How to “Read” Our Multi-Pronged Analysis

This section provides a quick summary of how to interpret our multi-pronged analysis:

• Valuation charts define long-term prospects and state of the market – They should not be used for short-term timing decisions.

• Sentiment: Most sentiment charts that we present also have a longer-term impact. Exceptions might be CNN’s Fear & Greed Index at the extremes and Put/Call Ratios, such as a 5D average.

• Time Cycles: 1) Peaks and troughs of single cycle and cycle composites (comprising multiple cycles) should be interpreted as approximate price turning points. One should provide a tolerance around extreme values of about 10%-15% of the period of the cycle or of the longest cycle in the cycle composite; 2) Some cycles vary over time more than others and cycle “predictions” become less accurate further out; 3) One should not correlate amplitudes of cycle variations with potential amplitudes of price variations, i.e. time cycles are used strictly for estimates of turning points in time; 4) One should also be aware of interactions of cycles of different periods or cycle composites obtained from charts on various time scales.

• Cycle Price Projections: Cycle price target ranges are generally fully satisfied 70% of the time (slight variations over different instruments and cycle periods). If we allow for “approached but not reached,” the probability becomes higher. In uptrends, the likelihood of satisfying up and down targets is higher and lower, respectively. When a cycle target is satisfied, at least a short-term reversal can be expected, except in waterfall situations.

• Elliott Wave Analysis: This is the most complicated part of our analysis. We often use multiple plausible EW count alternatives, which frequently may confuse non-experts in Elliott Wave Theory (EWT). My approach differs from many EWT practitioners who show only the preferred count, which often may be wrong. The fact is that there are multiple potential ways in which a wave may evolve. Only after a complete reversal can we say with more certainty whether the EW count was A, B, or C, and even then, we sometimes have a dilemma. My multiple EW counts approach enables me to define the risks and potential gains. Here are a few guidelines on how to use my EW approach: 1) Give more weight to EW counts that rhyme with time cycles and price projections; 2) Give more weight to EW counts for which typical Fibonacci projections rhyme with cycles price projections; 3) Make bigger bets when multiple methods and EW counts agree on the directions; 4) Make bigger bets when the short-term and long-term analysis agree on the direction; 5) Minimize trading exposure when there is ambiguity – be patient for the market to provide a more apparent opportunity.

Our multi-pronged approach enables us to predict turning points with high precision, stay in trends as long as possible, and de-risk in mature trends. In my 30+ years of following the markets, I have subscribed to many newsletters and web services on the stock market and have not seen anything comparable in accuracy. Typically, these services use one or two of the above approaches, which is suboptimal.

However, our approach may sometimes provide inaccurate conclusions, as financial markets are dynamic systems occasionally disturbed by significant random/fundamental events. Therefore, it is desirable to use risk management (e.g., stop loss orders), which is a topic of its own and heavily depends on the type of trading/investing approach.