infrequent. When they appear, their poeition baa alway. been wan"" or a movement or any desree, up or down, u lhown in FiIlUJ'U 37 and 38.T

FIgure 37

The fifth Wive, which (onowl a triangltl, iacalled a "t.hr'un" and ia compoHd of6ve wavea lrimilar to thON ofwavea 1 and 3. M .howD above, the Mh wive exceed. the top of'wavtl 3, u in Figure 37, or thtl bottom of Wive 3," in Figure 38.

,

Nature'. Law

'"

FOOTNOTES

• f'icuret

10 ....d 13 .... 1lC\Uall,J dr.winp or"dDllbloo Iiptp," ..hich Elliott di.pltyt in cb.ptel" 6. Either Elliott mit..... hit ill... tntiona Mn or be decided thtt doublt ~ipap WffII men common in ~ decn-l.ban ..,.w.... :ripap. For .... ill",tr.tion of. trua ~ipq: of ~or dep'ee, rer.... to tbe ~ teetion of f'icure 7, ....ell .. f'icure lIS in tht 1'itta1lCilll. \.benrON Ie..... to rein.tete tht ~ p.....oo....ly in motion.

, Id.

• n.. illuatr.tio... depict _nding, d_dinJ and aymmatri_

eaI (amtrKtinal trianclel. For......,.... not .tetecl., Elliott omit. diac:uHiOll 01 W ..........ymmMcal (n~nding) typa. • The fitUl triaJllll. w.va ~ terminate beyond the tl'ianJI. bound....,., but nnt baYOlld tht level of termin.tion or tbe third tri_ tJlIl. w.v•. • Sea f _ 1-8 in chepur XI. • They .... abo fDllnd in tbe B wave poaitiOIl.

,

CHAPTER VI

EX7ENSIONS An nteneion may appear in any one of the thnle impm-, i.e., ..av.. 1, 3 or 6, but never in MOI'O! than one, u .hOWD in Figu.rea 39, 40 and 41 (upward) and Figw'N 42, 43 and .... (in_ verted).

FIfJI,JI'e 40

It win be noted that in each illlltance there are a total of nine ...vee, counting the n:tended ..ave u five illlltead of one. On rare oceuiona, an fIrlended movement will be eompoeed of nine W.VN, all of equalllWl, u illl18trlted In Figurea 46 and 46. 9

,.

Noturr', Low EIun.iOllll oceur only in new territory ofthe CUlTt!nt eyele. That i., they do not oceur .. col'nlCt;OM.

EsteIwIo_ of Ene!wlo_

,

•

,

•

EJrteJWoa m Wave' tmd Double Ret.-.ee_t Enenaion. are -double retcaced," that i., a cornction will plWI over the _ gtO\lIld twice, down and up. It ~ DOt 0 _ lIaf)' to give any eonlide...tion to thl. featun when the e.ten. lion oocun in the tint or third wave, bllt only when the nterwion oocun in the fifth wave. If the aterwion oocun in the lim wave, the double retracement will be taken cue of automaticallyl by waves 2 and 3. If the utelUlion oocun in the third wave, double retl'acement will be tHen care of by w.vee" IUld 5. See Figuno 48 for illu.tcation of.n enenlion in wave 5 IUld .ubiequent double retrac:ement.. If an enenlion i.e of .mall degree, retrae:ement will ooeur immediately. But jfit i. oflntermediateor Majordegnlo, double retraoement m.,. not occur until the entire advance hu been eompletecf.l When a movement oocun at high speed, the laDle territory i.e retraced at almOllt the lIlLlDe.peed in reverae.

,

R. N. EUXJT"f's MASRRIfOU1I

--.... ErroDeoUll CoWloUnt' The three irnpw.e wavee, 1, 3 .nd IS, are ee1dom of the same IeJl(th. One of the three i. Ulullly ooDlider.bly longer than eitherofthe other two. It ill imponantto note that w.ve 3 i. never shorter than both l wavea 1 and 5. For eJt8.lllple, when w.ve 3 i. shorter thin eithe........ve 1 or 5, II in Figure 49, the OOiled. method of oountin& is u in Fi~ SO.

Foure49

Note that w.ve • overl.pped w.ve 1, which it ,bould not do. Overlsppin( mea.na that the end ofw.ve' ..... lower than the top of w.ve 1. Inverted, the eumple would Ippear .. in Figuree 51 and 52.

•

F(lUre51

Overlapping within -o:ornplez- waVllII menta carefulatudy. Oecuionally oomple:t wavea develop into -doublll threea" or ~ple threeI," III diagrammed in Chapter 5.

En1.u'paleat of c:on--tiOD.ll It Wimportant to graph a movement in the daily range in order to kno... whether or not the lint upward movement it compl*>d oftbree or fiYII way". 'nI1I wl!llkly lllfIill might not eli. clOllll thia f&et.. For eumple, in Figu...... 53 and 54, an invllrted flat wabown in both daily and weekly ranp,i Note that in the ...eekly ranae, the prectN WlIlpoIition of the firat ....ve up it not di.d..ed. and the .tudent might IIJTOlIIIOUIIly IIUIImll th.t it was compoBed of livlI W,VIII in the daily. The weekly range of an inverted flat would appear'" being c:omp<.>lOll
,

R. N. EUIOJT's MA.nu1JORD wbereu it would be an inverted flat, i.e., A, B, (1, 2, 3, 4, :5)C, U shown in Figure 63. Similar behavior nay ooo:ur in llig-up. A zia".zq doell not eloogate, but it m.,- enl.... Or dou.ble, .. to speak, as iIlU8tl"sted in Figures 156 and :57. Whether .. zia"-Ui islJirti\e or double. its oorrective character r'em.sinll the urne.

o

o FIgure 57

BidewiMo Move_DtII N will have been noted, all oorreetive movements regard_ 1. . of the degree are eom~ of three waves. Sidewille mov&ments follow the ...me behavior, and are of the aame character,

,.

'" QDrreo:tive. Figun 58 aboWI two

typet; of IridewiM movementa' followiq an advance. In Figl.lnI 59, the main trend i' down· won!.

FOOTNOTES , Cenainly pGI1 oran ute1I.IiOD in tboo firR or third ..."...-ill be reulcecl. but it will not be ..,tn<:ed ill t.be ..",., manner u t.boH within fIl\h ........ Only afI.eT lif'I.h WavN win t.be lint r.uac:ement rel.unl . . far back AI the low of ... ve I"" of the utenlion. • Depw doe. nol. alfflet pat.tenw. nu.. ....."-Plent i.o • reference to an ifntlular top that i.o IUP~)' foUoundby double nllncema"t, ....d ...u1w from Elliott'. ocl
• Id.

, n.- fitIw'- .... hardly n.u in .ppear....... 'I'boo oYlO1'all ou'"

Une "'iPN • double Iip,q. Tl\l.I diacuaaiCltl probI.W, rwullol from Elli,,"', c.end.nq- to -.nt extended fifth ....ns .. holll in the third i.o _ .. dM, thereby \uvUla It """pia of"utr." ........ at 10M ••ul that be coutIted &I Ii. ....d B. I The lint illu.otntion in ...,b or Figutel tl8 and Ml i' • full. Th' oea>nd m.rel, the look of &D1 n.t ..ben tboo d..tIo Illter 10 no!. omall ell. • to ,how it. aubdimiona.

r..et

.bow.

•

CHAPTER VII

IRREGULAR TOPS A movement that e«ee
b

,

o FlgUffJ 61

W.vea A, 8 and C all ooDlltitute OM correction, notwith-

standing the fact that the end of wave B may be IU,her th-.n w.ve IS. Thill 0CCIlITf!d between November 1928 and July 1932.2 A perfect undemanding of thill fellt","" ill important. If ....ve A ill • ample Irir-"!f, .... ve B will be an inverted nat. Thill ill a cue ...here the law of Alternation givea a waming. "Alternation» ill the aubjec:t olthe nut chapter.

,

FOOTNOTES 1 All "imtgular top";• .ur.ply lb_ hirw pri"....-wded by ....ve B of an irTetluIar n..t COf1'8Ction. I See roe>tn<M II ilo eb.pc.er N of:nu w..... Pri"dpU.

,.

Clf.A.PITR VIII

ALTERNATION Aoeording to the diettonary, alternation i8 "OCC1.UTence or amon of two thinga or Hrilll!l ofthinga, in tum." Alternation it. a la... ornature. For irm;ance, leave. or branchee u.mally appear fir.t on One IJide of the main lJtem and then on the oppollitf! aide, alternating their polIition. The COIIIpolIition of the human body folloWll the &ame rule; 6-3-6-3. An endl.... li.t of example. could be cited, but the object ofthi. dixuMion it. the habit of alternation in human activity. Bull and bear marketa alternata. A bull market ia compollf!d of five wave. and a bear market of three WlIvN. Thus, five and three alternate. The ume rule governl in all degree•. A bull movement i.e composed oCfive WlIvl!l. Wav... !, 3 and 5 are upward. Wav... 2 and'" are downward or lidewise. ThUl, the odd numben alternate with even numben. Wavel 2 and'" are corrective. Theae two wavee altematf! in pattern. If wave 2 il "Iimple," wlva ... will be "complu," and viee vtlrIa. A "lJimple" correction in the amaller degreea ia composed ofone wave downward. The "campi"" ia oomposed oftllne WI_ downward or IJidewiae. See FiiUJ'H 62 and 63.

In the Ilrver degreea, luch as eomplete bull and bear markete, the eorrective wavea are ool'nl8pondingly larger. Prepar.tion for the final doWDllwina; i. often tediOUll. Firat theN! ia a downward movement ofllOme importance, which l1etter with a

•

NCltUrtt',

Law

'"

capital A Thia i. followed by an upward awinr.nd dellignated u w.ve 8. The thin! and lut movement downward u. ..ave C. Wave A may bea zig.ug pattern. In thiI event, wave B will be a nat, inverted. Jrwave A i, a flat, wa.ve B will be a lig-ug, inverted. (In any event, wave C will be c:omposed of five wavee down. It may be _re and approach ~e .tarting point of the prevk>ua bull marl<et.) Thua, wav" A and B alternate. The thirteen-year triangle furniah.. anotber eumple 0( alternation. From November 1928 to March 31, 1938 i. a nat. I FnimMarcli 31, 1938toOctober 1939iauig-zag, inverted. From October 1939 to May 1942 ia. n.t.1 An irregular top i. one in which wave B exceeda the top of ~e fifth wave of~e previou bull market, U explained in Chapter 7. Even thellll a1tern.te. The top 0(1916 wu irTegular, 1919 regular, 1929 irTefluIar, 1937 regular. Up to 1906, the Rail.. led upward movemente. For 34 (FSS) yeatlI, from 1906 to 1940, the IndUltriallled upward movements. Since 1940, the Rail. have been leading.

ro
s... footnotea 4 and II i.e. eh.tpter XI of Nl1Iun', !Aw.

