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Tuesday, July 21, 2009

EWI and Other Ramblings

I'd like to clear up any possible confusion when it comes to EWI. EWI is of course, Elliott Wave International, which was founded by Robert Prechter, who of course was a key co-author of the "definitive bible" on Elliott Wave theory in his published book "Elliott Wave Principle: Key to Market Behavior" (the only book you'll ever need on EW theory by the way) first published I believe in 1978 with Robert Frost.

First I'd like to say that I pay for EWI's services of "Short Term Update" which is a daily-type market waveform update posted by Steve Hochberg three times a week (Mon, Wed, Fri). I also subscribe to their monthly newsletters "Financial Forecast" and "Elliott Wave Theorist", the last of which has been written by Prechter himself for over 25 years. I have subscribed to all three only since August 2008.

The Short Term Update doesn't typically post "squiggle charts" like I do and others. I suspect he has no time as he tracks the DOW, SPX and NASDAQ along with the dollar, euro, gold, silver and bonds. So in that respect, I have an advantage in tracking just generally the SPX, yet bond traders wouldn't like my site so much because I only talk about them in general matters (debt problem). Me and Kenny sometimes get on Hochberg's case in offhand references, but regardless, I find myself always eagerly awaiting what his M,W,F updates have to bring to the EW table. This enthusiasm hasn't waned.

The other two newsletters I sometimes consider I could do without. Yet somehow every month each letter brings something new to the table and keeps it fresh. Its like going out and playing a round of golf. You may be a "weekend golfer" but you always hit that one "sweet shot" that brings you back for more. Those newsletters have that knack. And then every 2nd, 3rd or 4th one, they really rock. So regardless, I keep subscribing and cannot imagining canceling. And keep learning the theory. It has been a journey. I still await every newsletter with eagerness as my enthusiasm hasn't waned for these either.

Robert Prechter I think is an outright genius. His work in the field of EW theory and then practically founding the science of "socionomics" is truly groundbreaking and has yet to be truly appreciated. Some of you know that I have stated in the past that I feel Elliott Wave Theory has truly changed my life's outlook and I consider it one of the most profound theoretical discoveries in the history of mankind. The fact that it isn't yet taught in any school is not surprising though, at this time it would go against government groupthink and "buy and hold" strategy. Such is human nature.

This is when of course the EW long-timers say, "Well Prechter has blown it more often than not and completely misjudged the power of the Cycle Wave V and the subsequent rally from 2003-2007, so I am hardly convinced." Fair enough. I am well aware of the history even if I wasn't trading it at the time (I got into EW theory and the stock market in general only last summer 2008)

So how do I respond? Well first and foremost, I take it as a completely contrarian position in that I generally adhere to Prechter's wave forecast as being the likely true path forward over the next few years. He has, since 2007, been pretty damn good. He recommended going short at 1550 SPX in the summer of 2007 with full leverage I might add, and recommended covering at 750 in Feb 2009 for a full 800 point gain in e-mini contracts. At the time he recommended covering shorts, he added that the market was likely going to bottom in the 600's but he wasn't going to chase the last points. Classy.

So in general, my response to the "Prechter Factor" is that if you are convinced he is wrong now (5 Primary waves to a very low DOW of under 1000), then I say I will take the contrarian position and say he is right at least for the next few years to market bottom. Doesn't it make sense that someone finally "discredited" has his greatest run exactly when he is discredited the most? I think that in itself fits EW theory general principles! Robert is, after all, a permabear (as I)/ I understand his long-time positions.

So why do I have all the Elliott Wave International ads to the left? Well I am an official "affiliate" meaning they allow me to sell their services for a cut in return but only if you sign up through my links, usually as a free "Club EWI" member first. I eagerly do this because I am a true believer in EW theory, and not just trying to make a quick Fib buck on a market bounce (although there is certainly nothing wrong with that!)

EWI has a free service called "Club EWI" membership. You get some free stuff with joining through clicking on the EWI ads I run to the left. If you become a club EWI member by clicking on my ad and signing up to "Club EWI", and then join a service (even if months later), I get a small commission for luring you to their services depending on what you buy. Hey it helps pay the bills! (And believe me, me and my family got caught up in the credit-induced cycle b wave rally from 2003 -2007! - I have half of China in my basement to prove it!)

