🔸1.8 Additional Terminology (Opition)
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Though the action in five waves is followed by a reaction in three waves at all degrees of trend regardless of direction, progress begins with an actionary impulse, which by convention is graphed in the upward direction. (Since all such graphs depict ratios, they could be depicted in the downward direction. Instead of dollars per share, for instance, one could plot shares per dollar.) Ultimately and most fundamentally, then, the long-term trend of the stock market, which is a reflection of man’s progress, is upwardly directional. Progress is carried out by the development of impulse waves of an ever larger degree. Motive waves downward are merely parts of corrections and therefore are not synonymous with progress. Similarly, corrective waves upward are still corrective and thus ultimately do not achieve progress. Therefore, three additional terms are required to denote the purpose of a wave, to differentiate conveniently between waves that result in progress and those that do not.
Any motive wave upward that is not within a corrective wave of any larger degree will be termed a progressive wave. It must be labelled 1, 3 or 5. Any declining wave, regardless of mode, will be termed a regressive wave. Finally, an upward wave regardless of mode, that occurs within a corrective wave of any larger degree will be termed a progressive wave. Both regressive and progressive waves are part or all of the corrections. Only a progressive wave is independent of countertrend forces.
The reader may recognize that the commonly used term "bull market" would apply to a progressive wave, the term "bear market" would apply to a regressive wave, and the term "bear market rally" would apply to a progressive wave. However, conventional definitions of terms such as "bull market," "bear market," "primary," "intermediate," "minor," "rally," "pullback" and "correction" attempt to include a quantitative element and are thus rendered useless because they are arbitrary. For instance, some people define a bear market as any decline of 20% or more. By this definition, a decline of 19.99% is not a bear market, just a "correction," while any decline of 20% is a bear market. Such terms are of questionable value. Although a whole list of quantitative terms could be developed (cub, mama bear, papa bear and grizzly, for instance), they cannot improve upon the simple use of a percentage. In contrast, Elliott wave terms are properly definitive because they are qualitative, i.e., they reflect concepts and pertain regardless of the size of the pattern. Thus, there are differing degrees of progressive, regressive and proregressive waves under the Wave Principle. A Supercycle B wave in a Grand Supercycle correction would be of sufficient amplitude and duration that it would be popularly identified as a "bull market." However, its proper label under the Wave Principle is a proregressive wave, or using the conventional term as it should be used, a bear market rally.
There are two classes of waves, which differ in fundamental importance. Waves denoted by numbers we term cardinal waves because they compose the essential wave form, the five-wave impulse, as shown in Figure 1-1. The market can always be identified as being in a cardinal wave at the largest degree. Waves denoted by letters we term consonant or subcardinal waves because they serve only as components of cardinal waves 2 and 4 and may not serve in any other capacity. A motive wave is composed, at one lesser degree, of cardinal waves, and a corrective wave is composed, at one lesser degree, of consonant waves. Our selection of these terms is due to their excellent double meanings. "Cardinal" means not only "of central or basic importance to any system, construction or framework of thought" but also denotes a primary number used in counting. "Consonant" means not only "harmonious with other parts [in] conforming to a pattern," but also is a type of letter in the alphabet. (Source: The Merriam-Webster Unabridged Dictionary.) There is little practical use for these terms, which is why this explanation has been relegated to the end of the chapter. However, they are useful in philosophical and theoretic discussions and so are presented to anchor the terminology.
Figure 1-49
In The Wave Principle and elsewhere, Elliott discussed what he called an "irregular top," an idea he developed with a great deal of specificity. He said that if an extended fifth wave terminates a fifth wave of one higher degree, the ensuing bear market will either begin with or be an expanded flat in which wave A is extremely (we would say impossibly) small relative to the size of wave C (see Figure 1-49). Wave B to a new high is the irregular top, "irregular" because it occurs after the end of the fifth wave. Elliott contended further that the occurrence of irregular tops alternates with those of regular tops. His formulation is inaccurate, however, and complicates the description of phenomena that we describe accurately in the discussion of the behaviour following fifth wave extensions and under "Depth of Corrective Waves" in Chapter 2.