ActuaIl,y, thi..o period ia either. "five: 01' eD11l..illl Uw IaIt part of .. lriancl_ f".. """WI B, then.. fin·"".WI C. Either """-"t ccmp1_ tba A·B-C from 1937. See footnote 8 i.e. chapter XI or Tht w_ PriJI· cipU. I

,

SCALES To employ either IHlmi-logarithmic or arithmetic lICllie and not the other aa a (1lneral prac:tice ia erJ'ODlIDU8 and deprivea the

student of their vallie and lltility. The arithDlfltiC Kale ahould alwaya be employed wUellll and untiliog lleaIe ia demanded. In a mllVflDlflntcifive wa... upward, a "b_line· ia drawn againat the enda ofwavea 2 and 4, then a ·~llelline· against the end orwave S. Figw'e 64 abowa the example.

F.... " Usually wave (; will end approximately at the parallel line when arithmetic _Ie ia UMd. However, if ..ave (; eJ:~ the parallel line colllriderably, and the compc.-itioo of wave (; indiClItes t1uIt it hu not completed ita pattern, then the entire mov...... Dlflnt from the beginning nfwave 1ahouid be graphed on NOli_log lICllie. The end ofwave (; may reach, but not exceed the parallel line. For narnple, if the aame figurH w"no grapbed on both lleaIea, the pictlll'flll would appear .. in F'igurH 65 and 66. Wben aemi-Iog acal" bfl(:omes necenary. innation ia prellflnL I If aemi.loe acale ia uaed and inflation ia not preaent, _ve (; will rail to reach the parallel line by a good margin... ilhaull.ted in Figure 67.

,

_..

......

,-

R. N. EUJUn', MMTI"IlWU«D

FOOTNOTES I "Infletioo" .. !aloer deflned by Elliou in ch.aploer 12 ill no\ monetary inflation ...... know l.he term <_ footnote 1 ;n cb.ploer XII). The deciding rector in arithm.tic va. ...,,;-1"11" cbann.lil\l il limpl,. u.. Ih.apee of the ...eva. Ir arilhm.t.ic oeeIe il COfTfIC~ then the ",ov. il d...-J.oping with ...,renonee to ~ .dvenoed. If ..."'i-I"I ocaI. ill correc\, the move ill developing with ...,ferenoo l.o !Hl"OIIltl4(fl adva:nced. Any""" can be pven thl &eJlle ltatting poin\ end ending poin\ end e IP"cifie tim. rrenl. end
,.

CHAPTfRX

EXAMPLES DemonstnltiolUlofNatuTe'. Law in preYiowJ ~ have been made to facilitate an underetanding of tile graphl that follow. l

..

~r-----------

Figura 68

Figure 68 ia an outline of the Au.-Houghton-Burgeu Indez from 1857 to 1932, drawn on lIllmi·logarithmic leale. Thia ia the Iarre-t degree for which recorde are av.ilable. Note the live ...,.ves from 1857 to November 1928. Note the bIIIe line dnlwn agaiJut .....ve. 2 and 4 and the parallel line drawn agaiMt w.ve 3. The end of wave 5 touches the parallel line in November 1928. 1be movement u • whole wu infI.tionary; therefore, Rmilog ia euential. However, arithmetic leale ie euenti.l when graphing the lIllverai bull marketll individually. Note that the decline to 1932 jll8t reached the beginning of wave 5 in 1896. It wu at ttlie 1896 low point that the decline from 1929 to 1932 atopped - in other .... 0"11, 0 IIOml4l oorrrt:. tWn.. I.ck of kno_ledp of put biAtory ia the cauae ofth" erroneoull uae of the ezprnaion "The Great Depreuion: .nd therefore emphuizu the vital importance ofhiatory in thia ... well u .n other activitiH. Figunl69 ia. detail of_ave 5 of~'igure 68, drawn on aemilog acaJ.e. It ia divided into five wavee of the next lower degree.

,

..

"" I

'" m

'"

Figure 70 ill a iJ"lIph of the Dow.JollN Induatrialll for the period 1921 to 1928, dr.wn on llemi-logKale. Note the hue line drawn againat wavell 2 and f, the parallel line drawn agaiflllt ....ve 3. and that wave 6juat toucllM ..me. The movement from 1857 to November 1928 ill compoeed orrlve ...v...... .oown in Figure 68. The fifth wave from 1896 ilIlubdivided into five .avea, .lI .hown in Fig· ure 69. The lil\h wave ofthill movement. ltarting from 1921. i. again auhdivided into five waVIII, ae Ibown in FigUI'lll70. In other wordll, ; the entire movement from 1857 ia ; lIUbdivided th...... tim.... In Figure 71, the Dow.,J"one. Induetrial Average ill drawn on arithmetic leale and .gain 2 the amplitude of.avee land 3 ill 62% ofwave 5. From 1857 to 1928. there were eeven bull marketa and ~ bear markete, total 18 (FSS).' All bull marketa £rom 1857 to 1928 wl!t'l!nonnal in e:ltent. Remember that from 1921 to 1928 there were three hull marketa and two bear rnarketa, not one bull merkeL The two bear marketa were aub-lWI'77l4l.

•

,.

'" The time ractor iI important becaUlMl it uaually confl.l'lm and oonfonmo to the patlAlrn. For example, from 1928 to 1942 it 13 (FSS)yeaJ'lI. From 1937 to 1942 ia 5{FSS) yean. Both periods end .imultaneou.ely, The enti... mOVftIIlf!nt from 1928 to 1942 it onll patkrn,. triangle. Each wave Dfthe triugle ilI6~ ofit. pred_. All three facton - pattern, time and ... tio - are perfect, and ;n aeaH'danefl with the Fibonacci Sumllllltion S&nell. See Figunt 71. In the pnrviOUJl pa&t!., Nature'. Law hu ~n explained. The number. of the FSS apply in three ways: number of ••vee, time (number of da)'ll, weeD, montha or y"ara), and ratio of the FSS numben, 6Z'l'. FOOTNO'l'ES , Por • 10011 at tbe Grand Supen:yde, _ FiIure 1 of-rbe Futuro. P.tt.em of u.e Mat:tlOl." in the Sel~ Euays HCtion of thi. boot, u well .. FiJure 98 in the ftnal papll of Nlllun', Lew. I "Apin," meanin&"" in u.e 1896-192fl adVane0"", In Fil" \lNI 61land the 1932·1937 advance IboWll.;1\ F;g.,r. 7:J. Thil recurrenee i' remubble. I Ap~ntly Elliott ill countinJ l.be n...t WUe up .. one bull market and tM thinl and fifth "uee up u three bull market. each..

,.

•

1 ••

,

!

, , ........m

e

I

,• ~

1

"

CHAPTfRXl

THE THIRTEEN YEAR TRIANGLE' The orthodOJl top of November 1928 ~ 299; the bottom 0( 1932 ~40; net travel; 259 pointll. The travel from 1932 to 1937 ~ from 40 to 195, net 155 pointll. The ratio of 155 to 259 il 6O'i(,. Fl'Om the ortbodoz top of November 1928 to JuI, 1932 ill wlve(D of the thirteen-year triangle. From Jllly 1932 to March 1937 ~ _ve @ofthetriangle,almown in Figure 71. F1'Om March 1937 to Man:h 1938 ~ wave Q) ofthelriangle. Th.ilI indu moved to 195 in Man:h 1937 for fUlIOn& other than pattern, ratio and tUne. The advlnce from 1921 to 1928 Wal an uteu.ion of the fifth wave ltamlli in 1896. lulhown in Chapter 6, an ertenllion iII"doubly retraced." The decline to 195, from Septembel' to Novembel', 1929 Wal pan of the Ii... t ftltl'1lc. ment. The advance from (0 to 195 durilli 1932 to 1937 completed the double ftltraeemenL 2 Note the preciae meetilli at 195 of November 1929 and March 1937 in Figure 71. It ahould be emphuized tbat the amplitude of tha movement from 1932 to 1937 of 155 pointll il not that ofa typical bllli market. I ttl! e:rtent ...81 fon:ed. by the fOOf po_rful technieal fon:ea deecribed above, i.e., - The n-.aity offec:overing 6Z'll> of the down movement from November 1928 at 299 to July 1932 at (0. - To complete dDllble retracement of the 1921-1928 e:deneion. - The time element, eizty montha or 5 yean. - Pattern. In faet, the movement c:omplied with four requieitea - wave pattern, amplitude. double retracement and time - 111 of... hich are hued IIOlely on FSS. The ratio of amplitude of the 1921_1928 period ~ auch that the advance of '>Vavee of 13 yean).

,

"'" -JIIly 1921 to November 1928: 89 month8. - September 1929 toJuly 1932: 3.f. montha. -July 1932 to July 1933: 13 montha. -July 1933 to July 1934: 13 montha. -July 1934 to MlUCh 1937, 34 montlul. _July 1932 to Man:h 1937: 5 yean. - Marcil 1937 to ~ 1938: 13 months. - March 1937 to April 1942: 5 yean. -1929 to 1942: IS yean (62'10 0121 ye....). The pattern and dMaiptiOIl oftriall(lellllNl ,howD in Chapter 15. The triangle between November 1928 (the orthodox top) and April 1942 ill thfll)'mDlfltrieal type. It diffel'8 &om the ordimuy type bocaUlNl it ill oompaeed of two pattemll, flit and zig_ zag. FinIt there .... a flat, then a zig-zag end apin a flat..' Thil wu oee.aary becIouae of it. immen.e sUe, the alternation of pattemll. the neceNity of advancin&: to 195 in 1937 in order to

eomplete a dou.ble rt!tn.cement oftbe inflationary enension from 1921 to 1928, the neceNityofeompletinai"" pIIttem by 1942 (21 }'UI'* from 1921), the necellllityofmaintain.ing the ratio of62%, and the neceuity of retn.cin& the entire fifth ".ve from 1896 to 1928, all or"hic:h ill. very taree order.

flAT

,

'ififfio

J'

I

RAT

e',

I

~........."I~I~~ A

C

,

B

I

'

A

C

I

,, I

,'

I

,*",192ll

Jo Na: 1938l,...u..'38 JoOctJ9lOct'39 III Ap,;I ~2

F/g
'" The t.hirteen-yeartriangle from 1928 to 1942 wu composed of three ~tterna, .. followa: _ November 1928 to March 1938: a f1at l {triang!e wave. @'
wave0l. - October 1939 to April 1942:. fult (triangle wave (il). Note the alternation of patterns: flat, zig-ug and flat. M.l.D.Y other eu.mples of limilar na~ure could be cited. Both the flat ami the inverted ui-r.ag are del'JCribed in Chapter 5. ~y and the rorreaponding triangle wave are reproduced in Figure 73. Figure 74 ~. graph on arithmetic -eale of the Dcn¥-JODeI Ind"..trial Averare from November 1928 to April 19U. Each vertical line repreeentli the monthly rlIngt!. Triana"le ..ave CD from 1928 to 1932 i. composed of"lIvN 1iI.@and Wavtl <6l ill composed of three wavo down from November to December, 1928. They wer'C! rut and thtlrefore vi._ ible only in the daily ranp. Wave@i,anirregulartopin the form of an inverted flat. Wave~ is composed oCfive wavee down from September 1929 to July 1932 (aee numbera on chart), and COfUIUUled 84 month.. Trialli1e wave(1) from 1932 to 1937 ill. typical bull paU:em becall8e it ill compoHd offive wavM.• However, due to itll .bMf'. mal aize, it may be claaaed aa an inverted flat1 of very large degree beeause it forme put ofa °COlTet"tive,- Wave
e.