Why would I hawk EWI services when it seems I am in "competition" with EWI directly? Well for one thing I have learned there seems to be many interpretations of Elliott Wave theory going around. Some I consider downright heretical even though I rarely comment on that. I rather do my own work and let it stand or fall on its own merits. After all, you can scroll back to previous posts in the beginning of March and check my work and see how it has turned out. Spot on? Heck no, but in general, not too shabby. I have seen a lot of sites seemingly make up their own theory and I rather steer people to EWI's (Prechter's) thinking first and foremost. Its where I am aligned. Its a synergistic relationship first and foremost.

So yes, I am in "alignment" with EWI's overall count which is of course a Prechter count. I believe 2000 was the true bull Grand Supercycle Wave III top (of over 200 years which perfectly aligns with the rise of America I might add) and treating it as such I go from there. I will say I do not steal EWI"s work nor duplicate their specialty-type data that they provide and when I occasionally offhand reference something mundane that may be perceived as EWI's work (even if it was my thinking too by chance), I give them full credit. I will say that sometimes that there are coincidences in data that I produce and then EWI produces the same night or vice versa. Sometimes I wonder who is reading who! But it always makes me feel good that I have learned enough to spot the key elements on my own and translate that into something useful.

As an example sometimes EWI provides sentiment data in conjunction with certain charts. I do the same type things, yet I use different data service - i.e. - $BPSPX versus whatever similar service they use. Occasionally, when warranted, me and Kenny will reference an extreme data reference from EWI that they mention due to its significance and that we may (or may not) agree with the interpretation at the time. And we'll give credit.

EWI's specialty services provide highly specialized charts and data that I never would duplicate because it would be wrong (and against policy I might add) to do that.

Could I do well without EWI services from here on? I have no doubt I could. But I think I would feel naked nonetheless. Afterall, they bring an awful lot of resources to bear on EW theory and I am only a mind of one. I think, in general, that EW theory is a simple theory: market moves based on where we are in the overall space-time continuum! (HEHE - now I sound radical!) But I rather think EW theory is a collaborative effort. And having an EWI membership only enhances my own abilities over the long run and they always extract such unique data from fresh perspectives that I neither have the time nor resources to duplicate or contemplate. Like I said, that Prechter guy is a genius.

So it is no surprise that certainly more than a few my blog readers (and Kenny's) actually subscribe to EWI with enthusiasm, yet read our blogs with (we hope) equal enthusiasm. It suggests that there is always room for debate and interpretations and alternate counts.

Which brings me to my "novice" comments on a post a few days ago. Anyone who takes up EW theory is not a "novice" and I was silly for stating things that way. Each's effort is always appreciated. There is no ultimate judge, only time will truly tell. I almost always look at charts posted to this blog even if I don't respond to every one. I consider all possibilities yet in the end of course I have my own opinion. So I certainly didn't mean that "novice" comment in a negative way. I only meant it in the fashion that I remember going through when I first plotted "1,2,3,4,5," on a chart and called my first Elliott Wave. My enthusiasm was great and yet I got a lot of things wrong. But anyone who takes that first step in earnest to plotting his/her first wave is no longer a novice. They are merely on a journey that truly no one knows where it will head, even Elliott himself.

So in the end, EWI is my guiding light. Yet I feel I bring enough freshness to the table to make it exciting. for instance, who was it that argued a common sense stance that a third zigzag start point in a triple zigzag formation shouldn't start from a lower spot than the actual second ZZ start point? That was pure me. EWI didn't even think of that and they got the recent 869 low spot wrong (they were too bearish) as many others did also (the H&S formation). So from here on out, even if the market collapses in a heap of a mess of a P3 wave, I can smile knowing that I had some "chutzpah" in calling the 869 low a likely second (X) wave low based on sound EW principles that was original thinking!

So I may still be wrong, but yeah, market made new highs and I'd have to say I was more right than wrong no matter what happens from here. So that's why you read blogs like mine yet also love services such as EWI.