The question is, how did Elliott end up with two extra waves that he had to explain away? The answer is that he was powerfully predisposed to marking a fifth wave extension when in fact the third wave had extended. Two impressive Primary degree fifth wave extensions occurred in the 1920s and 1930s, engendering that predisposition. In order to turn an extended third into an extended fifth, Elliott invented an A-B-C correction called an "irregular type 2." In this case, he said, wave B falls short of the level of the start of wave A, as in a zigzag, while wave C falls short of the level of the end of wave A, as in a running correction. He often asserted this labelling in the wave 2 positions. These labels then left him with two extra waves at the peak. The "irregular type 2" idea got rid of an extension’s first two waves, while the "irregular top" idea handled the two left over at the top. Thus, these two erroneous concepts were born of the same tendency. In fact, one requires the other. As you can see by the count illustrated in Figure 1-50, the a-b-c "irregular type 2" in the wave 2 position necessitates the "irregular top" labelling at the peak. In fact, there is nothing irregular about the wave structure except its false labelling!
Figure 1-50
Elliott also contended that every fifth wave extension is "doubly retraced," i.e., followed by a "first retracement" to near the level of its beginning and a "second retracement" to above the level at which it began. Such movement happens naturally due to the guideline that corrections usually bottom in the area of the previous fourth wave (see Chapter 2); the "second retracement" is the next impulse wave. The term might apply reasonably well to waves A and B of an expanded flat following an extension, as per the discussion in Chapter 2 under "Behavior Following Fifth Wave Extensions." There is no point in giving this natural behavior a specific name.
In Nature's Law, Elliott referred to a shape called a "halfmoon." It was not a separate pattern but merely a descriptive phrase of how a decline within a bear market occasionally begins slowly, accelerates, and ends in a panic spike. This shape is found more often when declining prices are plotted on a semilog scale and when advancing prices in a multi-year trend are plotted on an arithmetic scale.
Also in Nature’s Law, Elliott twice referred to a structure he called an "A-B base," in which after a decline ends on a satisfactory count, the market advances in three waves and then declines in three waves prior to the commencement of the true five-wave bull market. The fact is that Elliott invented this pattern during a period in which he was trying to force his principle into the 13-year triangle concept, which no interpreter today accepts as valid under the rules of the Wave Principle. Indeed, it is clear that such a pattern, if it existed, would have the effect of invalidating the Wave Principle. The authors have never seen an "A-B base," and in fact, it cannot exist. Its invention by Elliott merely goes to show that for all his meticulous study and profound discovery, he displayed a typical analyst’s weakness in (at least once) allowing an opinion already formed to affect adversely his objectivity in analyzing the market.
As far as we know, this chapter lists all wave formations that can occur in the price movement of the broad stock market averages. Under the Wave Principle, no other formations than those listed here will occur. The authors can find no examples of waves above Minor degrees that we cannot count satisfactorily by the Elliott method. The hourly readings are a nearly perfectly matched filter for detailing waves of Subminuette degree. Elliott waves of much smaller degrees than Subminuette are revealed by computer generated charts of minute-by-minute transactions. Even the few data points (transactions) per unit of time at this low a degree are often enough to reflect the Wave Principle accurately by recording the rapid shifts in psychology occurring in the "pits" and on the exchange floor.
All rules and guidelines of the Wave Principle fundamentally apply to actual market mood, not its recording per se or lack thereof. Its clear manifestation requires free market pricing. When prices are fixed by government edicts, such as those for gold and silver for half of the twentieth century, waves restricted by the edict are not allowed to register. When the available price record differs from what might have existed in a free market, rules and guidelines must be considered in that light. In the long run, of course, markets always win out over edicts, and edict enforcement is only possible if the mood of the market allows it. All rules and guidelines presented in this book presume that your price record is accurate.
Now that we have presented the rules and rudiments of wave formation, we can move on to some of the guidelines for successful analysis using the Wave Principle.