"-

T riangle wavea> waa down in five wavell from 1937 1.0 1938 and luted 13 montha, Triangle wavea therefore colUltitute a flat, from November 1928 to March 1938. Trianllle ... ve@, 1938 to 1939, ia an inverted zil-ag. Trianale wave(j)from 1939toAprill942 ia a nat. l It~ and il very lOlli, Ita extreme length waa lUlCnllry in order to coincide with the overall time period of 13 yeara from 1928 and 21

~

from July 1921.

N lltated in Chapter li, the fifth ....ave of a triallile may or may not be confined within the outline ora trianale. In thia cue iteueeded the outline.' Nevertheleaa, it is a perfect. nat of three wav"., marked ®. @. and \0. Wave @ ia 62'10 of wave ® and 62')1, of wave In other..-orda, wavea <0 and are the llUIIe len&tb,

e.

e

,

,.

FOOTNOTES 1 Elliott'. tl'oubln witb int.erpAt.ation in thill yolUlDOl .... d... woe, ftItinly to 1M ... ~pt Qr 10M r.birt.een-yeu t.riatIIJe. While many orthe r......... in tlw 1928·11142 period f.uciMtinlI, and wbile the CODCIIpt Mlped Elliott call • lD.8Jor I ill 1942, the thirwen-yea>' triangle co"""pl .. ouch iI invalid. The maitI. probl_ .... thet the 1932·1i37 riM iI • "five" and \hI 1937_1938 d.clin. i I . "li..... tbUi .liminetina' U>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 theonalon. ~he enaui"l lifU> Su~ WlYI would otmltitute the MCOnd retraoe:ment eventually. Still. the action of the .......bt at\er tbe 1921l peak il intrilUina, ... d onl <:an _ why Elliott eo... idered hia dOll!>!, 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 7op." Actually it ;" • fi_w.... dlOdine, with no ovarI.pping, finiohine: 011" th. 1Iip,q that bepn in 11137. To count it <>IlI'TeCtl,y, put 1 .. here Elliott bal a, 2 wbe,.. be baa b, 3 wh..... he baa(6l,
"tbrw:

e.

e ..

••

...

~

•• •• •• ••

..

~

•

••

...

•• •

•

®

"

CHAPTER XII

INFLATION The term "in1Iation" ia defined in the didionill")' u "utenaion beyond nat........ Iimita-" One bull market dON not e:n:eed "n.turallimitll," A Rriee of bull market., one above the other, would be "beyond n.turallimitll." One bull market would not be "alxrve .nother" were it not for .1Ib-normai intel'Veninlil bear markau. Inflation I oecu.rred dllril1i the "l'wentiea beeau.ae ohub-oormal bear muketa. Durine th~ period theA! were three normal bull marketll and two .ub-normal bear marketll, toul five. Warnioge of infl.tion oecu.rred in the following order. normal w....a 1, .ub-oormal .......e2, DOrmai w....a 3, mb-nonnal ........a 4, and penetnr.tion of the puallelline by .......a Ii on arithmetic: eeale (_ Chapter 9, Figure 66), Fiauu 75 piet...... DOrmai bllil market and. normal be.r ool'T1ldion(w....ea., b and c) which penetratell the bualina eub&tanti.a11y. FillU"l 76 pio:tw'M • eub-nonnal bear col'T1ldion that bolrely penetratell the hue line.

F/{JUIW 75

Filr\ln 77 ehow. the Dow.Jonee industrial Average from 1921 to November 1928 on arithmetic .cala. W.va Ii penetr.te' the paral1elline. Penetration of the parallel line demanca th.t the entire pietl1nl froln 1921 .hollid be IilRphed on log -te. Figunl78 pietllI'ell the ume .verage (monthly ranp) on log Kale. W.ve Ii touches but doea not penetr.te the parallellina.

,

R. N. EUKTIT's MASTU.J//ORDI

Tbe,.. are three me\.bod.ll of ucertainilljf in advance at ..hat point, and at ..hat time inflation will terminate: that deacribed above, ratio (ducribed ill Figure 71), and time (dllllCribed in FigUf'tI 71).

FOOTNOTES I Ellloc.~

.. u.inr a certain dietionary definition 0( inflat.ion, noc. tb. monetary ""e. B, hi. darlnit.i"", "iftflatioo" oeeura in a marltM IJIat underp>el ......lera~ioo i" term. of po;nl.l I.d......... per unit of tUn.. See f_ate 1 in cb.o.pter IX.

,

CHAPTER XIIl PRICE Of GOLD Another e:u.mple of the importance or dilferentiatilli between the virtUeII of uithmetic and 10( a e J. the price ofgold. Thegraph ofthiaitem coven one hull market from 125010 1939, oearly_n eenturiell.In F~ 79, wave(l) illimple and wave @ia(:(lOlplu. Note the letten ®. @and
~SooIo

MorW ..... PO'Mo 0 - . <J lIOl:! (_ _ .... 1:I1'I3l

," ~ •• •

:

, "'"

••• '

/90

...

In Figure 79, plotted on arithmetic lICI.le, the priclllinll nceeda thll paralllllline, therefore IMlmi·lotI' IICI.lll ia demanded u

"

F..,.80

.hoWII in Figun 80. The parallelline on Iogarithmie Kale indie.teII the final top ofinn.tion or any human activity, I WbM an adv"""" offlva ...v... ia eomplfltolld ...W,;" the channel on anth· nun.: -J.., inn.tion doe. not exiat. Tbfl ,...dual rUe of .ave Iitiul. Corrections may DIOve aidewae, downward, or do.".nwaro I.Ild lIidewise u.OOwn in ..ave ® ofFieure 19. Under the la.. herein de.c:ribed, wben I pattern hu been eompleted .. indic.ted in Figure 80 on 10K lICaie by the eontad. of _VI! ® with the parallel line. no further .dy~ in price will oeeur until afkr the price line hu pene..... teet the bue line at MIlD.. point. Therefore, the probability ill that the preteDt price of 101d, 168 ahiUinp, will remain lItatlonuy, at least until it cont.act8 the baM lin.. about the y..- 2300, u indicated by the junction of the duhed linee at the utreme right of the graph. z

FOOTNOTES 1

TN.. ir it \.0 dTa.... "'.... p...,.,rl7 oelected wa". te.....m..t.io..

point... t Som. pcp. have made .. caner or deridins Elliott r... thi. ooncluaion. Ptorhloptl he lhould ba nricHd c:ommelltin(!nlm web Ilbtchy dolt.. CertaiDly be lbould ha been ' - dopattc and ... KribK .. temati.... )lI'»SI1rili,,-" ~, tMn ia DO problem for the WUI Prindp\ll or i~ practiee, riDoo \.1M pawtntio.. oftbe UJIPW pu-a11elline ~teb' all _de
"UCP'''"

,

CHAPTER XlV PATENTS The explQllion "human activities" indwlea every activity, DOt ooly the IItoc:k m...ket, but production, life illllUl'1lllOl!, movemen"" from ciliee to farma and vice vel'1l8, ete. all .boom in mi.· ""Uaneoua itema liated in Chapter 3. Oocu:iona.lly lIOml! rather unlmlal itema present themaelves, auch u for eu.mple patenta, ..hich ia a human activity but not emotion.aJ.l FiiU"' 81 i. the record of application. for patenta from 1860 to 1942. Note the fiv....av.... The fifth waveenended from 1900 to 1929. The Indu.atrial Average fol1owed the lIaIlle pattern during almOllt the lame period ( _ Figure 82). Note the ·correction· of patenta from 1929 to 1942 in three wave., A. B and C. Stoeu followed the same pattern during the II8IIIt! pl:>riod, ""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
,.

'" "" Co'

• -• •

~

1/ ,s

,

,

FOOTNOTES I Tbt Wave Principle teach lDOA than emotional phenomena bea.... it iI aloo • .....,..,j or tho prosr- or Man, .. bleb i. arcuabJ.r paturned 'l\er hit colIec:I.i•• emotional lwinp. It can _ be PMtuiIle.d tbat tho lDOOC!I refllIICUId by \he av.....,... """" pi ogre..; p. . aum.Ny Man will prod..... more and inv.n~ more wben th. dominant ~ u. "up' rather "down,"

t""'"

,

CHAPTER XV

TECHNICAL FEAmRES The movement of one acti-.ity it lJeldom, ifever, a reliable aruide for aDOth..r. Figure 83 .bo... graph. of three indi""" th.. London Induatriall, the Dow.Jone.lndlWtriala and production in the United Btatell. All are plotted from 1928 to January 1943. Production figureI ..... from the C1llveJand Tn.uIt Company. The Dow.JolMlllnduatriala (middle graph) regiete~ a fi ....... wave triangle from Novmnber 1928 (the orthodol: top) to April 1942. The amplitude ofead1 orth.. _ d , third and fourth wavea of the triangle to ill pred_ ia approDmately 61.8$. Th.. esUtenoll of th.. triangl.. ia proved hy ita outline, the time ..I.... ment, the compollition of each wave, and the uniform ratio of each wave to ill prad_ _. High ,peed inflation from 19'21 to 1929 (8 yeara) caUHd the rapid decline to 1932 (M montha). Theee. in tum, cauaed the eynunetrical trianale, which aimu. latee a pendulum comilli to ~ The trlanile dillJ'eill'ded the followilli eventa, which ~. curnd dUTiIli ill 13-year period: ",veraa.! from Republican to New Deal adminiatratlo..., devaluation of the dollar, repudia· tion of the gold clau... in Government bonda, the ahattered twoterm precedent, the aecond World War which mned in 1939, and the riae in production. theindu ofwhich atarted upward in 1938 and frniahed ill pattern aCfiv.. WlVN in June 1941. The IAIndon Indu.atrialll (top graph) did not follow New York .weka in 1929. Thia indu regiatered to~ in January 1929 at 140 and in DeoembeJ' 1936 at 143. The Iowa in 1932 and 1940 Wei'll the HIlle, 61. From 1940 to January 1943, thia indn: ad· vanolld to lSI. <ween January 26 and July 28 1939, the lAIn· don lnduatrial Average formed. tr-mngle. London.weu invadlld the WitOllpbe", in 1720, 1815 and 1899, appt'lnimately 89 yeva (FSS) apart. When and ifEngiith atoc:ka abould inflate, it dON not follow ~t oun will do KI. A production indu p",pared. by the Cleveland Tru.ft Co. (bottom iI'Ipb) recistered. to~ in Jl1De 1929 at 116 and in 1936 at 112, and a low in 1938 at 63. From 63, a complete advance of fiv.. _vea finiahed ita patten in June 1941, berlin! the D.J In. dWltriala atarted up from the end of the triangle in April 1942.

,.

