🔸6.1 Stocks And Commodities
Last updated
Last updated
The art of managing investments is the art of acquiring and disposing of stocks and other securities so as to maximize gains. When to make a move in the investment field is more important than what issue to choose. Stock selection is not unimportant, but it is of secondary importance compared to timing. To be a winner in the stock market, either as a trader or as an investor, one must know the direction of the primary trend and proceed to invest with it, not against it. Fundamentals alone are seldom a proper justification for investing in stocks. U.S. Steel in 1929 was selling at $260 a share and was considered a sound investment for widows and orphans. The dividend was $8.00 a share. The Wall Street crash reduced the price to $22 a share, and the company did not pay a dividend for four years. The stock market is usually a bull or a bear, seldom a cow.
As a mass psychological phenomenon, the market averages unfold in Elliott wave patterns regardless of the price movements of individual stocks. As we shall illustrate, while the Wave Principle has some application to individual stocks, the count for many issues is often too fuzzy to be of great practical value. In other words, Elliott will tell you if the track is fast but not which horse is going to win. With regard to individual stocks, other types of analysis are probably more rewarding than trying to force the stock’s price action into an Elliott count that may or may not exist.
There is a reason for this. The Wave Principle broadly allows for individual attitudes and circumstances to affect price patterns of any single issue and, to a lesser degree, a narrow group of stocks, simply because what the Elliott Wave Principle reflects is only that part of each man’s decision process which is shared by the mass of investors. In the larger reflection of wave form, then, the unique circumstances of individual investors and individual companies cancel each other out, leaving as residue a mirror of the mass mind alone. In other words, the form of the Wave Principle reflects the progress not necessarily of each man or company but certainly of mankind as a whole and his enterprise. Companies come and go. Trends, fads, cultures, needs and desires ebb and flow with the human condition. Therefore, the progress of general business activity is well reflected by the Wave Principle, while each individual area of activity has its own essence, its own life expectancy, and a set of forces that may relate to it alone. Thus, each company, like each man, appears on the scene as part of the whole, plays its part, and eventually returns to the dust from which it came.
If, through a microscope, we were to observe a tiny droplet of water, its individuality might be quite evident in terms of size, colour, shape, density, salinity, bacteria count, etc., but when that droplet is part of a wave in the ocean, it becomes swept along with the force of the waves and the tides, despite its individuality. With over twenty million "droplets" owning stocks listed on the New York Stock Exchange, is it any wonder that the market averages are one of the greatest manifestations of mass psychology in the world?
Despite this important distinction, many stocks tend to move more or less in harmony with the general market. It has been shown that on average, seventy-five percent of all stocks move up with the market, and ninety percent of all stocks move down with the market, although price movements of individual stocks are usually more erratic than those of the averages. Closed-end stocks of investment companies and stocks of large cyclical corporations, for obvious reasons, tend to conform to the patterns of the averages more closely than most other stocks. Emerging growth stocks, however, tend to create the clearest individual Elliott wave patterns because of the strong investor emotion that accompanies their progress. The best approach seems to be to avoid trying to analyze each issue on an Elliott basis unless a clear, unmistakable wave pattern unfolds before your eyes and commands attention. Decisive action is best taken only then, but it should be taken, regardless of the wave count for the market as a whole. Ignoring such a pattern is always more dangerous than paying the insurance premium.
Figure 6-7
Despite the above detailed caveat, there are numerous examples of times when individual stocks reflect the Wave Principle. The seven individual stocks are shown in Figures 6-1 through 6-7 show Elliott wave patterns representing three types of situations. The bull markets for U.S. Steel, Dow Chemical and Medusa show five-wave advances from their major bear market lows. Eastman Kodak and Tandy show A-B-C bear markets into 1978. The charts of Kmart (formerly Kresge) and Houston Oil and Minerals illustrate long term "growth" type advances that trace out Elliott patterns and break their long term supporting channel lines only after completing satisfactory wave counts.
