Page 1 of 11

March 24, 2014

The Exceptional Elliott Wave Count

Below is the Big Picture Elliott count from 1900. Radically different from the establishment’s

crude version1, this Exceptional Count fills-in many of Elliott’s formerly Missing Pieces.

These include the Diag II - a foundational corrective structure, which signals the start of a

long Bear Market, while its reciprocal Diag II, to heralds a long Bullish trajectory. Finally,

Elliott’s A-B Base, arrogantly discarded by Robert Prechter2 some thirty years ago, restored to

its rightful place as the a-b-(A); a-b-(B) degree transcending structure.

Figure #1 The Exceptional Elliott Count since 1900

Page 2 of 11

From baseline, Primary Degree, a semi-log step gears up magnitude to Cycle Degree. A

semi-log step higher, you find Supercycle Degree. In Bull Markets the 3rd of the 3rd gears

down magnitude to appear nearly smooth.

For the sake of simplicity, Primary Degree is analogous to Baby Bear, Cycle Degree

parallels Mama Bear, and Supercycle equates to Papa Bear, each double the previous

scopes in time and magnitude. Viewed from monthly intervals, Intermediate Degree,

scales at 50% of Primary Degree, to make its debut in the 3rd of the 3rd of Bull Markets .

While impulse waves & Bull Markets are characterized by smoothness, Bear Markets and

corrections are best described as rough & volatile. Bear Markets are simply higher

magnitude corrections, otherwise identical to a corrective structure which completes in

10-minutes. As Benoit Mandelbrot observed, “without the legend, you can’t tell the

difference between a chart spanning 10 years, and ten minutes, they scale the same.”

The a-b-(A); a-b-(B) Transcending structure

This omni-directional a-b-(A); a-b-(B) structure previews reversals in either direction,

while often concurrently transcending magnitude, via Power Laws3. Without these

foundational structures, Elliott forecasting is hit or miss.

Figure #2 Transcending structure a-b-(A); a-b-(B) to Supercycle Degree

Page 3 of 11

Figure #2 visually demonstrates magnitude gearing in detail, from 1978 to 1980. The

transcending structure mimics the trajectory of a pinball, being optimally whacked by an

ace player. With each strike of a paddle, energy & momentum become magnified to

result in the activation of power laws.

Furthermore, gearing-up to proceeded the long Supercycle Bull Market - the only

segment to unroll at Supercycle degree in practice, resulting in an aggregate

appreciation of nearly 28 times the entire previous price-history, over just 18 years.

(16,500-572)/572 = 27.84 Wave gearing took effect immediately after Cycle Wave IV, &

only reversed back to baseline Primary degree, just prior to the conclusion of

Supercycle (III).

Magnitude transitions occur after the 4th wave. Historically, degree transitions have

been labeled as “noise”, ignored entirely, or co-mingled with the foregoing 4th wave, to

conjure up a fictitious, “running correction”.

Before Exceptional Bear’s highly evolved version of Elliott’s legacy, the Wave Principle,

like Brünhilde’s deep sleep, remained shrouded in a cloud of mystery & frozen in time.

Channeling

As Elliott documented, a neat channel is the product of accurate annotation. Delimited

by an upper line connecting waves 1 & 3, and a lower parallel, drawn from the

conclusion of wave 2, this channel confirms an accurate wave count. Once wave 4

completes, the channel often requires broadening, to include the conclusion of wave 4 &

accommodate the subsequent higher degree effectuated by power laws.

For RN Elliott this widening requirement was simply an empirical observation, as he

died oblivious of the transcending structure. As I discovered, the reason the channel

widens is that magnitude gears-up after the 4th wave. In the Exceptional Count in figure

#1, this transcending structure geared up to Supercycle Degree right after Cycle Wave

IV, in 4thQ 1977. Figure #9 in the footnotes shows further examples of magnitude

gearing, to activate power laws.

Page 4 of 11

Figure #3 The Dow’s Supercycle Wave (II) (1904 -1932) in arithmetic scale

In figure #3, a magnified view of Supercycle (II), the (A)-(B)-(C) Bear Market completed

1932. Supercycle (II) matches-up in magnitude & structure with Supercycle Wave (IV),

originating in 2000. In other words, these are the corresponding, wave 2 & 4 corrections

within a larger 5-wave, impulse progression launched in 19044.

Wave (A) is one and the same as the culminating E-wave of the Diag II. Figure #1

shows the structure with-in the larger perspective. The long plunge indicated by the two

sequential Diag II’s in 1908 & 1921, took effect in wave (C)’s crash, & subsequent free-

fall to the 1932 trough. Between Waves (A) & (C) a spectacular (B)-wave, Sucker’s Rally,

took off as the “Roaring 20’s”.

