The DJIA Stock Market Index, Chess and the Idiotic Robots
Stock-Markets / Elliott Wave Theory Jul 02, 2009 - 05:46 AMBy: Eric_Chevrette
Though chess does stand second to the DJIA in the title of the present article, let’s start with some thoughts about chess; after all, as it has now become a known fact, there is chaos in order, so the first place of the DJIA in the current title shouldn’t mean at all that it would be more important than chess with regards to the “idiotic robots”.
I hope as well that you don’t mind these few digressive words, after all so many people talk and write for just telling nothing, I thought I could afford it for a really short while.
Who does still remember the glorious times of 1972 when a true genius and US citizen by the name of Robert James Fischer won the title of world chess champion after defeating the Russian Boris Spassky in Reykjavik? One of the most striking things “Bobby” did in the following years was his attempt in 1996 to revive the game of chess with new rules which are known nowadays under the name of “Fischer Random chess” or Chess960.
All the rules of Chess960 aim at creating a randomized initial chess position with a view to make life harder for “idiotic robots” (those guys and computers knowing “opening books” by heart until move 30 and even beyond) and to build a broader ground field for creativity and talent. With 960 possible initial positions for the chess pieces, Fischer Random Chess has started to win some international reputation after Peter Leko became the first world Chess960 champion in 2001.
One could easily find some deeply striking similarities between Chess960 and the application of the basic Elliott Wave Principle to financial markets: the initial position never looks the same but the same rules are going to apply thru each game. In other words, at the initial stage of any multi year cycle for financial markets, the “initial position” never looks the same but the same rules will apply for TA, especially for the application of the Wave Principle, thru the entirety of the cycle. Of course, the Elliott Wave Synchronicity concept is meant to be a true and efficient UPGRADE of the basic Elliott Wave Principle with a view to facilitate the analytical process and incurred trading decisions thru such a “market cycle”.
If the “initial position” would never “look the same”, EWS principles and rules should facilitate the identification of the market’s onward march thru an ongoing cycle.
Nevertheless, you shouldn’t need to dig into the somewhat intriguing world of Elliott Wave Principle to encounter specific situations where the risk would be serious to become one of those “idiotic robots” who think “they know it all by heart from the 1st move until move 30” and the repetition of the same “market’s moves” would lead to easy trading solutions.
As a matter of fact, even standard TA can sometimes meet with such critical situations where it should be crucial to find out asap on which side of the trade the “idiotic robots” would eventually end up sitting stoned AND with a loss. Such a specific situation would certainly come out with a downward trending channel, especially when the “index” would be getting near the higher trend, which most analysts would certainly and quickly regard as an opportunity to go short.
Chart #1
As a matter of fact, chart #1 is certainly featuring one of those VERY critical situations: it has now become obvious that a truly clean 3rd point did materialize a truly clean downward trend with a truly clean channel for the DJIA; of course, you can be sure that this truly clean DJIA chart with its downward pointing channel has recently become the main topic of hot discussions among traders, investors and analysts in the entire financial community (not just in the US).
The DJIA is so much important for so many people in the financial community that this perfect channel couldn’t go missing or unreported in many “hot reports” written by many “hot analysts” for as many as possible “hot investors”. It is even ironical that so much time and energy would go in fumes about this DJIA channel in these “hot reports” while that would not even say if (US) common stocks would be the right place where to be with your money (we mean OPTIMUM asset class allocation). Anyway, with such a seemingly perfectly bad looking chart, the chance is really HIGH that most of these “hot reports” would deliver a bearish tone. The chance is even higher if you use the BASIC Elliott Wave Principle that no matter how broad your knowledge and experience you feel somehow compelled to find should I say FORGE a WRONG wave count that would suit such a powerful trending channel. Alas, the chance is even much higher that the bearish look of the DJIA chart would freeze the “hot brain cells” of these “hot” experts and analysts and stop them from envisioning the question of the month (maybe even of the YEAR).
After all, if even famous experts who were right in 2007 and 2008 recently expressed the view in major public media that the current rally from the March 2009 lows should be unsustainable (you may even have heard that US stocks could dive to half their mid March lows under a big deflationary bite), it should be clear that the current situation would be offering everyone’s dream position from where to initiate another medium to long term short selling trade........