So what is the bottom line of my ramblings?
A) I never duplicate EWI's services. Sometimes we have coincidences. (and I am often first!)
B) Prechter is a genius.
C) EW theory is a "synergistic" effort. Thats whay I love Kenny's work too and anyone else I have linked. Thats why I hawk EWI's services.
D) I use EWI's services which shows deeper (or unique) data then I could ever care to translate (or am allowed to). I use this data to help shape and keep my larger waveform patterns "aligned" and support larger arguments. Like me suggesting there is low liklihood of an expanded [B] wave flat or (4) of P1 flat. Deeper EWI data supports my view (and I really cannot duplicate their data point for point although the basics of the theory is just that - basics)
E) I bring enough "uniqueness" to the table to warrant my own blog I hope! (afterall I still have a full time day job!) Particularly in my daily projections (which EWI doesn't get into squiggles too much)
F) EW theory is a journey - there are no novices. Perhaps less-trained or less experienced. After all, counting to 5 is not exactly rocket science!
G) If you thinking of using some of EWI's services, join "Club EWI" (free - and provides some free services) through one of my pimp links to the left and then once your registered, any service you decide to use, I get a small cut. (Even if you don't join thru one my links, I recommend you checking them out!)

Anyways, once you learn the basics, counting to 5 and correcting in 3 and making larger structures out of smaller ones is fairly straightforward. I hope to be doing this a long time. I hope never to get dogmatic or stubborn. Heck the market never lies.

16 comments:

  1. Dan,
    Why can't 2007 peak be Grand Super Cycle 3rd wave and Super Cycle's 5th wave peak?

    EWI's June Theorist has this alternate count in figure 8, however they always consider 2000 to be the peak and 2007 peak as B of ABC correction withing Supercycle wave A within Grand Supercycle wave IV!

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  2. What an insightful post. One correction. In the '70s bear market, Prechter was consider a BULL lunatic. At the near bottom of the '70s bear market, Prechter predicted the greatest bull market of all time forthcoming.

    He had his subscribership out of the market two weeks before the 1987 crash, which he then considered a supercycle or grand supercycle top. True, he missed some of the 1987-2000 bull and was full steam ahead and down at the bottom of 2002 (STU reversed course within a week of the bottom, but did miss the call). Both, terrible calls and I lost a ton of money on the latter.

    But more recently, his call for an imminent top in August 2007, and his to the day call for an intermediate March 2009 was perfect. From top to bottom, he cornered nearly 800 S&P points on one trade for himself and his subscribership. That will not be equaled in my lifetime.

    I avoid the STU because it gets me too involved in counts and I end up ceding my opinions to those of Hochberg for lack of time to study cycles and other methodologies which I consider important as well. I do subscribe to the Financial Forecast and Theorist.


    Prechter is a genius. Who singlehandedly made EW, Fibonacci, Kondratieff, Benner, et al, widely known concepts in TA? Prechter. Most who criticize Prechter's life's work haven't a rudimentary understanding of EW and/or can't take responsibility for their investment decisions. I've been studying EW since graduate TA coursework in 1974 (before EWP) and still learn something every time I pick upt that little blue book.

    Thanks for all your efforts,

    Jim

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  3. VJ, I couldn't agree with your post more! Well said!

    RB, 2007 could be a peak. I totally don't discredit it. But the collapse from Oct 2007, seems like a c wave built on a totally bullishit b wave rally taht sucked the whole world in over 4 years.

    The fact that S&P collective earnings went from a peak to a historic low of extreme negative numbers reinforces a credit-induced mania.

    It smacks of an abrupt cycle c wave coming off an expanded flat for the DOW.

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  4. Dan - Good post. Robert Prechter is a genius and just a great person. People who dismiss or ridicule his work have no understanding of how markets function.

    I am curious though. Why doesn't Prechter start his own hedge fund instead of selling away his secrets for monthly subscriptions? I would think his expansive research and understanding of EW represents a huge edge vs. fundamental hedge funds and standard TA followers.