Since Supercycle (II)’s magnitude geared-up in wave (B), prior to the wave (C) Crash

& trough. To Alternate with this structure, Supercycle (IV) geared-up instead in Wave

D’s as proven by the irregular top5. Likewise, a similar irregular top in Wave B

contained only a single magnitude gearing to indicate a Wave C of half the magnitude as

the current Wave E. This implies the plunge in process will lurch down at twice the

magnitude as the 2008-2009 free-fall.

Page 5 of 11

In other words, Supercycle (III) ended 2000, is analogous to the Wave (B) Bear Market

Rally ended 1929. The troughing wave alternates between (A) & (C) of Supercycle

Waves (II) & (IV). The current, subsequent move – should serve as both the crashing &

troughing wave. A Crash in Wave (A), concurrent with a values trough, would indicate a

severe deflationary backlash to artificial stimulus.

In the current Dow in figure #4, you see the two Bullish Diag IIs in 1985 & 1987, which

signaled the long Bull Market ended in 2000. That long Bull Market must be corrected

by an even larger plummet, to retrace at least entire Bull Run since 1977.

Figure #4 The Current Dow structure - Diag II wave (A) in process

The Bear plunge is heralded by two relatively huge Bearish Diag IIs. This same structure

that announced the long Bullish trajectory, now accentuates the Papa Bear’s innately

volatile personality.

Purple dashed lines indicate where magnitude power laws initially took effect. A single

degree higher in wave B was swiftly retraced in the wave-C trough ended 2009.

Page 6 of 11

Obviously the additional gearing in wave-D, makes wave-E at least twice as severe as

wave C.

Bear Market Rallies vs. genuine Bull Markets

Although Bear Market Rallies climb price charts to impersonate Bull Markets, they sub-

divide into 3’s, rather than the 5 waves, required of legitimate Bull Markets.6 In the

subsequent Wave (C), or (E of a Diag II), Bear Market Rallies retrace entirely. In figure

#3 above, you see Supercycle Wave (II)’s 1932 Wave (C) retraced back to the origin of

Supercycle Wave (I) in 1904.

In Figure #5 you find Cycle Wave IV, the previewing fractal of Supercycle (IV) - a

50%-scale replica. You will note that the larger Diag II must be repeated as an echoing

fractal in wave E to confirm the troughing wave. In wave (C) of Supercycle (II) figure

#3 & wave e to conclude A of Cycle (IV) in figure #5.

Figure #5 Cycle Wave IV Diag II-A – the previewing fractal of Supercycle (IV)

(single degree transition in wave d, plus an echoing e-wave Diag II)

Values confirm the Exceptional Wave Count

Figure #5 illustrates a century’s Equity Values superimposed with Exceptional Bear’s

wave count. Long-term Values, including Robert Schiller’s Cyclically-smoothed 10-year

P/E ratio & Tobin’s q-ratio, a measure of replacement costs, irrefutably confirm the

Page 7 of 11

Exceptional Wave count. Extreme overvaluation for the entire 20th Century peaked in

2000, concurrent with Supercycle (III). Supercycle (III)’s frothiness exceeded the 1929,

Waves (A) Bubble by over 20%. What’s more, in terms of overvaluation, the Market’s

now reverted to 1929’s overvaluation.

The red horizontal line with yellow dots in Figure #5 denotes the minimum trough

required of Cycle Bear Markets & the lesser of Waves (A) & (C) of Supercycle magnitude.

A bit lower down, the orange horizontal line denotes the minimum values trough for the

entire Bear Markets: Supercycle Waves (II) & (IV).

Long-term values, as verified by Russell Napier’s Anatomy of the Bear: Lessons from

Wall Street's Four Great Bottoms, indicates a minimum Wave-(A) plunge to the orange

line at -0.9. This implies stocks will sell for a maximum of 10 cents on the dollar, just as

in 1932. It’s highly likely that both the values & price troughs will coincide to conclude

the current Wave-(A).

Figure #5 Long-term Values confirm the Exceptional Wave Count

Page 8 of 11

Figure #6 The Consumer Price Index must deflate in Supercycle (IV) Wave-(A)

Deflation can be expected to drop CPI back to 10% of its current level to the

approximate level of 1955. In similar fashion, 1920 plunged consumer prices back to

Civil War levels, 70 years prior. Note the Fed effect. Inflation favors debtors, by allowing

them pay back their debts in cheaper dollars. The US Government is the World’s largest

debtor. Deflation turns the tables on debtors, to favor savers. Those with savings see

their purchasing power rise dramatically, as all assets plunge in value, along the same

lines as stocks in the example above.