•

During t.he period from 1857 Lo 1928, we participated in

three wan, Ci'ril, Spanillh and World Wu I. Neverthele.., the pattern of the Supen:yele movement wu perfect, .. demonstrated elMWhenl. Stocke and commoditie. have never inn.ted in un~n. TheNlfore, if oommoditiee explore the .tn.t<»phere, it dON not £ollow that Itocb will do likewille at the eame time. Commodities inflated in 1864 and 1919, 55 yean apart.l 1'htl worLhleNnelllJ of new. ia demonstrated in the nut ~hap. 2 ter. A financial writer Kid:

'The fact that Hcurity pri<:eo blve been advancina" on the Iood n-. from 8alemo and that tbey reacted in Aufruat on "milar aood new. from Sicily ludlltudenta to conclude that the Aquat reKlion .... due chiefly to I.flchnicaI ",,~tiorw nther than to military happeninp."

,

". One dll,)'. London experienced a 8eVeN! "blitz." London lItocb

,dv,need ud New York lJtocu declined. Flund.l ","ten in both plaee. etreMed the blitl .. the cal1M'. At the time, London . u in an uptrend and New York in a downtrend. Each followed it.. ~ttern reprdJ_ of the blitl. The flame wave behavior oc:CWl'ed following MlIHOlini'. exit on July 25. The above analym. prove. tluIt tec:hnical ractonlfOVern the market at all time.. POOTN011!S 1 And &pin in 1974!

r... term.II of'....., l.h. Fibonacci number /ill

ill ttl'length ohhe -Oed Kond...u.trWave of fIOOl1oOtIlic IlCtivity. I Al:tu.all,y, chaptllr XVII.

,.

CHAPTER XVI DOW-JONES RAIL INDEX An enmilUltion of the Rail indu. ia intereating, informa-

tive and profitable. Tranllportation is the moet important human fadoc in O\lrtl<:onomy beta.... of the greatdistanc:ee between borde... ailll':fl the Lou.iaiana Purt:bue, the ftttiementofbound· ari... with Mnioo and Canada, and the additiona ofTu.u and California.

The bottom graph in Figure 84 i. the ratio of the Rail indea totbe lndu.strial index from 1906 to January 19«.. This demonatra.t.- that, in relation to the Industrials, the Raila were pereistently weaker from 1906 to 1940 (34 yeara). The UIl8M of

,.

,."

t.hia behavior were the ezceuive fr"OIlOr1:ion of bon~ to common iltOCu, th" P..,ama Canal wbleb opened for b\qil1Ull in 1914 (1906 + 8. 1914), and the automobile and the airplen•. '"'_ three fact.on resulted in ",,,elm_ ofboth rail bond. and .toelul to Neb I.ll utent that in l!MO, one third ofrail miiflage WlUI in reoei",nhip and enother third on the borderline. The IteOOnd Wocld War temporarily removed Panama Canal competition end otberwiM inereued rail ",venue, both pasMII&"T and freight. The e:rtraordinuy revenue that the Rail. ellioyed lIinoe 1940, lllIpecil.11y after Pe...1 Harbor, enabled the railroad companietl to reduce their bonded indebtedDellll, and in wnaequenee, find ehargn. Thil benefit ie permanent. SOl. Figure 85.

OJ Ibl Price hIo.x 40

35 100

75

25

50

2OLo........""n>,,~

25

Flgud'

o

.,

The Rail, regiatered their rotiD low pointin 1940,and from then to July 1943 advanced lUI lbown in Fieure 86. The IndUlltrim bottomed two )'eaJ'lI later

in April 1942, at the end oCthe thirteen·year triangle. During the 34 (FSSl year period between 1906 and 1940, the RIll" revened downward bef,,", the IndUlltriI.1ll and revened upward afterth" lnduatri.la. 8ino::&I940, thu practice revened; that ii, the Rai.. have been first to revenre upward and Iut to revenre downward. Thill practiOll may continue for IIOme years.

,.

CHAPTER XVII

mE VALUE OF NEWS Wall Street hlUI an .dage that "newalit. the market.." ThiA meana that, inltead of the neWI "trulkina the market.," the market foreaeea and .ppraiaea the importance of the underlying foreea that l.ter may become neWI. At beat, ne.... ia the tardy recognition of forcea th.t h.ve ll1ready been at work for aome time and ia atartling only to tholle \1D&ware of the trend. The fOl'CN th.t C8uae market tund.a have thlrir origin In nature and buman behavior and can be measured in varioua wayl. Fon:ea travel in _veil, u demonatrated by GalilllO, Ne.... ton and other acientillta. The... fOrce8 can be computed and foreca.at with eonaiderlble accuracy by eomparina the atrueture and extent of the wavee. The futility in relyiOi on anyone'l .bility to int.rp""t the value of any linrle newa item in terlm of" the atock market bu IOIli been recognWld by uperieneed and auocesaful traden. No alOile neWI item or aeriea of development. c.n be regarded .. the underlying cauae of.ny auatalned trend. In fact, over a lolli period of time the earne eventa have h.d widely different ef· fecta, becauee trend conditiona were dilIaimilar. Thia at.,tement can be verified by • <:UUalatudy of the forty. live year record of the Dow.Jonea lndUAtrial Average. During that ptIriod kiop have been nluain.ted, there h.ve heen wan, rumon of wan, boorna, p.nicl, bankniptciea, New Era, New Deal, "trust huating," and .n lION of hiatoric and emotional developIDI!nta. Yet all bun m...keta acted in the aame way, and likewilll! .11 be... m...keta evinced aimil... cb....rten.tica that controlled and meuured the ""lpolUe of the market to any type of DeWI .. well .. the extent and proportionl of the eom.ponent aegmenta of the trend II • whole. Th_ ch....eteriatiea can be appm-l and u.aed to forecaat future action of the market, regardleu of the newa. There are tim.... when IIOmething totally une:o;peeted happenl, auch .. an earthquake. Nevertbeleu, regardleu of the degree of aurprl.ae, it _rna we to conclude that any lucb development ia dWcounted very quickly and without ffWrflfll tM iM~ tfTM un.ckr way Ixton the rumt.

,

'"

R. N. EUKITT's MASTD100IIU

One of the aafe,uanh in this retlpeet il the willingneu of ezperienoed tradera to "Mil on good ne... and buy on bad new." elOpedally when such newe nnw COUflterto the prevailing t.nmd. Thi. factor tendll to uplIllt the expectancy of the publit for the market to read; directly and in the Nme manner to limilar newe at different timell. Thoee who nlgard DeWllll8 the C8UH ofmarket uend. would pl'l.llably have better luck gambling at noCCl tnlcb than in rel,.ing on their ,bility to gueu comlCtly the lignificanee of out.tandini: neWI ilemll. Mr. X. W. Loeft1ermWestwood, New JM'lIl!)', puhliehee a V-ph of the Oo.. ~onea Averagee listing the important neWll event. in ehronologieal order (pri... $1). Enmination of thu graph .howlI clearly that tM muket hu advanoed and declined on the &am" kind at De..... Therefo..... the only ...y to ~_ the forest clearly" il to take a pomtion above the lIUlTOUnd-

in« treee. War ,!.arb! worldwide foreN .. pDwerl'u.l that they would eeemiqly dOlIlinate all othereontideratioM and drivtl the muket farther and farther in the AJne direction. At ...arioua tim" war incident. """"ive front page dilplay. Sharp breau in the

marl".t dlll'ing AlllfWIt aDd s..p~mbu, 1937, again;n Man:h, Augu.et, and September, 1938, and in Man:h-ApriI1939 aU coincided with Waf' developmenta. Yet when war wu actually declared on September 1, 1939, the market advanced riolently on t.l'emendoua volume. The only Mb.factory nplalUltion for thi. curio... beh.viM ia derived frvm the techniall poeltion or the market cycle at th_ tim., In 1937, 1938 and early 1939, the market had completed import.ant ralliea and wu reauming the downward t.l'eod at the time of the war Incidenta. Collllequently. theae "war lICarelI" were coostn.led bearillhly and lIeJ"Ved limply to aceelerate the downward t.l'end. On the otm.r hand, the market wu in an entirely diffennt poeition in September 1939 ."heo the ."ar It.arted. ChartII.h01i' that a do"'nward phue Btarted in the latter part of July 1939, u a correction of the upward movement from mid· April of that year. Thie downward phue wae fully compkted a ..-Ac bqorI &ptemMr 1, ud in fact the market advaneed briakly during thia lhort period about ten pointa from the wave bottom of AugueL

On the I.etuall.nnouncement of the war, the market fell ehl.rply durilli the day to I. level fractionally below the August bottom and then bounded upWllTd with amuing apeed. TbOlMl ..ho bought lIelected 8t<x:U at the bottom in Auguat and on the eecondary war-1JeaI'"' bottom reaped large profitl.com~with ~ who tried to buy atoe"" in the wild lICJ'amble that followed. '!be late comeri' in mllllt eaaee wert! lIOn)' they had bought, becauae they paid top priCllll and IIOld out at subetantial 1oue8. Ju:tually, the peak of the market for the 8!eel. and other primary war at<x:u .... reached in leu than two weeu after the lJtI.rt of war. Sinoe then, the muket haa more coDBimntl,y placed a bearish coll8truction upon the outlook for wu etocb and war profitll becl.l1H of the broad bear cycle, which .... reaumed. in the fall of 1939. In contrut, the effect of World War I (19141918) w.. primarily bulli8h due to the type of price cycle from mid.1913. When Franoecollapeed early in June 1940, mOlit people felt that the war would be very abort and Hitler would inevitably oyeITUn England. Wavee, however, had indicated in Mo.y, when the Do....JonN IndUlltrial Average reaehed.ll0.61, that the wont of the phaae wu over and that atocb ahould be bought for a eulntantial intennediate recovery. Even in the mid..ot of the highly llJIKItional newa from Europe during the fint half of June, the Average reacted only to 110.41. At the time of the November HMO eilldion, lMlDll8.tional newe announcementl. were publillbed regardilli huge expendituua to be made for defenM and to aid England. MOilt eCXlDomista and obeervera reaaoned tNe would eet inflationary forc:ea in motion, and bought al.ocD. At the l&lIle time, however, _vee indicated tlat the inflation would not benefit 8too"" from I. price atandpoint, and the upward movement aince June baving heen completed, much lowtlr lItock prices would develop. Subeequently, the market declined. nearly fifty pointa. '!be seneral belief that current DeWe affecta the market ill wideepread and even n:ploited. If current DeWll were reeponaible for f1uctuatiolUl, cyclee would not occur. Whenever one La inclined to believe in "DeWll," I recommend careful ",view of the pattern and wave ratiOli in Figure 71, then recall the eventl. and opinione e:rpreued at numeroua timllll during that twenty-one year period.

,.

CHAPTER XVlll

CHARTING Stud~nta mij:ht benefit by detailed luggNtiona which

I have

found _ntial. Mod~l chlTtl anllbown in Figure 87. Aceutately ot.erving the lower deer- of .av.,. of a movement requinMl the daily range of price f1uctuationa. Thia higb10. ra.nge Will inaugu:rated by Dow.Jonell in 1928. The ehut apacinga reoommended for the pl,ll'P(Wlf! of emphaaizinr price f1l1CtllatiOOl ani a vertical quartet' inch for on~ point ottb~ Ind\ll\rial Averq
li"".

""u,"".

