🔸5.2 Long Term Waves
Last updated
Last updated
Data for researching price trends over the last two hundred years is not especially difficult to attain, but we have to rely on less exact statistics for perspective on earlier trends and conditions. The long term price index compiled by Professor E. H. Phelps Brown and Sheila V. Hopkins and further enlarged by David Warsh is based on a simple "market basket of human needs" for the period from 950 A.D. to 1954.
By splicing the price curves of Brown and Hopkins onto industrial stock prices from 1789, we get a long-term picture of prices for the last one thousand years. Figure 5-3 shows approximate general price swings from the Dark Ages to 1789. For the fifth wave from 1789, we have overlaid a straight line to represent stock price swings in particular, which we will analyze further in the next section. Strangely enough, this diagram, while only a very rough indication of price trends, suggests a five-wave Elliott pattern.
Paralleling the broad price movements of history are the great periods of commercial and industrial expansion over the centuries. Rome, whose great culture at one time may have coincided with the peak of the previous Millennium wave, finally fell in 476 A.D. For five hundred years afterward, during the ensuing Millennium degree bear market, the search for knowledge became almost extinct. The Commercial Revolution (950-1350) eventually sparked the first new Grand Supercycle wave of expansion. The levelling of prices from 1350 to 1520 represents a "correction" of the progress during the Commercial Revolution.
The next period of rising prices, coincided with both the Capitalist Revolution (1520-1640) and with the greatest period in English history, the Elizabethan period. Elizabeth I (1533-1603) came to the throne of England just after an exhausting war with France. The country was poor and in despair, but before Elizabeth died, England had defied all the powers of Europe, expanded her empire, and become the most prosperous nation in the world. This was the age of Shakespeare, Martin Luther, Drake and Raleigh, truly a glorious epoch in world history. Business expanded and prices rose during this period of creative brilliance and luxury. By 1650, prices had reached a peak, leveling off to form a centurylong Grand Supercycle correction.
The next Grand Supercycle advance within this Millennium wave appears to have begun for commodity prices around 1760 rather than our presumed time period for the stock market around 1770 to 1790, which we have labelled "1789" where the stock market data begins. However, as a study by Gertrude Shirk in the April/May 1977 issue of Cycles magazine points out, trends in commodity prices have tended to precede similar trends in stock prices generally by about a decade. Viewed in light of this knowledge, the two measurements actually fit together extremely well. This Grand Supercycle wave coincides with the burst in productivity generated by the Industrial Revolution and parallels the rise of the United States of America as a world power.
Elliott logic suggests that the Grand Supercycle from 1789 to date must both follow and precede other waves in the ongoing Elliott pattern, with typical relationships in time and amplitude. If this be true, then the 1000-year Millennium wave, unless it is extending, has almost run its full course and stands to be corrected by three Grand Supercycles (two down and one up), which could extend over the next five hundred years. It is difficult to think of a low-growth situation in world economies lasting for such a long period. This broad hint of long term trouble does not preclude that technology will mitigate the severity of what might be presumed to develop socially. The Elliott Wave Principle is a law of probability and degree, not a predictor of exact conditions. Nevertheless, the end of the current Supercycle (V) should lead to some form of economic or social shock ushering in another era of decline and despair. After all, if it was the Barbarians who finally toppled a rotting Rome, can it be said that the modern-day barbarians do not have adequate means and a similar purpose?
This long wave has the right look of three waves in the direction of the main trend and two against the trend for a total of five, complete with an extended third wave corresponding with the most dynamic and progressive period of U.S. history. In Figure 5-4, the Supercycle subdivisions have been marked (I), (II), (III) and (IV), with wave (V) currently in progress.
Figure 5-4
Considering that we are exploring market history back to the days of canal companies, horse-drawn barges and meager statistics, it is surprising that the record of "constant dollar" industrial share prices, which was developed by Gertrude Shirk for Cycles magazine, forms such a clear Elliott pattern. Especially striking is the trend channel, the baseline of which connects several important Cycle and Supercycle wave lows and the upper parallel of which connects the peaks of several advancing waves. A market high in 1983 would touch the upper parallel reasonably within our target area of 2500-3000, assuming no radical net change in the wholesale price index.
Wave (I) is a fairly clear "five," assuming 1789 to be the beginning of the Supercycle. Wave (II) is flat, which neatly predicts a zigzag or triangle* for wave (IV), by rule of alternation. Wave (III) is extended and can easily be subdivided into the necessary five subwaves, including an expanding triangle characteristically in the fourth wave position. Wave (IV), from 1929 to 1932, terminates within the area of the fourth wave of a lesser degree.
An inspection of wave (IV) in Figure 5-5 illustrates in greater detail the zigzag of the Supercycle dimension that marked the most devastating market collapse in U.S. history. In wave an of the decline, daily charts show that the third subwave, in characteristic fashion, included the Wall Street crash of October 29, 1929. Wave A was then retraced approximately 50% by wave b, the "famous upward correction of 1930," as Richard Russell terms it, during which even Robert Rhea was led by the emotional nature of the rally to cover his short positions. Wave c finally bottomed at 41.22, a drop of 253 points or about 1.382 times the length of wave a. It completed an 89 (a Fibonacci number) percent drop in stock prices in 3 (another Fibonacci number) years.
It should be mentioned again that Elliott interpreted 1928 as the orthodox top of wave (III), with the 1929 peak marking an irregular top. We find several faults with this contention, as does Charles Collins, who agrees with us that 1929 probably marked the orthodox high. First, the decline from 1929 to 1932 is a fine specimen of a 5-3-5 zigzag decline. Next, for wave (III) to have topped in 1928, wave (IV) would have to assume a shape that is not consistent with the "right look" for a 3-3-5 expanded flat correction. Under that interpretation, wave c is way out of proportion to the smaller a and b waves and terminates an uncomfortably great distance below the low of wave a. Another problem is the power of the supposed b wave, which remains well within the uptrend channel and terminates through the upper trendline, as a fifth wave often does. Ratio analysis of wave (IV) supports both Elliott’s contention of an irregular top and our thesis of an orthodox top since wave c under Elliott’s analysis is 2.618 times as long as the net decline of wave a from November 1928 to November 1929, and under our analysis wave c is 1.382 (.382 is the inverse of 2.618) times as long as wave a from September 1929 to November 1929.
Wave (V) of this Grand Supercycle is still in progress but has so far conformed beautifully to the expectation that since wave (III) was an extension, wave (V) should be approximately equal to wave (I) in terms of time and percentage magnitude. Wave (I) took about fifty years to complete, as should wave (V) if it ends when we expect. Its height on the constant dollar chart is about equal to the height of wave (V), expressing equality in terms of percentage advance. Even their "looks" are not dissimilar. Wave (V) of the Grand Supercycle is further analyzed below.
