The stock market is probabilistically predictable.
This statement flies in the face of random walk theory and efficient market hypothesis — the two mainstream theories of market behavior that got thoroughly bruised in the 2007-2009 crash. (“Today random walk is discredited and EMH is on the run.” Bob Prechter, July 2007 Elliott Wave Theorist.)
You can discover probabilistic predictability by exploring the Elliott Wave Principle.
What’s behind market price swings, in the first place? We believe it’s the collective feelings of market participants. They change constantly — but not randomly.
“Human emotions…are rhythmical. They move in waves of definite number and direction. A completed move consists of five waves.”
– R.N. Elliott, The Wave Principle (published 1938).
“Although Elliott came to his conclusions fifty years before the new science of fractals blossomed, the very idea that financial markets comprise specific forms…remains a revolutionary observation to this day, it has eluded other financial market researchers and chaos scientists.”
– Bob Prechter, The Wave Principle of Human Social Behavior.
You see the “rhythm” of human emotion in this chart.
The astounding similarity between the two sets of the DJIA’s price movements — one from 1921-1929, the other from 1974-2000 — is not a coincidence.
“…markets are impulsive and patterned, not rational…they go through similar expressions of the same cycle of psychology over and over. The extent and duration vary, but the essence is always the same.”
– Bob Prechter, The Elliott Wave Theorist, June 2006.
You can see the same patterns in nature itself:
“Trees, for example, are branching robust fractals, as are animals’ circulatory systems, bronchial systems and nervous systems. The stock market record belongs in the category of life forms since it is a product of human social interaction.”
– Bob Prechter, Conquer the Crash 2nd Edition, p. 23.
R.N. Elliott discovered in the 1930s that this “human social interaction” — as reflected by the stock market — is predictable because it forms similar patterns over and over again.
This order is not altered by the news. For example, as you may have read in yesterday’s article, the May 6 1000-point intraday drop in the Dow wasn’t caused by the trouble in Greece — it occurred where the Elliott wave structure suggested it should have occurred.
What does the wave structure suggest about probable market action in the weeks ahead? Brace yourself — it may be a bumpy ride. Discover the revealing details today via a risk-free online subscription to our Financial Forecast Service.
For more news & information on the stock market check out the Globe and Mail.