Chut paper which will properly clarify interpretatiOOl of Wlvel ia manufactured by Kel,lfTel &: &Mer, and iB fw .-Ie by them and by ll¥ IItationery Itorea. It ia available in tbeae ~a: by the yard 20" wide, in Iheeta 8 1/2" x 11: and in Iheet.l10" x 16: Two weights ofpaper in all three aizeB are offenod.

•

'" It it NiPlIted that charu 10· J: 15" be UMCl, and tht.t not. rmn than two.~be ehaned on _1IbMt.. For uampte, on one &beet 10' I 15" the daily ranp of the 1DcIuatria1ll and daily YOlWDe .bouId be ahowD, and on anot,-".beet 10· II: 15: tbedaib' ranpoltbe RailiI &Dd lnduatrialL u.. two ott- u-c. 10· J: 15: _ for the howiy record at the I.nd1.lltriall and the bowi,r yolWlMI ohhe whole market, azwI .......... roc- the hourly r-v. 01 the Ran. and Utilia-•• total 01 (our .heet.I for the entin pnIJl'am.

For individual a!.oeu and eommoditiea, the same general reeommendatio,,- apply e.cept that the chart. paper ahould be subdivided by fO\U'thll instead otr1fUla.' The weekly nlnge ahoold be chaned on forma of the largHt aiu charta available in order to cover a long period, one for an entire cycle. The monthly range, eapec:ially of the average. and groupA, is important for obBervina eomplete cycle.. Fiprea 53 and 54 in Chapter 6 demonatl'ate the value or the daily range in order to eatabliah beforehand the extent and pattern of the weekly range. In like manner, th" weekly ranKe U/liAta in flltIbliahini the e:dent and pattern of th" monthly range. Th" monthly range alllIista in eatablillhina th" ezt.ent of eyclea. LikewilJe, the monthly range facilitatea ot..ervaneea of monthly tim" pericxb and ratio otwav"e. In Figure 87, the vertical alloWanoll for th" IndulJt.riaI. ;. one point per quarter inch. The Raila and Utilitil!l are allowed on" point per half inch. Th" weekly range may be redueed to two pointa per quarter inch for the Induatriala and one point per quarter inch for th" Raila and Utilitiea. The monthly range may be reduced Itill furthI!\'". On the actual chart paper the en- ruled linea a .... pale green in eolor, and it will be noted that the chart patt.ena, which are drawn in black ink, are acx:entuat.ed agaill8t the pale green back· ground, which il highly advantageoua in ......dina wava. FOOTNOTES

...

1 For pricea uptelIMd illllligbtlu Ill" quarteR rat.her tban decl.

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•

CHAPTER XIX

INVESTMENT TIMING TUning ill one oftheehiefelementll in the lIDiverwe. Wellflpa· rate the time. of the year into aeuona: aprilli, awnmer, fall and winter. We rec:ogniz.e thedaylightllll the time ofaetivity and the ni&ht time for reluation and rest. In the matter of invlllItment, timing ill the mOllt ellllential element.. What to buy ill imp3rtant, but wMn to buy ill more important.. lnveetment markete themse!vee progrellllively foretell their own future. Wavflll ind~te the nen movement of the market by their pattert1ll, whoee beginninp and enwnp are .mxeptible to definite and oonclUllive analysis. Nature'a Law embraces the mom important of all elementll, timi1l6. Nature'a Law ill not a ayfJtem or method of pllYini the market but a pheoomenon which appeanl to mark the proflJ'el& of all human aetivitiea. lUI applif:ation to foreeuting ill revollltionary. Ifone had invllllted $1,000 in long-term Government bond. in January 1932 and enld in Jllne 1939, a total profit of $5000 (including intereat and appnldation) wOllld have n!lJll1ted in the 89-mooth period. In January 1932, the yield on market value of Govemmenta wu 4,... In June 1939, it W1UI only K. loa for the lJtoek market, an inveetment of$I,OOO in July 1932 would have been iDa"elllled by March 1937 to approximately $5,000 without takilli wvidanda into aCIXIllnt.. Thill atatement ill baaed on the per oent cbange in the popll1ar averli"a. The importanoe of &«\lrat.e fo.--.tilli hu resulted in an immense increue in the uae ohtatilltica. A oompariaon offiJee of newapapenl of fifty ye.... ago with thoee of today will be a revelation in thia reeped.. MiIlioDll are being lIpent to lind a aa1isfactory forecutilli device, bllt tbe aeareh will be fruitl_ with. out recognition of the fact that the habit of the market ill to OJItkipou, not to follow.

,.

CHAPTER XX

SELEcnON OF TRADING MEDIA Chapter 19 demoNtn.ted that Ute Cactor oCfint importance in Btnck tn.ding ia tim.ina:. that ia, ....ben to bu.)' and ...11. The Cactor oCnut importance ia what atoclui to trade. To iWde you in &electing lIeCwitiell (either lItocb or bonds) in which trading ill rontemplated. ynu ahoo.ld keep uppermOllt in mind all of the Collowina fundamentals. FluctlllAltiona and lDoome Fluctuations in market value oC any aecurity are much er-ter than ita income yield, the",C,,", the paramount Cactor is the preaervation and appreciation of principal all a reeult ofprice fluetuatiOlUI. Bull Market TolM

In bull marketa, each group of the ISIS Standard StatilltiCl' Iiat abowa topa mad.. at di1f.. ~t tim..., like a Can. Bull marketa are thoae which develop five Primary waVl!ll during a period of about two yean. 1 Durina auch a period, the.everal groupa tend to mo"'e raUter uniCormly, beini propelled by the powerful COIU! of the cycle.

Bear Marlulta UN&l.ly the d......tion of a bear market ia longer than the previoua bull MarkeL 2 During the ..... ere and ",l.lively short duration of the decline fMm 1929 to 1932, the very best atocka and bonds, .. well u the lower grad.. ofboth, had to be liquidated regardl_ oC their ",al value. Many tradl!l1l pined the emmeoua impreaeion that the bottoma of all bear markets abould ",peat that performance.' Ruean:h indicates many yeare will el.p.. beCo", auch a drastic decline may be upected. The final bottoo\ll of bear marketa are colUlpicuou.a by bottoma oC nearly all groupa being made aimultan80UAly. Thia ia juet the revel'llfl oftopa in bull mlll'kete. Durilli bear mlll'kets, poweriul leadership is 1_ pl'ODOllllC8d, and this is eepecially true during rallies. Durilli bear .awlllgll, the market IU a whole and the lIe'VeraJ groupll become more ...naili...e to cun-ent eventa and ertranl!OU8 Cacton.

,

NO/lire'. Low

Previou ~ _ l n TradiIlf Many tradenJ acquire prejudicu agaillllt certain stoeka becaUR of previou unfortunate e;qlerien<:eli. To punue such a CO\lI'llC!, the trader would evsntually find. no group free from objection. hulctive &ocb A .toek that i. frequently nr oc:cuionally inactive .hould be

avoided for tn.dilli, tha re8llOn being that wavea are not regiatered. Inactivity clearly indicate. that the.toek doea not eJl,joy thoroullb distribution, or else it haa re.ched the fully-developed

......

IDaiden~

UIJU.llIy inaide tips from well-intentioned. frienda refer to inactive and low priced. .toeb. It ia preferable to conrme one'. tl'ading to .toeb tha~ are alwaya active. The Ap of &ocb The life of a .tack UI\lally hall three~. The Ii... t ia the youthful or uperiment.al.tage, during which .w:h.toe'" ahould be avoided. u they have DOt been properly aeaaoned. The aecond ia the (:feative atage. Stoeb tha~ fall within thi. category have re.ched bulthy development, thua makinll them. d..irable medium for trading, provided they are thorotlihly aeaaoned. Ths t.hinI or grown-up stage repre8llnu the period offul1llllt developmenl Dividenda may be uniformly reliable and. nuctuationa n8lT(lw. For thelfe reaaons, the certificate. become lodpd in port!oliol and tharefore the atock i. 1_ attn.ctivs for trading

"""""'•.

lD summary, when the pattern of a reliable average ia fa-

vor.ble, follow theM recommend.tiona: 1) Select the IffO\Ipe whicb perform in harmony with the average. 2) Then select theatoeb that move in .ymp.thy with tbese ",,"po. 3) Al_ye chOOllll.stocb that are constantly active, medium priced and 8lluoned leade.... 4) Divenify funde, i.e., employ more or 1_ an equal number of doll.... in from live to ten .toe"', not more than one

"

atock of a group (for example: General Moton, United Air· craft, U.S. Rubber, U.S. Steel, New York Centcal, and Con· aolidated Ediaon).

FOOTNOTES 1 A bll1lllluket ill any ad'fance that IlOlItaina t.he 1Ieceaa&ry five wave,. Defining tha tenn "bull market" or"bear market" by duration or per<>enLap price chanp ill arbitrary. • I think W, ill an WlinlentiOflal miaatlltement. Bear marlr.el.a are alm...t ,1.."Y' ,bOnM than buI1lllarketa, and over the long rull lend to rull ,bout 81.8110 of the time nquinHl. for buI1lllulr.eta (_ chapter 4. 0( ElliDU W.."" P,;.... ipl~ . • Tba _ . upectati<m ill pnlvalent today. With th...... bea of 1969-1970 and 1973-1974. babind ua, m..t ..... curre.. tl)' lookinr for an "iMtaI1t ...pla)'" at t.h. next four·,.... ""de I..... F_ can envi'ion th. poaaibilit,' of, lea "ovanold" bottom, .... pile \he ract that \he wa... porition IlUII"l.a that, .. Blli..tt pule it, .....",. )'''''' will .lap" bar.........h a drutic

d-:li,,. ....., ba qpada
•

CHAPTERXXl

P¥RAMIDIC SYMBOLS AND HOW mEY ARE DISCOVERED By penniMion of the Landone Foundation, I quote three parallJ'llpha from pagea 134 and 135 of Mr. Landone', book, Proph«i.fa 0{ M~ldli·~iJI: The total diatanu around th~ bue of the Pyramid ia 36,624.22 Pyramid ineb~a. Thia iI euctly 100 Urnea 365.2422, the IIU111ber of da}'ll in OUT lIOl.ar year. TIle hei(ht ofthl! deeigned Pyramid. illI,813.02 inch•. TheM mynic wiN mell formulated ayNtm of Il\eU\lNlI of quantity, time, wei(bt and length, and aquaru and CUbel of the lengtha. Since all of thelll are baaed on the length of the Bide of the ~,and lince that length waa derived from the circle ........ circumference.aa equal to the da,. of the ..,tar year, and since the time of ...volutioll of earth around the aWl ia eternal, thelll myatiCll created the only 1 ) ' _ of meuur&ment forever exact and eternally the ..me.' Having ucertained the circumference of the Great Pyramid Giuh at iUl bll5e, the invNtiga.ton cut about for lIOQle known fact that would torreapond. in thil inetance, it.u the number ofdaya in a year, down to the l.ut fraction. In other worda, two facts are lllWIciated, and thus utabliAh the purpllllllof the aym· hoI from which fon<:alJt,$ may be made. I diKovered rhythm in human activiti. and later learned that it ia aymholized. in the GNlat Pynomid. EgyptologUit.a failed to recogni.... thUlaymhol becaWlfl they were not aware of rhythm in nature and human activitiea. Thia eymholillDl iI dncribed in Chaptera 1 and 2, and demon&tn.ted in Chaptera 8 throua'h 14. My contribution to pyramidic .ymbolilm follo.a. in the order named: 1) Diacovery ofpattema, degree" and numbera ofwavu. 2) AIuociation of the Fibonacci number Hriell, Hambidge'a dillOOVeriN in ita application to art and botany, and Pythap ru and hil cryptic diagram.

