This Analysis Will Change The Way You Invest Forever - Part 1

Aug. 14, 2018 8:01 AM ET151 Comments198 Likes

Summary

  • Providing an overview of my analysis methodology.
  • Background on Elliott Wave analysis.
  • Recent experiments support the basis for Elliott Wave.

In 2011, I began writing for Seeking Alpha, and quickly encountered a major challenge. I realized that writing about technical analysis on a fundamental analysis website was not going to be easy.

While those that initially read my articles were quite skeptical (and that is probably being kind), as Seeking Alpha readers began to see the accuracy in my analysis, I started to gain a following. It was not long until I was the number one followed metals analyst on Seeking Alpha, and have basically remained in that position for the great majority of the seven years I have been writing on Seeking Alpha.

Lately, one of the commenters to an article I wrote suggested that we peel back the curtain regarding my analysis methodology:

“You have a large following on SA and in my view are the definitive TA expert on SA, so please consider the following: Offering a weekly SA post on TA Basics (101 if you will) in an effort to introduce more to at least gaining an understanding of TA and how they might benefit from it.”

So, after getting buy-in from the editors at Seeking Alpha, I have begun this new series of articles which will give you a bit more insight into the technical analysis methodologies I use.

In the first several articles in this series, I am simply going to provide you an overview of Elliott Wave analysis and why it can assist you in rising above the herd, which often seem to be chasing their tails. After the introductory articles, I will begin discussing Elliott Wave analysis in more detail, and then explain how we use Fibonacci Pinball – a method we developed – to place a more objective structure around standard Elliott Wave analysis. I will then explain how we use standard technical analysis to assist us in coming up with a higher probability wave count.

So, if you are interested in a methodology which will open your minds and eyes as to how markets really work, then let’s move right into the overview.

Back in the 1930’s, an accountant named Ralph Nelson Elliott identified behavioral patterns within the stock market which represented the larger collective behavioral patterns of society en masse. And, in 1940, Elliott publicly tied the movements of human behavior to the natural law represented through Fibonacci mathematics.

Elliott understood that financial markets provide us with a representation of the overall mood or psychology of the masses. And, he also understood that markets are fractal in nature. That means they are variably self-similar at different degrees of trend.

Most specifically, Elliott theorized that public sentiment and mass psychology move in 5 waves within a primary trend, and 3 waves within a counter-trend. Once a 5 wave move in public sentiment has completed, then it is time for the subconscious sentiment of the public to shift in the opposite direction, which is simply the natural cycle within the human psyche, and not the operative effect of some form of “news.”

This mass form of progression and regression seems to be hardwired deep within the psyche of all living creatures, and that is what we have come to know today as the “herding principle,” which gives this theory its ultimate power.

And, over the last 30 years, many social experiments have been conducted throughout the world which have provided scientific support to Elliott’s theories presented almost a century ago.

In a paper entitled “Large Financial Crashes,” published in 1997 in Physica A., a publication of the European Physical Society, the authors, within their conclusions, present a nice summation for the overall herding phenomena within financial markets:

“Stock markets are fascinating structures with analogies to what is arguably the most complex dynamical system found in natural sciences, i.e., the human mind. Instead of the usual interpretation of the Efficient Market Hypothesis in which traders extract and incorporate consciously (by their action) all information contained in market prices, we propose that the market as a whole can exhibit an “emergent” behavior not shared by any of its constituents. In other words, we have in mind the process of the emergence of intelligent behavior at a macroscopic scale that individuals at the microscopic scales have no idea of. This process has been discussed in biology for instance in the animal populations such as ant colonies or in connection with the emergence of consciousness.”

As Elliott stated:

“The causes of these cyclical changes seem clearly to have their origin in the immutable natural law that governs all things, including the various moods of human behavior. Causes, therefore, tend to become relatively unimportant in the long term progress of the cycle. This fundamental law cannot be subverted or set aside by statutes or restrictions. Current news and political developments are of only incidental importance, soon forgotten; their presumed influence on market trends is not as weighty as is commonly believed.”