That is at least what those brave “hot traders” must be thinking these days after initiating short positions two weeks ago on point #3 along the DJIA downtrend, most likely while keeping an eye on DJIA 7,000 why not 6,000 or even 2,000 (hey, we do know this position, we’ve seen this before, let’s play “the book”)......
Despite all those brave certainties and decisions, I do maintain that THE question of the month (maybe even of the YEAR) should certainly remain whether those who were seemingly right going short two weeks ago at point #3 on the DJIA downtrend can “keep their crown” and for how long OR if they would end up sitting there as stoned “idiotic robots” within some time and how soon. As a matter of fact, how would a “short selling trade” feel and taste if the DJIA would suddenly BREAK OUT above the higher trend of the channel? That IS definitely something quite unthinkable for many people (because the shine of perfection is there to dazzle them with this downward trending channel), especially those “hot traders” we just mentioned a few lines earlier.......
If you have read too many of those “hot reports” telling you that “the DJIA is DOWN and we mean DOWN for good..... and why not DJIA down to 2,000 or 400?”, it is very much likely that you would feel utterly stoned in such a situation (in case the DJIA would break above its downtrend). Most likely, you could no longer find in yourself the much needed “intestinal fortitude” to REVERSE to long positions (because your frozen mind would just REFUSE to see the “buy signal” given by the breakout above the channel). Indeed, that would be an EMOTIONAL CRASH of major proportion for you as a trader/investor or as an analyst...........
As you may know, the concept of Elliott Wave Synchronicity did REVERSE from short to long several months ago in early April 2009 (see the green circle in chart #1); no matter whether the DJIA would suddenly break thru the all too seemingly undestructible wall of these bearish “hot reports” (but guess which side of the coin EWS is looking at RIGHT NOW and we just mean from today onward), maybe you would consider a subscription to The Synchronicity Letter as an alternative information source whispering some much needed “fresh air” (please take note that there is now a 3 month trial). Please consider that TSL is not just dealing with stocks but with gold and miners as well. Remember as well that TSL does not go for market predictions but for FIGURES: our 3 model portfolios are there to assess EWS studies (because only figures do matter in the end) and we use the concept of EWS to constantly find out whether common stocks would be more favourable than miners and over which time frame or vice versa.
As a matter of fact, OPTIMUM asset class allocation should mean that you ride the BEST asset class over a given time window while you go for the BEST PICKS within that specific asset class, which is EXACTLY what EWS goes for with The synchronicity Letter and its model portfolios. For the time being, while the NYSE Composite is up 4.00% since the June 22 low, TSL model portfolios just take the lead thanks to an accurate asset allocation with good picks (for example MIX is up more than 15% since June 22). No trick, no derivative, just the right pick. Moreover, we now have a unique offer with TSL PLUS only and until July 31, making it possible for you to learn about a rare opportunity with “the right horse in the right field” and a minimum average 4% weekly gain to come over the next 8 to 12 months. No kidding, no trick, no leverage, just the right “pick”.
By Eric F.M. Chevrette
http://www.market-sync.com
mailto: the_synchronicity_letter@yahoo.fr
France - Fone: 00.237.9.660.53.59
© 2009 Eric F.M. Chevrette
Eric F.M. Chevrette did graduate in 1984 from ESCP (Ecole Supérieure de Commerce de Paris, see http://www.escp-eap.net for a top European Business School which does regularly appear in the yearly ranking done by the Financial Times) with a specialization in International Business and Finance. He translated Bob Prechter’s “Elliott Wave Principle: key to market behavior” into French in 1989. After gathering 20 years of experience with the waves in his professional work, Eric F.M. Chevrette did finally develop the innovating concept of Elliott Wave Synchronicity (EWS), a simple upgrade of the basic Elliott Wave Principle (EWP) meant to offer higher reliability and efficiency over the medium/long term. This concept is now made available to the broad public with The Synchronicity Letter. Details and subscriptions for 6, 12 or 18 months are available at http://www.market-sync.com
Disclaimer - Though the broad content of The Synchronicity Letter is resulting from thorough studies deriving from sources and methods believed to be reliable, it must be strictly understood that the publication of this newsletter is intended for general information and educational purposes only and never as investment advice.
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