To: Ronald J. Clark who wrote (56222 ) 12/6/1999 8:08:00 PM From: Gary Burton Respond to
Ron---Too many years ago, I was heavily into FA and ignored charts. Armed with all the usual book learning and an MBA, FA of course seemed logical to me and I just assumed that everyone else was similarly logical.--Alas, in the real world of the stock market, I learned the hard way that analysts upgrade near the top and downgrade nearer the bottom (vbg)---TA measures what buyers and sellers DO with basically perfect information, rather than what they know. So, as I see it, the greed and fear elements are reflected in the chart, which is by and large a graph of the ebb and flow of emotions rather than logic. For while logic and knowledge may allow one to 'enter the arena' with the usual battlegarb and weapons, it is emotion that determines what one will actually do--and emotion (the ebb and flow of greed vs fear) is what determines prices at the margin in the end, not knowledge.---That's WHY I look carefully at charts. When I see an intriguing chart that says 'buy me', only then do I turn to FA to see if the buy idea would make logical sense and if it does I will likely buy. If not (too much risk) I will likely pass. Conversely, if I like the FA of an industry (eg oil), I must see a 'buy me' message on the chart or I will also pass. So, I want both FA and TA in my corner not just one. And I am about 3 parts TA and I part FA in the mix---As for EW---Elliott is a SOCIAL MOOD theory and is mainly applicable to highly liquid ,high volume indeces and stocks, It is more successful with indeces and less so with individual stocks, but I try to apply it to individual stocks as well, for lack of anything better.---The theory postulates that mass mood has a recurring rhythm to it over and over again of 5 waves in the Primary Trend followed by a partial retracement of 3 waves in the opposite counter trend direction--which is then followed by another 5/3 series etc etc. If one does not accept that as a basic tenet of mass mood and the markets, then throw out EW and think of something else---Thinking of 5 waves up starting from a major low, think of it this way--Wave 1 is a new uptrend that seems to break the previous downtrend and reflect a new sequence at work.So, Greedy types as well as fearful shorts jump on it and push it up--This is followed by a Wave 2 reaction which often retraces over half the gain and takes place in an FA environment that is often even worse than at the bottom of wave 1--so people sell, fearing that the downtrend is resuming and "lets get out now before yet another new low happens"---Wave 3 then starts after Wave 2 bottoms above the low of Wave 1 (to the longs great relief) and when it gains some legs and goes materially beyond the top of wave 1 everybody and their brother is now getting on board to ride the train and most are now believers again. So wave 3 is usually the longest and strongest wave in the sequence and often goes 2-4 times as far as wave 1 did. Then, ultimately Wave 3 peters out and a retrace ensues and profit taking sets in and we have the bottom of Wave 4 (usually retracing 38%- 50% of Wave 3 but sometimes as little as say 24% if the Primary Trend is strong)--NB--under no curcumstances does the wave 4 low go below the top of Wave 1---Then we start wave 5 up and at the top of that the greedy pigs are left holding the bag as wave 5 usually goes to new highs but is less powerful than 3 and the momentum soon dissipates and then the entire 5 wave sequence of emotions is over...then a larger 3 wave partial retracement sets in to 'correct' for the rntire 5 wave sequence taht just ended---In summary, EW is based on a theory of human emotions and is grounded in shifts in mass mood in society. Many think it is voodoo, but of course the wavers don't care about that as they only care about what they see, not what others think of the theory (vbg).