,.

R. N. EUJUrr'tI M.uTDlWIWI

3) Di~ of the GreatPyRmid from all angle.. ..) Correlation at the Fibonacci n1tio and the elevation at the pynmid -5,813 inchell (which ill compllHd by the three hui.:: numben aBbe FibotwX::i SummAtioo Series: 5, 8 and 13) - to the bue of the pyramid. 5) Application of the Summation SeriN to human activitiN in many field.. a.UoRuler

Draughtsmen UIIe an inAt:rument ealled I "proportionll1 di· vider." The fulcnun il movable in order that any ratio may be obtained. Theee instrumentl are "",pensive and IlO1Il' practieally unohtainable. I hIve therefore devUed a handy IUNtitute for ucertaining, without mathematieal calculationl, when the ra· tio between any two movementl, in either amplitude or time, ill 61.8\11.. I will Mnd one on receipt of 25 oentl in check, money order, coin or ~tage lItampl. R. N. Elliott

No. 63 Wll1l Street NewV....k (6), N. V. FOOTNOTES For more 011 tbillubjert, read PeterTbompkinl' S«~U o{fM Gmll PyNJIIlid (Harper I: Row, lint). 1

,

CHAPTER XXII

mE LAW OF MOTION Dictiooary definitiooa of the word ·cycle" are .vera!: ". period of time," ".n entire turn or circle," ". epiral leaf Rruetunl,""• .erie. that repeate itself," Attention baa been maim,. directed to cyclical rhythme in the IItocl< market whe.... they are very pronounced, Every movement, from wheela to planeta. ill cyelicaL All C)'l:IN have eubdiviaiona or degreea wbid! facilitate the meuurement of their progre.ee.

..

,,

"" '"

...

\

/ <»\ , . ,

II "

., , ,,, ,

,, ,

,

...

,, ,

P1anetll travel in orbitll and at 1peed8 peculi.ar to each. The Earth revolvell on itll own wa and onee in every twenty-four houn divide. nilfht from day. It encirclN the gun onee a year and thua provide. the fO\U" IIeQO}n&. The meehllnillm of planetllriulIUl may be turned hackward or forward to ahow the I'fllalive poaitiona and movementa of planeta and their ntelliteillt any time, put, preaent or future. Some elementll never change their patterns. For example, water conatantly obaervetl complete eydell. The lun'l taya on the ocean'a IUtface cause water to evaporate. Air currentl move the vapor until it enco\Ultenl cooler atmoolphere over hilill and mountaina, whieh in turn condellSflll the vapor. Gravity draWl the water back to earth. where it againjoina the eea. Nationa experience political. cultural and emnomic eydea, both If"!at and amaU. Pattenul of human life are obeerved in JnU8 movementlluch 81 milfl'1ltion to and from citiell, average 1lIf1l. birth tate, etc:. Figure 88 demolllt.ratel that one human activity cannot be depended upon to forecaat another. TherefOl'e, the pattern of each factor must beanalyud by itlown wavelland not by extraneoua facto.... Duril\ll the period from 1939 to April 1~2, the lag in the ltack market compared to that of bulineea produced mucll diacullion but DO uplanation. The anawer il that eight yelltll of inflation during the Twentiee created a thirteen-year triangle to 1942. The graph of temperature lhown in Figure 89 iJI important. Tempera_ ture ia not _iated with human aetivitiea; nevertheleaa eyclieal wave&, over a period of one hundred ten year&, formed a perfect. pattern offive wav... upward. Periodicitiel between peaka and valleyl of many iteltUl, euch III epidemica, production oflynx pelta, tent eaterpillan, lalmon runl, etc:. atil F9Jre89 fairly eommOli. In human aetiviliel, eytIea are not llil uniformly apaced. They follow wave patterns in aeoordanoe with the Fibonac:ci Summation Serin.

-

"

,.

Nat",.,', Law

'"

Dynamic lI)'DlIDetl'y ill a law of natuTe and therefore the buia of all fol'1lUl of Ktirity. Since the diaoovllry that the earth il round, the cycle haa been the tnlbjeet. of much reaearch. There are three clUllllI of cydes. FirlIt are uniform perioclicitilll between peab Illd between nadira, luch all day and night, 1Ie8llODI of the year. tidea, epidemic.. weather. Iwarml of i~. ete. (\ recommend an artide by Donald G. Cooley entitled "Cycllll Predict the Futurein Mtcht:uli.% rulUtraud, February, 19«). Second are periodical fluctuatioDl cauaed., in lIOIIIlI iDlltaDClIlI. by aatronomical aapecta. Third are patterna. time and "'tio, in accordance with a .wm. matioD Mriea ddclOlled by the mathematicilll Fibonacci. A pamphlet entitled ~e Relation ofPh,yllotuill to Mechanical LaWll" by Profll"""r A.H. Chun:h ofOdord ill very interuting. Phyllotuil ia the leaf arrangement of planta. Mr. Jay Hambidge .pent many yean relllarcbilli recorda, and ia the author of a book entitledPmcti.cnl Applit::t:dw.u 0(Dy1ltWlic 8ym· "",Iry. One chapter ill entitled '"I'he Law of Ph,yllotam.- A copy of pages 27 and 28 thereofi. repeated in Chapter 2 ofthi. treatille. Dr. William F. Petel'llen, ProfelSOrofPathology at the Uni. veraity of nlinoia, ill the al,ltbor of a very important and interesting book entit.led T1l.e Poti#:ni oAd tlu Wrothu. Therein are graphed the p ~ of dilleue. The patte"", are precillllly the ume .. any other activity. includilli the ltock market.

FIfIlJI'fI 91

,

CHAPTER XXIII

THE GREAT DEPRESSION Thil common expreuion ilia nUloomer iflllOfar u the Itocl< marbt il concerned. The decline of ltocb from 1929 to 1932 WII I correction of the previDl,lA advuee, U mown in FigureI 68 Ind 82. The dictionary deflnN "deprellion" .. "below the general 1Ul'fac:e." The Grand Canyon of Colorado ill • "depreaa1on" becaUIIfl it ill far "below the generallurfa<:e- for many mi181 on eithn- aide. From the top or the RoekiM to the Pacific Ocean ill a "correction: 10 to lpeak, oot a "depreuion," notwithlltand· inK the fact that the Pacific Caut ill much lower than the b0ttom of the Colorado Canyon. TheA il no luch thing al a "depreaaion" in the llock market. If there were, it would he correct to IIY that from the Rockiee to the Pacific ill a "depreeaion." There are nwneroua reaIOlUI for thil en'OnflOWl expl1lllion. The genenol public, which haa DO intereet in llocb, may have enJoyed and become I«UItOmed to continuOUI employment In the period from 1921 to 1929. Naturally, they Illumed it to he a normal condition. When the 1929-1932 decline occ:urred, many people found it difficult to make both enda meet. NatunoIly, it eeemed to them to be a "depre:lllion." During the advanee in the ltack market from 1921 to 1929, tn.de... in atocb wen told that _ Wen! in a "New Era," "never would decline," "juat k~p on guil1i: etc:. Many common practiCflll were "awful but lawful" Many politiclana are relponalble for the ernmeOWI ule or the word "depreuion." DuriIli the early part of the 1929-1932 decline in ItOClta, when Mr. Hoover wlI PrMident, lOme gid that proIperity w.. "juat around the corner." Duri"lf the prmi. dential campaiiJI in 1932, the Democrata blamed the RepubliCUll aod Mr. Hoover for the "depreasion." The re.wl.l ofelect:iolUl in 1932, 1936 and HMO dmnollftrl\.ed that mOlt vote... believed the New Deale.... The Republicane blamed the New Deale... for the decline from 1937 to 1942. The falaity ofthil political claptn.p, whether IPOlUlOred by Democratl or Republif;lU\ll, ill demo onstrated graphicaUy in Chaptetll 10 and 11.

,

The lltock market never ball. -depreuion;" it only correctll • previOUll .dvance. A cycle is action and reaction. Many tetViua and rlJla.Dcial commentaton in newllpapers penist in diKuuing I:\U'TeIlt eYflntll all caUllN of advancell and declinell. They have available tbedaily neW8 and market behavior. It ill therefore alrimple matter to fit One to the otber. When news ill abient and the market Duetu.ltee, they aay itll behavior is "technical.~1 Thill feature is di8C\lllHd in Chllpter 17. Every now and then, ...me important event ooeun. If London decline. and New York advancetl, or vice Yflrsa, the commentaton are befuddled. Mr. Bernard Barucb recently Aid that p~peli~ will he with us for IIlIverai ye&1'1l ~.. of whet U OOM 0#' IIOC deM. - Think that over. In the -clark ages" the world Wall SIlPJ)Ulled to be flat. We persillt in pellllltuating lIi.milar delUlliolUl. FOOTNOTES I 8ouJI.d fllJl:li\iar1 DoK:.del l.ter,

c.m. pnc1ice ill AI prnelent ..

~,.

•

CHAPTER XXIV

EMOTIONAL CYCLES OF INDIVIDUALS Cyclu of mlUlll plIycbology in human activities are demonatrated by grapha on other pagea. A ~ntiBt now di8c:IOllH hia Btudiea in the emotional cyclea ofindividuala. In th.. November 1945 iMue of the IUd BooJI appean an articl.. written hy Mr. Myron Steam. in which he reportl the reaulta of Btudiea. over a period of' aev.. n'-n y......, made by Dr. ReJd'ord B. Heney, 1IdentaL The McCall Puhliahing Coqlortltion hu given me permlseion to quote from th.. article. I have underlined certain numben and ",fer to them in th.. lut paragTaph. Dr. Heney ia a Rbodea .cbotar. a graduate of the Uoiveralty orWeit V"ll'llioia and the Univenity of Berlin.... Dr. HerMy..-rote a booIr. 00 m. findinp called "Workera' Emotionaliam in Shop and Home,' which waa publiabed by the University of

Pennaylvania in 1932. Far.qhted officiala ofth.. Pennaylvania Railroad bave supported Henley'a wtII"lr..... Dr. H..,...". .... invited to I" to Germany. He found that worIr...... there react the

1NIm.. U

Americ:aN.