Next week, I will focus on the last sentence in Elliott’s quote above using real market examples, along with studies performed over the last 20 years. And, once I have presented the theoretical basis for Elliott Wave analysis, I will then present articles breaking down how we perform the analysis.

Housekeeping Matter

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The Market Pinball Wizard

The Market Pinball Wizard attempts to identify turning points and targets in the market with high levels of probability. Our goal is to teach you to fish so you can become a better trader and investor, and ultimately, learn to master the markets on your own.

A subscription includes video tutorials and articles about risk management, Elliott Wave analysis, and Fibonacci Pinball, as well as regular updates on the S&P 500, metals and GDX, USO, and the DXY.

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"Avi Gilbert really knows Elliott Wave Analysis and has the insight and ability to keep me fully apprised of the various possible interpretations of the wave forms. He produces such a superior endeavor that I recently let my subscription to EW International lapse. This service far surpasses any others I've come across."

“Unfortunately I don't have the time to attempt to become a master at labeling charts using the methods of EW. However, I feel like Avi has done an excellent job helping me to understand the general theory behind why it works. It has truly changed my outlook not only on markets, but on the reality of what drives many of the things that happen in the world. It's also helped me have an entirely different approach to my career . . .”

This article was written by

Avi Gilburt profile picture
69.22K Followers
The #1 Service For Market and Metals Direction!
Avi Gilburt is founder of ElliottWaveTrader.net, a live trading room and member forum focusing on Elliott Wave market analysis with over 6000 members and almost 1000 money manager clients. Avi emphasizes a comprehensive reading of charts and wave counts that is free of personal bias or predisposition.

Avi is an accountant and a lawyer by training. His education background includes his graduating college with dual accounting and economics majors, and he then passed all four parts of the CPA exam at once right after he graduated college. He then earned his Juris Doctorate in an advanced two and a half year program at the St. John’s School of Law in New York, where he graduated cumlaude, and in the top 5% of his class. He then went onto the NYU School of Law for his masters of law in taxation (LL.M.).

Before retiring from his legal career, Avi was a partner and National Director at a major national firm. During his legal career, he spearheaded a number of acquisition transactions worth hundreds of millions to billions of dollars in value. So, clearly, Mr. Gilburt has a detailed understanding how businesses work and are valued.

Yet, when it came to learning how to accurately analyze the financial markets, Avi had to unlearn everything he learned in economics in order to maintain on the correct side of the market the great majority of the time. In fact, once he came to the realization that economics and geopolitics fail to assist in understanding how the market works, it allowed him to view financial markets from a more accurate perspective.

For those interested in how Avi went from a successful lawyer and accountant to become the founder of Elliottwavetrader.net, his detailed story is linked here.
Since Avi began providing his analysis to the public, he has made some spectacular market calls which has earned him the reputation of being one of the best technical analysts in the world.

As an example of some of his most notable astounding market calls, in July of 2011, he called for the USD to begin a multi-year rally from the 74 region to an ideal target of 103.53. In January of 2017, the DXY struck 103.82 and began a pullback expected by Avi.

As another example of one of his astounding calls, Avi called the top in the gold market during its parabolic phase in 2011, with an ideal target of $1,915. As we all know, gold hit a high of $1,921, and pulled back for over 4 years since that time. The night that gold hit its lows in December of 2015, Avi was telling his subscribers that he was on the phone with his broker buying a large order of physical gold, while he had been accumulating individual miner stocks that month, and had just opened the EWT Miners Portfolio to begin buying individual miners stocks due to his expectation of an impending low in the complex.

One of his most shocking calls in the stock market was his call in 2015 for the S&P500 to rally from the 1800SPX region to the 2600SPX region, whereas it would coincide with a “global melt-up” in many other assets. Moreover, he was banging on the table in November of 2016 that we were about to enter the most powerful phase of the rally to 2600SPX, and he strongly noted that it did not matter who won the 2016 election in the US, despite many believing that the market would “crash” if Trump would win the election. This was indeed a testament to the accuracy of the Fibonacci Pinball method that Avi developed.


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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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