    Toastmaster
    http://tradingwithtoastmaster.blogspot.com/

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  5. Toast - he has addressed that point. He says - as I can recall- that if he ran a fund, he wouldn;t be able to hold credibility in his forecasts and of course EWI's business model would be quite different. I totally agree.

    And yes he is a nice guy.

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  6. dan,

    u are the man. esp with that call at 869. honestly i didn't believe you because ewi, as you stated, did not believe it. i had to go with the "professionals" and boy did they get it wrong. thx again for all ur work and i hope u are being rewarded financially in one form or another.

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  7. What a brilliant post. nice and eloquent. i hope Prechter and Hochberg read this post. Prechter will be proud of you. I am sure Kenny is.

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  8. I know why I have a day job but it's difficult to fathom why Dan does. I earn 25% of my income trading futures and I'm a novice by comparison.

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  9. Daneric, you don't have to apologize for occassionally agreeing with EWI. All of us who count waves will inevitably agree with their count every now and then. I now Kenny referenced your count was theirs, but that was unfair. I count waves too, and sometimes I agree with EWI and at other times I don't. Unfortunately, EWI has not been very accurate on the micro level lately. If they whiff again on their current projection that the market is going to make a significant retracement before pushing up to finish P2, then I will cancel my subscription. I have been underwhelmed lately by their quite inaccurate reads of the market, yet they never apologize or admit their failure, they just state their after the fact read of the market. Well, I could teach a monkey to count waves after the fact. I believe EWI needs new blood. The team they have right now is average at best.
    Although I subscribe to EWI, I have no blind allegiance, nor will I continue my subscription if things don't improve.

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  10. i agree with you 100% alphahorn.

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  11. I've been a subscriber of EWI for about a year and I just canceled last week. Hochberg's Short term forecast had some good moments when they were going with the trend down, but their counter-trend analysis has been God-awful and I've lost a lot of money because of it and they rarely admit when they are wrong. Also they only post three times a week which isn't very helpful. I like that Dan posts everyday and I rather donate a percentage of my winnings to him then pay for EWI's updates that are often a day late and a dollar short.

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  12. If you guys think that Hochberg has been "poor" as of late, you would have gone absolutely nuts last year following their energy analyst Steve Craig. By the time that he received "confirmation" for his wave count, he had already missed a large portion of the downmove. He also spent a large amount of time looking for counter-trend rallies (all the way down in NG) that never occurred. As a result, his analysis was rendered practically useless for any kind of trader whatsoever.

    As for Prechter, I've never met the man but have been an "on and off" again subscriber for 20 years. While some of you have noted the 2003-2007 time frame that EWI missed, I can recall some horrible calls going back ten years before that, and more.

    For me, the jury is still out on EWI and their timing services.

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  13. There can be a chasm between good forecasts and good trades. Some people like to follow Neely because he's a trader first and a forecaster second. EWI often strikes me as a group of grad-school professors that don't actually need to make a living from the markets.

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  14. For those complaining about how STU has been wrong most part, well they advised at first that corrections were very difficult to count due to the several patterns it could run...

    Ultimately they said, the trend is up until at least 950 which was the 1st target and we've reached it...

    They were pretty much implying buy the dips... if corrective patterns are hard the way it is, why trying to trade short, long etc in very dubious conditions ?

    We knew at was ahead of us was going to be tough...

    Yeah sure I'd love to trade every up and down swing, but I had to remind myself everytime we were in corrective pattern so I was just going to ride the trend no matter what... it served me well most of the time and I'm glad I did it.

    For example I have lot's of SPY at 69 USD which I've been selling little by little above the 900's... I think Prechter will start to rock on or at least STU once we have impulsives again...

    BTW, one good Elliotician althoguh non standard that we need to give credit is Glenn Neely... he has different rules especially with statistics on his counts and he has been in his calls more successful than Prechter, although I like Prechter way more, his line of thought and explanations are just too good.

    Anyways, I think Prechter is trying to incorporate much of Neely's work into standard EW, that is only speculation of my part of course, but I remember ads on EWI looking for staticians to apply their EW model, and be more objective etc... Prechter himself said it during a conference in May before the Technicians Association

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