The periodic riM and faU of buman emotiona are vouched for by Dr. Heney...ho baa been "'-"inj' and stIldyioj' them for more than lIt!Venteen yean. Hia ..-eareheo indicate that with all of UI. high apirita and low apirita foUow each other with a rej'Ularit1 aim. . u dependabl.. u the tidetl. He fO\Uld that all the cheeb he made on each man, over a period of ......u. fen into a fairly regular pattero. Dr. Heney'. chart .bo..ed that about ..very 5th ..eek be became more critical. You tau it for granted that a run orbad luck, in time, j'eta you down uol.... you exert etron& will power. That good newa. on the othe!' hand. raiHlI )'0\1 to the top of the world. No.. llCience aaya you are wrong. If you are full of enel'J'Y and enthuaiaam, good n..... will lift. you higher .till. Or if you are pluggi"i'dolefully ~ "Blue Monday." good newa may help temporarily. but that ia about all. Human emotiona ordioaril:r riM and fall at rej'Ular intervalt of from J3 to 36 day.. The u~ and dowllll of theae facton ruemble atocIr. marllet charta.

,

The blood cholesterol aeema to bve a cycle of about 56 ~..... 'I1te thyroid output, .. hich determillM th. total .. motional "Ycll'!, UIUI1ly makel a round trip from low to hii;b and back in from 4 to 5 ......1<.1•••• III hypertbyn>id C_, eyel... may be .. abort II 3 ..eekI. There MemI to be DO dilferente in cycle \enith betw""'D men and women.

Th.. Fibonaeci Summation Seriea includ811 the nwnbera 3, 5,34 and 55. Time cyclea an! not alwaya uaeL Therefore wh.. n a period ia given Ie "33 to 36," the baeie period ia 34, more or lell. The buic period of 55 includes "56." When members of your family, friends, employees, employera, euatomera, etc. annoy you, I recommend a revi.... of this chapter. Other people have their cycles the same Ie you do. Do not allow your cycle to tangle with another.

,.

PYTHAGORAS

CHAPTER XXV

PYTHAGORAS Pythagoru, liJ'ut man, lived in the fifth centUl)' B.C. and made III impression on history that is seldom approached. The raader il urged to review a report on m. activitiN in the Encyclopedia Brit4ntUco. He wu a perai5tent invetltiptor of the diacoveriet! of othen and vililed Egypt., which ia often mentioned all "The Cradic of Civiliution." Pythagoru is prominently known for hia atudiN in mathem.Uca. InsoCar u 1 have _n, the molt import.llnt of hit diacoveriea hu been OYlIrloDked. He drew • triangle I.lld placed thereunder the cryptic title "Tbe Secret of the Univene." 11Ii. feature is deecribed e:rterWvely in Chapter 2. In 1945, Mr. John H. Manu, Ph.D., PTe.idenl of the Pyt.haaorun Society, wrote. book entitled ~'. Riddh So/.ved, in whieh he di.elOlJed. pie:t\ll'e of Pythagoru, and I have pe.... miuion from Mr. Manly P. Han, head of The Philoeophical Society ofLo. Angelell, California, to reproduce it op'-;te ~). There ue many -rmboI. in t.h.ifI pieture, but we will f0C'U8 our attMtioD on two itelllll, the pyramid which Pythl.iOru bold. in m. right hand. and the three ~uare. in the IOWilr right hand earner of the pieture. The pyramid repre_ot. the Great Pyramid of Gizeh, preNmably built about lOCK) B.C., although 110m" atudenta 8fi\le that it ill much older. Tha Pyramid di dUlled. u one ofthe-Senn Wonders oft.he World.- The preciaion of meuunment and plao> inr in poeition of the immenH marble slonee employed are nl'marbble. However, thdifeature di insignificant when compared to the Imowledge I)'ID.bolized. It may be that a paragraph in the Bible (l..iah 19:19) refef'll to it. It react., "In that day ahall there be an altar to the Lord in the midat oftbe land of EiYPt. and a pillar at the border thereof to the Lord.In Chapter 2 are graphed different viilWII ot'thi. pyramid. For convenient reference, the view of one lide il repelted in Figure 92. The baH of one side 11 9,181 inehel. The hue of the four lidel meuutlll 86,524.22 inchell. Thill)'lllbolizetl the oumber of

<-

,.

'" daY' in O\lJ'.mar year, 3&1' daya. Our calendar yearie S65 d~ but every fourth year an extra day mWlt be added (February 29th). nul i' "leap year.· The totaJ clap in four yean 1,.(61. The elevation from hue to topia5,813iDChel.ThebueoCone - aidlll ill 9,131 ineh". The ratio of the elevation totbe buei.63.6.... The pyramid hu five .urf.~ and eiaht liDM. 5 pilla 8 equal. 13. Note the elevation, 5,813 inehN- 5, 8 and 13. 5 U. 62.5'10 of 8. 8 i' 61.5'" of 13. Note the application ofthia ratio in Figure 7l. In human ad.ivitiH. all. advancing movement is composed oCfive ...va, three up and two interVening eorreetiOlUl. A eyele it compoeed offive _yea lip and three w.vea down, total eight. Thi. ia tnle of all dap'llU, Minor, Intermediate.nd~. Set! Chapter 4. The diagram ahown in the lower rii:ht hand of the Pythqonuo pict.ure i' l'epJ'Oduced u Figure 93. I have numbered th. MjWlrea which are ,haded in the picture. The upper right IIqILUfl bu five ,haded equare•. The upper \,,1\ -.:ju.&nl baa eight 'haded IICI.Ual'M. The lower equare hu thirteen ,haded equarN. Thue numbeT1l eolT1!llpond to the number at inches elevation of the Pyramid.

u.

.•• , •• . • •

•

The aame three equaru are ahown in Figure 94. 1'be amaIler aquarell are now numbered in a different manner,

that i" _ 1,2 and 8, when! the aquare of 8 equab 9, - 1,2, 31lDd 4, when! the aqu.aTe of 4 equla 16, &lid - 1,2, 3,41lDd 5, when!t.heaquare of 5 elj\lala 25.

The theorem ie that tM.qllAn ofth, hypoteDUM of, right triangle ie equal to the INrD ofthellQuaree ofth, other two aid... The diAcovery of thilI IIOlutiOD ia the beat known of P]tbagoraa' worb. Now return to the FiboDacci Seri.., 1 to 1«. TheM Dumben fann the "Secret of the Univeree- to which Pythqoru referred. Th, beat ,:tample in botany ie the aunflower, deatribed by Mr. Jay Hambidge in Chapter 2. In bodi.. of humane and animell, the numben S lind 5 apply. There ere many other eym. bole in the picture of Pythagoru, I which ia an idealilltic conception. FOOTNOTES I Elliott t.rimmed tbe pidure to a 6" I 8" reprodudoion.

GoIden~.

in bie

•

CHAPTER XXVI

MISCELLANEOUS' Vol....." ofWaVM

In aD adVaDee, the volume of ....ve I> dOlll. Dot ""ceed the volume of wave S; oecuioJlaIly it i8 Ita. So loq I.JI vollllDfl inn.other ..dvl.Il<:e iI. due, until a ntl.. hiib regil.ttln withOIIt aD mere... in vollllllfl. See Figure 95. Note ..1$0 that the volwntl of..avtl2 i,1Na than the volwntl ofwaVtl 1. It i8, favor.ble indication.1

ere-...

5

4

J,-_ c.....

~

l

--'~'-o'-I"...Jme - - - -

""'" ..

The word ·cycle- meaD. circle. Oceuionally tbi. featllre 'ppean in gr.pha of .tocka. Tbtl cin:le in Fiill"fl 96 i8 dividtld into four aegRlflnta, A, B, C aDd D. When a graph i, I'OIlIlding downward, I.JI in aegment C, and thtl downward patttlm hl.Jl btltln eompleted inaofar I.JI thtl number ofwavlIlI. i. eollOllmtld, it may be e:rpected that .t the bottom, one or more IIflriea of "threeW,Vtl movementa" may develop.nd then be followed by an aeQIller,ted I.dv&nQll U per aegment D. The entire pictllnl down and up will then reaembltl lIflllltlenta C and D combilltld, or in other wonIa, the lower half of the circle.

NlJlu~·.

...

Law

The flood of .trike. around the end of 1946 i.llimply the lwina: of the pendulum !'rom left. to riaht. 1 to 2 A then to 8, .. in ~ 96. Before la. bor ...... Ol'p.IliUld (previoue to 1906), many. if not ma.t I!mployen, were alitocRtic, ruthlellll and hevtl_ to employ_. compet.iton and the public. The behavior of.ome .triUn today ill not worM than the behlviot' of manaa:ement in early dlYI. Every FIflIJf896 natulD. human aetirity and iDdivid..... bu it. own cycle-.ame Iona:. otben lbort, dependina: on the c1ull and eItent of each.

1

3

2

The "A·8 Sue" The A·B b~, I!hown in FilfW'll! 58, Chapter 6, i. _ion. ally compoeed ofdouble t.hrM. oreven triple threu, .. de8c:ribed in Chapter 5. Thil i. Npecially true when a rollndina: bottom i. made, .. diacuued in the tint pllnif"*ph under "Circle.•• above. FOOTNOTES I 1'b;' c:haptft" oripnally contained .....en1 paracrlplw that III dinctly into eam.r MetioM o( tha hook. Apparently Elliot~ t.bouch~ or 1OIlD. additional poin" Il1tIr the bulk of the manUlCrip~ ..... completed and ~fl*I.1 he•• ....,...111 tb-. par..... pbe to u..lppropri· 1101 arear in the pt"PiouI tert. • Th-.t ii, indiao\.i" that ...... 2 ia indMd in Pf'OITeM and t.be~ w... S will follow. I The "A-B baH" SMmI !ina u -. dMCrip\.ion for tbI fll'lt ~wo w• • • of an A·B-C irncular ooo,eaion. Elliou'l ..f _ to Firur53 ......... ~ fim to indiaolol tha~ t.bet ill whet hi meant. Hown ill tbI diaalMion of tbI IH:l-li46 bull tat tha~ fol1ow•• be tbI A·B bull eotlOIpt I I an atUlirumlli w p h _..OD whi.h c:aa ooau" between the end of -. correcU.. WI.e and thl beeinnilll oC I cardinal, or Lmpu1M w...... The addi\.ion of tbiI id.. il " .... " • •.,.. aineI. eoDItnlotion with that look baa been. in our ""perle_, .......IJ put oltha pre,,;OWl correcti•• WI.I or c.he next irnpul. WI". Appven~ ~ or III "A·B baH" a1W-'J1I ba.... another UlIIuo-.tion. onl more <:omillt.ent wiUl Ull WUI Principle.

,.