Elliott Forecasting remains an art to which this exceptional subjective perception

matters far more than any objective verdict, deduced by nonsensical statistics, which

mingle Bull & Bear Markets as if they were apples & oranges.

Conclusion: We are living through a Bubble Market, which will likely burst in 2014 for a

free-fall in excess of 50%. Such a blip in volatility presents immense opportunities to

compound profit due to inherent clustering. With the market no longer veiled by a

mysterious fog, the potential to compound both gains & relative wealth go far beyond any

previous opportunity. Scaling indicates the odds of compounding $10,000 to $100,000

are as great as augmenting $100,000 to a $1m. These scale to the same degree.

Page 9 of 11

Footnotes:

1Robert Prechter's generally-accepted, long Elliott-wave count, represented in Figure #1, shows

Supercycle Waves (I)-(IV) having completed by 1932 in a highly irregular channel, lacking the

required parallel lines. This contrived channel was forced to fit a naïve count, rather than one

elucidated by the corresponding annotations. Blind to Diag IIs, both Bullish & Bearish, in addition

to magntude transitions. Power Laws which transcend magnitued are located after the 4th wave.

Still unrecognized, these structures, denoted by the Diag^ indicate far more than dramatic

reversal ahead. They preview magnitude shifts, which scale according to Zipf’s Power Laws

form are a subset of Elliott’s long-discarded A-B Base, required for every reversal.

Figure #8 The Mysterious Count

To put this in perspective, here’s the Exceptional Bear count in the identical time frame.

Following a 52-year Grand Supercycle Wave [II] Bear Market, the count begins at the bottom left,

with an 80-year (a)-(b)-(A); (a)-(b)-(B) transition “gearing down” from Grand Supercycle to

Supercycle degree. A second transition in sequence transcends from Supercycle, to Cycle

degree, so the wave count can begin to increment in “stair-step fashion” once more. The basic

building blocks at any degree of trend are Primary degree. Degree transitions come in pairs to

transcend from Cycle to Supercycle Degree. From the magnitude and the length of time required

for these two transitions, it becomes obvious that they gradually scale up or down as required to

bridge degrees of magnitude. Facilitated by data from the Foundation for the Study of Cycles,

in Figure #2, you see the logical, long-term Elliott Wave count, a synthesis of RN Elliott’s

Page 10 of 11

empirical evidence & Benoit Mandelbrot’s fractal discoveries. This count replaces the former

chaotic appearance with ordered precision. Note how the channel fits the Big Picture.

Figure #9 The Exceptional Wave Count (nothing’s swept under the rug)

2According to Robert Prechter, “Elliott invented the A-B Base during a period in which he was

trying to force this pattern...if such a pattern existed, it would have the effect of flatly invalidating

the Wave Principle. The authors (Frost & Prechter) have never seen such a pattern, and have every

reason to believe it cannot exist. Its invention by Elliott merely goes to show that for all his meticulous

study and profound discovery, (Elliott) displayed a typical investor’s weakness in allowing a prior

opinion to adversely affect his objectivity in analyzing the market”. From Exceptional Bear’s

perspective it was Robert Prechter who “forced” the long-term wave count into the “contrived

channel”, shown above in figure #8.

3As George Kingsley Zipf documented in Human Behavior & the Principle of Least Effort, power

laws are synonymous with the Richter scale, used to measure the intensity of earthquakes. A

reading of 7 is ten times more devastating than one having a magnitude of 6 on the Richter

scale. According to Zipf, “power laws only occur in the physical sciences, but rule all manner of

human behavior, organization & anatomy”. By extension, the Market is a reflection of collective

human behavior. Power laws equate with Elliott’s degrees of trend or magnitude.

Page 11 of 11

4Dropping short of the downside in wave C, wave E became truncated indicative of market

forces driving the Bear Market Rally ended 1929.

5An irregular top exceeds the orthodox top as part of the subsequent corrective structure,

rather than as part of the previous impulse wave, to imply a concurrent gearing-up in magnitude.

6Just as higher mammals have 5 fingers & toes, those lower on the evolutionary plane such as

cows, sheep & horses have just three. In horses, the front two toes are fused to form the hoof.

In the advent of horse shoes, this evolutionary modification allowed pachyderms to better

withstand the pounding & allowed them to accommodate a human rider’s weight.

If you subscribe to Stockcharts, please vote daily your vote is critical, this link will take

you directly to our page …you have 3 votes daily.

Eduardo Mirahyes