Elliott Wave Forecast, S&P500 and Nasdaq Composite

As many elliott wave enthusiast have discovered, it is easier to agree on a pattern once it is completed, than it is to forecast the next move in the markets.

Back in 1995, when I first read the book “At the Crest of the Tidal wave” by Robert Prechter, I was fascinated. I am a scientist by training, a Veterinary Pathologyst with a bit of an interest in population biology. It made perfect sense to me that human mass behavior could be mathematically modeled. The Elliott wave theory was as good a model as any. Fibonacci numbers and the Fibonacci golden ratio were found to be reproducible in many natural phenomena, particularly in the science of biology. Ironically, Prechter’s predictions that the market would collapse in 1995, was not any good, but that did not matter to me in the least. Biology is an inexact science and attempting to modeling biological phenomena by mathematical means is subject to error. Nevertheless, I will always prefer an inexact, prone-to-error model, than to rely on my own experience alone.

Prechter has been more right as of late, as he predicted the eventual collapse of the market. I also thought that there would be a second shoe to drop, the first being the bear market of 2000-2003. You would not find me trying to sell the idea of a bear market between 2003 and 2007, but I did take a bearish stands, putting my money in long-term CD’s, avoiding stocks and real estate, and focus my time and effort into creating a hedged approach to trading based on McMillan’s PCCRC. My cautious approach paid off, not only last year when the markets finally collapsed but also in 2006 and 2007. How was I so sure that the markets would collapse? because corrections in the Elliott wave theory generally take 3-wave form. The period between 2000-2003, was the first of these 3 wave sequence (Intermediate wave A), the bull market between 2003 and 2007 was the second wave (Intermediate wave B). It was only a matter of time until the third wave was formed (Intermediate wave C).


The very nature of the Elliott wave, particularly during corrective periods, makes one shy of committing to big predictions that would end up making one look foolish. Now we know that the whole corrective period is a FLAT (the three waves are approximately equal in price length), but it could have well been a TRIANGLE (formed of 5 waves with contracting price lengths), or a Zigzag with a B wave being shorter than the other two. There are less common corrective waves, but I prefer to stick with these more common sequences. Once the Top of 2000 was approached and barely exceeded, it was clear that the bull market was coming to an end. Still, I would not have bet the range that such a collapse, the likes that we have seen would actually take place. But I did save myself from a 50% loss, as many traders and investors suffer in 2008. Understanding the Elliott wave saved me. Ideally, understanding the theory may help you be more cautious and think of alternative to investing for the long term during some periods and actually investing for the long term in others. Provided that the C wave finally closes, we should be poised to another bull market again. The trick is in finding the proverbial market bottom to buy at historical lows.

In the following articles in this series, I will be speculating on when and how would the end of this bear market would be reached.