CHAPTER XXVII

mE 1942-1945 BULL MARKET The thirteen-year triangle in the Dow-Jones Industrial Average from 1928 to April 1942 ia graphed in Figure 71. Aa dncribed in FiiU",S 31, 82, 87 and 88 in Chapter 5, thrust follows a triangle. In Figure 97, the Dow-Joneslndu.trial AYffage iagraphed. Each verticaJ.lioe repreflenta the rang runa from N\lVember 1943 to December 10, 1945. Wavea A and B cona1,Ulled five monthll.' In the daily and weekly range for thia period, all wavell were compoeed of three ..avell each (_ Figure 53). From letter B to the n1,Ullher 1 ia Intermediate wave 1, all it ill compolled offive WaV" of the daily range. Intermediate wave 8 ia compoeed of five ..aveS indicated by amaillettera a, b, c, d and a (extended). ExtenaiOIUl never appear in monl than one of three impul.ae wavea 1, 8 and 5 (_ Figurea 89 throll(h «). Intermediate wave 4 is the aame all Intennediate wave 2. Intermediate wave 5 ill com~ at five wavea of the weekly range and reached 196.590n December 10, 1945. The parallel line was aliahtlyexceeded. Subeequent to December 10, 1945, an irngular topS reached 20'1.49 011 Febnw-y 4, 1946. The pattern of Major wave
I I

00 120 110

100 90

F/fIUre 97 Nok: In the upper Il"lPh in Figure 97, the IndWltrial AverR&l' ~red it. "OT"'{ortbodo.>: 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
,

I

! •~

•"

~

~::l!i

,!dl-!lb "6,s -P"I.' fS-51!l ". -I ,,:.1 :1 'I]' il!t IJ)j 1 ~.~. -~J. I,ll' ii ."1 ·.1' -ijJ! J~ ~ ....

o.

... : : . ,

•

""~

·.1

"''Ii ,-. ji;l~.1> ....

!J;: ~!~] !ll.!!' ~,i ~~~~ 1·t~5!~. ~" ~1 jli~~t!li ~l~!ji -h,.,

'!f'-

1.~:~.i:g~ t-.i'.f~!

!,

;.

.~ji1i

.1 l' -!i'·-' -f ,to •

!i jlj]~if~j

~i; fjh'1~ ,;'1 H1.fj

e~ ~!~~~tli~;i;~~ll~~~ Ii f.ih ~m Id1.

,

REVIEW AND CONCLUSION Figure 71 depicted a thirteen-year triangle from 1928 to 1942. By l'W!ference to Chapter 5, it will be noted that triangle. have alway. appeared u wave 4 and that wave 5 eueedI the

topofwave3.

1800

,,, , ,, ""

'

,

•1i'090' r-- ~I

Figure 98 i. a graph of the market from 1800 to December 1946. 1 Wave@from 1800 to 1857 i. bued on bUllineu hi.tory, u.tack market rea:lrda are not available previo\u to 1857. November 1928 i. the orthodo.r; top of wave 0'> from which the triangle (wave @) lItarted. The triangle ended, and the "thrust" (waveiJ»)aL&rted, in April 1942. A "throat" baa alwaya exceeded the top of .... ve Q), whi~h in thia <:aM! i. November 1928. The movement from 1921 to November 1928 ...u compoaed of three bull marll.eta and two intervening aub-normll bear marketa. ThUll far, in December 1945, one bull market hu regi.. teredo It would therefore appear loi'icII that the pattern and eItent above 1942 would reeemble the movement from 1921 to 1928, i.e., th~ bull marketa and two interYenilli, sub-nonnal bear marketol. The DoW-JOllH IndWltriai Aver~ started in 1921 at Sf, and ended in November 1928 at 299, for a 23l>-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<:e of prooedUrtl now u compared to 1921-1928. During 1921,1928, the flm wave'wu a nonnal bull marlr.et without inflatiolllll)' BYJD.ptome. The fifth Wllve end· ingin Navember 1928 W1lII dec:idediy inflationary. Now, thetint wave, from 1942 to 1945, dillClOl!illd inflaliolllll)' thatacterirrtiu. Low·priced IItol:k.e of quelJtionable value eurged ahelld at the upenae of the "blue chipa.~ ~ New Yor.ll Su" IIllected ninetyaiJI: .toeo that advanced phenomenally. Every .toek etaTted at lOme fiiun below $2 per .hare. The highllllt rate of advlIJ>(:II WIUI IS.S~. The lowest rate ofadvance wu .33.... The average for the group wu 2.776.... The pattema ofgTaphi ehown on pRVioua pagea fumieh a hiatoric outline of the United States. Ito! development ill marvelDU.I for many reaaona: - Geographic Pl"ilioo. eh,pe and boundariell: A .-quare, bounded on two aidllll by laTlfll OCIIIIIUI. and on two eidea by friendly ne;'hbon. _ Latitude and climate: Semi-tropical, thua facilitating agrieultUrtl. - Natural rlllOurce.: Gold, iron, coal, oil, timber and water._ya. - ~niua and individual initiative: The number and value ofpatentll from 1850 to 1929 ill m.arve10U1. Attention ill invited to Chapter 14. Note that the graph of patent applicatione (Figurtl8l) coincide. with waVIlll of the .toek market, both in time and pattern, which in turn reflec:tll bUlineu Ilctivity and maae paycbology. _ Democ:n.tic idelllA: The form of government lltimulate. individual initiative. Thia doea notimply that perfection hu been achieved, but it does ellgKelt that we may be on the right road. FOOTNOTES Onu q:llill, with ulnmely limi\lld dAta, Elliott outlin........ reetly tba e"tire Grand Supercyell rrom tba lata 1700., jun II ha did in hi. IIIII.YI of 1941 and 1942 (_ Stl«ud Eua:!. oedioD.). Hi.o prodi..c.iOll of I 11_ high above 1929 Will 11111 """""''' However, in thia depl..c.ion ha .bowa II ahort time rnm. ending in 11160, whloh II out or p>oportiOll 10 tile other rOUt _ye.. It _ _ that eVIll • ouraory 1

.u

,.

Nolure', Low ",min,t.>o", olu.. chart would tllU"t.l.op much.l'uttber out \ban 11150, """ m.... b biliMr tb.l1 S:l8 "" tl.. Dow. Tho. problem apin .. Elliou'. I3-year triaqle, Iinal thruou roll....u.,: trilUl(leo are PM"" all)' IW'if'L and lbort. n.. chtrt thtt EUi,," produced in bit lntilll>r&tin Letter dAted AU£'I'I. 1941 and 'Pill in bit Edllutio",tJ BlI1l.tin ol Oetol>« 11U~ ,bowed. men 'CNl'1ltil' be«iMin.l dAtil' ol1776 and • more auilahl. pi'
I

.-• This oomputil'tiOll '" buecI "'" the telI.et tbe.t u.. t.hrutt, or fiI\b w..... r"ll"willl' bori..... tI.1 tri....'-. il.-.raU1 ebcMlt u""" u the widMt. patt or Ihe tri..,p..

,.

..

R. N. EUJmT's MASTUJf0U3

REFERENCES I - P'ythqoru (Greek philcwopber, 600 B. C.l. See EncyclopNUJ Brjwn/ai.t:a. Fibonacci (Italian mathematician of the thirteenth centwy. Better known .. Leonardo of Pin). Hi. worn were publiahed by Count B. Boncompagni, 1857-1862.

-

-DyllGmic Symnwtry ("The Greek Vue"), by Jay Hambidge. Note appendix, p.,.,. 146-159. - Practical ApplicatitJ,.. of Dy....mic Symmdry M'he L.w of Pbyllotuia"l, by Jay Hambidge. See pql"I27-29.

-NatlU'f'. Harmonic Unity, by Samuel Colman and C. Arthur

eo.n.

-Propol'ti.oltGl Form, by Samuel Colman and C. Arthur Coan. See papII U-35, 149-155.

- CIuw. 0( Li~, by Theodore A Cook. - '11l4 HunumSituotion, by WiUiam Ma<:niele Dili:on. See pagelI 129-131. - Prop~. Landone.

of Melclti.7AdiJI in The Greet Pyramid, by Brown

FOOTNOTES 'I'M oriIinal pap tont.ained .... era! mi...,.. ..,..,.. of ....Uing and tiu., which ha... bHn CCJn'eCted (or thil ?OIUfM. l

When is it right to judge an investment book a "classic"? ilhlecn ~ •.,. i, 100, enouplO jlldxe whether invalOrS deem I book obou'ltl ;n"51"""" method .. "dassie." and .....11' 1lle iutY is in "" H/JhJtI 1Ilo... I'riIIcIph has

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TQy Mr. pred1tef Ia pllrlde.1t of EIiOIl W_ il'lwmItIoIlIl. thllaIvMt mMIeI-'Y* ftrm In the wodd. EWI .".. Indtutlonal cliIfltt In _ Iyzlng II "..pr globaIlIodl. bond, lI"fM1 rQI and ~ ~ , .. well .. meIaIs and Inergy markMl. 24 houR I day. In that capec:Ity,

Mr. p,«J.... wrtMlorEWr. GIot¥J~PfJr· 1p«INe, I lnOloCh:y 100 ~ booklet of Ellolt WI"" IrIIlyli. on worldwide flnanclll trend•. Mr. PrWltilr II.. od«I Yale um.. 1Ity on I lull ICtloIIl'IhIp and g ~ In 1871 with I degree In psychology. HI. atudln of the WI"" P,iolCipll deMIloped 110m I dMp IIIclMtIon with the atodl. ITIaIket and lUI lntlmallo reIIection 01 the humlrl ••""I'lenca. Mr. Prec:hter'. 1II!1'II ~ II an .xpoaltiorl of I Mw theofy of I~<* •• ~ bIMd upon the ""....,.ofhuIr*l

1I"""Pe!.... ~, ....

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ELLIOTT~s

MASTERWORKS The Denoltl"e £ollootloo "An Impressi'o'll volume from coVllr to cover. Prechter's knowIedll& of the subject showsclearty in puttir19logeth8r this new volume." - FMluros M",tlZiu "BetieV1l ~ or not, tI1is is the first time anyone has as!lelri)!ed aM 01 Mr. Ellioll'S wort<s in one booiL That alone makes the book worthwhile tor your linane!al ~ry. An altlra bonus is a delightful chapler 1H1~11ed 'A Biography 01 R.N. Ellioll,' which gI\Ies a rare Insight Into his 1I1e: - J"",~, Di,,~,. TIt~ 0;" •• lAlI.r ·Mr. Preochter has perlormed an OIIIstandlng MMee to the Investment community In bringir>g together. in a ~ngIe volume, the majorwrilJngs o! R.N. Ellioll: _/)()""IJ J. Hop" ~A ....ly,1l "Prechl&f's elaborate lOOIOOIlng, clarifying stetements end croa-relerences are absolutely necessary 10 understand fully what EIIioII ha<110 say.· - Ro~" J, Nurotll.lIo 8Qr,.", ~

"This book is ideal lor those market students inte<ested In Ellioll but unable to secure oneol theoriglnal rare c:opMls 01 his wrilings." - Mi€luul LIlt_iud:. SM/njI'" lit. I" ".,11'0110" 01Ru"rri"l EHIIlJ

"The bJogrllphy in this book is lerri/it: aoo !llls in the ptOCes 10 the mystery 01 Elioll the man: -DoWJ W.i,. Tuhwl FQt"t!u "I stili can't

get over the e~cenence ot R.N, EIIIorr"s Masrerworlrs. I pick h up
"rolt

"Prechler has Cfeeled the most con~lH1lenl introduction 10 the Etlioll theory's geneSIS and early evolution, something any espiring Etliottician should read.· _ Joh Swu".y, T.d,,1aI1 ""aly,1l olStDC" d c>",,,,t>diJi~, "I havebeenreadlng R.N. EIIiott'sMaslerworlcs. editedbyRobenPrechlel, and lloveltl" _Mklultl Burb. I">'UI(N~I"ullip"u

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