Elliott Wave Principle

• Elliott Wave Theory is a stock technical analysis method based on the idea that human psychology creates waves and cycles in the stock market that repeat over time. Theorists base their assumptions that markets move in repeatable patterns on the notion that mass psychology influences buyers and sellers. This mass psychology, they argue, fluctuates between periods of pessimism to periods of optimism.
  
  

Elliott Waves

• Ralph Nelson Elliott (1871--1948), creator of the theory, believed that stock prices and markets in general move in predictable wave patterns that are governed by cycles which have a foundation in Fibonacci numbers. Fibonacci was a 13th-century Italian mathematician who noticed repeating number patterns in nature. Elliot believed that market wave patterns, like those patterns found in the arrangement of snow flakes and artichoke flowers, are not random, but repeat.
  
  

Cycles

• According to Elliott theorists, waves in the market combine to form cyclical patterns. These cycles range from the Grand Super Cycle, which can span up to 120 years, down to the Sub-Minuette Cycle which may span only a few days or minutes, depending on the time frame scale of the stock chart you are analyzing.
  
  

Long-term Kress Cycles

• The six- and 12-year stock market cycles are subsets of the long-term, 120-Kress Supercycle developed by Elliott adherent Samuel J. Kress. Kress argued that they last 120-year cycle ended with the stock market bottom in 1894, a time that coincided with the end of the U.S. agricultural era and the dawn of the industrial era. According to the theory, a 30-year subset cycle of the larger Kress cycle peaked in the year 2000 marking the end of the long-term bull market, which began in 1894.
  
  

Kress Cycle Subsets

• The long-term Kress cycle is subdivided into minor cycles, which are divided by 60, 40, 30, 12, 10 and 6 years. According to theorists, a six-year subset of the cycle bottomed in 2002 simultaneously with the last 12-year cycle, marking a minor bear market bottom. The 2008 market top that formed represents the top of the following six-year cycle. The thing to understand here is, Elliott wave theorists believe that the long-term bull market is over and that we are now in a long-term bear market. Thus, all current market waves are merely bear market cycles. Now that the last six-year cycle has topped, the current 12-year bottom will not occur until the year 2014.