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Gold and pitfalls of Elliott waves (EW)

Frequently readers send me external ElliotElliot waves are an instrument of technical analysis to forecast the financial markets. The theory was developed in the late 1920s by Ralph Nelson Elliot in the US.t wave counts, that's why I want to discuss the theory and application of ElliotElliot waves are an instrument of technical analysis to forecast the financial markets. The theory was developed in the late 1920s by Ralph Nelson Elliot in the US.t waves in this article. Perhaps it is the influence of the hyper-deflationary ElliotElliot waves are an instrument of technical analysis to forecast the financial markets. The theory was developed in the late 1920s by Ralph Nelson Elliot in the US.t wave father figure Bob Prechter (founder of ElliotElliot waves are an instrument of technical analysis to forecast the financial markets. The theory was developed in the late 1920s by Ralph Nelson Elliot in the US.t Wave International EWI), but it seems that the bulk of wave counts are bearish most of the time for ‘everything'. Since the gold top in December 2009 the excited cackling has become very loud again, although in reality we haven't seen a significant gold weakness but mainly the (anticipated and predicted) dollar strength: at present gold in euro breaks out to a fresh all-time high (Link)! I use ElliotElliot waves are an instrument of technical analysis to forecast the financial markets. The theory was developed in the late 1920s by Ralph Nelson Elliot in the US.t waves (EW) in my forecasts, but quite different than the mainstream.

My EW criticism condensed to 7 points:

1. information processing: It is the ruin of counting when wavers are pretending they are just objectively labeling waves while in reality they are just counting their (mostly deflationary) opinion. The average person can not blank out their foreknowledge, i.e. an objective wave count is only possible with charts you know absolutely nothing about (e.g. fundamentals). Brain research of the past decades has taught us a lot about human decision-making, which works this way (simplified): first the decision is made by the unconscious mind (e.g. labeling of waves due to one's deflationary bias) and afterwards (sic!) the rational mind is looking for a reason. The only way for more objective decisions is to harmonize both brain and heart:

  • brain (EEG): The goal is to invigorate the frontal lobe, especially the left one, associated with rational thinking. This is achieved through meditation as empirical studies have proven, e.g. with elite monks of the Dalai Lama. Ground-breaking research has been conducted by Gerhard Eggetsberger here in Vienna, Austria. The purpose of meditation is to empty your mind from concepts, emotions and preconceived opinions, but this is a very long path. Although I have received almost all truly creative and ground-breaking insights either during meditation or dreams, I am still at the beginning after 16 years of meditation.
  • heart (ECG): Whether you are centered in your hearth and thus objective (heart coherence link) can be measured through the heart rate variability (HRV), as the trailblazing research by the Californian Institute of HeartMath (Link) has shown.

For those 99.99% of all analysts who are not elite meditators the only viable option is to disclose one's bias and to critically question one's counts. A good alternative for more objectivity are computer counts.

2. contrary perspective: The second argument is linked to the first one. The large popularity of the waves is probably due to the fact that they do not (sic!) work the way they are commonly interpreted. Instead, they offer a terribly subjective method to lose as much money as fast as possible, in accordance with crowd sentiment which is wrong most of the time. ElliotElliot waves are an instrument of technical analysis to forecast the financial markets. The theory was developed in the late 1920s by Ralph Nelson Elliot in the US.t waves in the hand of laypeople or semi-professionals are mostly a Rorschach test saying little about the market but a lot about the analyst.

3. impact of the elites: The performance of an incompetent but unbiased counters (‚clueless' in the best sense) would be close to zero or buy-and-hold, since you would primarily expect random results. However, with -98.3% the EWI performance 1985-2009 was almost a total loss (Link), a theoretical EWI inverted portfolio (always do the opposite) would have yielded a profit of nearly  +6000% and thus would have been one of the best ones on the planet. The benchmark Wilshire 5000 still made +857.1% in this period, so Prechter underperformed buy-and-hold by an ‘otherworldly' 50,000 and still was light years behind other market gurus... how is that possible? Confidentially I was told that Prechter is somehow linked to the illuminati. There is absolutely no hard proof for that rumor, but it would explain the excellent performance until the mid-1980s and the nightmare results since. The difference is like day and night and can hardly be explained otherwise...

4. wrong epistemological assumptions: One of the fundamental flaws in the theoretical framework of ElliotElliot waves are an instrument of technical analysis to forecast the financial markets. The theory was developed in the late 1920s by Ralph Nelson Elliot in the US.t waves can be found in the bottom-up approach of counting. The bottom-up approach is implicitly based on the assumptions that the whole is not more than the sum of the parts and that the future can be entirely explained by the past. Yet this is not true at all, that's why the lower wave degrees are not sufficient at all to explain the higher ones. The fundamental flaw behind the current wave theory is the materialistic-causal world view: in reality the world is not just 'pushed' by past causes, but also 'torn' by teleological (future) factors. Research projects such as the „Global Consciousness Project" (Princeton University) have proven that the future has an impact back into the past.

5. limitations of the method not taken into consideration: Every forecasting method has its inherent limitations that are seldom taken into consideration. In general, ElliotElliot waves are an instrument of technical analysis to forecast the financial markets. The theory was developed in the late 1920s by Ralph Nelson Elliot in the US.t waves work best with impulse waves but much less with corrective patterns. Another EW problem hardly noticed or discussed is that in the extreme case (I am exaggerating here) you get statements like this: if level X is taken out, then expect prices to rise for 10 year - if level Y is taken out, expect prices to rise to drop for 10 years. A trader might be happy with these black-and-white calls but an investment portfolio is only adjusted gradually and needs more stable methods.

6. differences between the markets: Almost all wavers count always count with the same rules. This is total nonsense because each market has its very specific patterns (= fractals) that repeat frequently, and this factor is crucial for the success of calls.

7. fundamental analysis: In my opinion many technical analysts including wave counters are starting from the wrong side. Fundamental analysis is *always* the first analytical method as it sets the structure and the context in which sentiment, waves, cyclesA cycle is a recurring event in the markets, and constellations should be interpreted.

In order to seize the initial example gold: gold is the only major commodity where the production peak was already achieved long ago, as production has been declining for a decade! In addition to falling supply, demand is rising sharply, especially from China. Apart from the very bullish macro factors for commodities (in particular inflation), there is no other commodity that is similarly bullish on the micro level as gold. A 100% match of micro and macro level, as is the case today in gold, is rare and the most bullish signature you can think of. At present, the capitalization of gold & gold mines is less than 2% of the total capitalization of the financial markets. At previous secular bull market tops (in the early 1980s the last time) this number was 10-20 times higher, which suggests an inflation-adjusted gain in the sector of 1000% until 2018 (conservative estimate).