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History
After about 40 years of investing in the markets one learns that the markets are constantly changing, not only in price, but in what drives the markets. In the 1960s, the Nifty Fifty were the leaders of the stock market. In the 1970s, stock selection using Technical Analysis was important, as the market stayed with a trading range for the entire decade. In the 1980s, the market finally broke out of it doldrums, as the DOW broke through 1100 in 1982, and launched the greatest bull market on record. 
 
It was during the early 1980s that I was introduced to the Elliott Wave Theory, through two books written and edited by Robert Prechter, and AJ Frost; the "Elliott Wave Principle", and " RN Elliott's Original Works". After months upon months of analyzing the stock market, applying the information provided in the texts, I began to notice some problems:
  • there wasn't any definitive answer to where one wave ended and another began,
  • there weren't any confirming indicators outside of the wave structure itself.
  • RN Elliott, the founder, had problems identifying the wave structure between 1932 - 1942.

 
Nevertheless, the EWT certainly looked promising, and was an amazing discovery. As an engineer by trade, I decided to put the Theory to the test of time: the entire history of the US stock market. Living near Washington, DC at the time. I ventured down to the Library of Congress, and collected all the historical data I could find. Eventually, I discovered a book, published by Dow Jones-Irwin; "The Dow Jones Averages 1885 - 1980". Still have it too! Over the next several months I analyzed the markets using the historical data, and the EWT. In time, I made some startling discoveries. The missing tenets of the EWT. The tenets that turned RN Elliotts work, from a Theory into a Principle. 
 
Applying these newfound tenets to the market, I found the waves were crystal clear. The turning points were precise, to the day, because they were quantiatively derived. There was no question when a wave ended and another began. In applying this new technique to the stock market in the mid 1980s. I found Prechter and I had the same exact Elliott Wave count. As a subscriber to his newsletter, I was able to follow the market precisely as he did.
 
By the summer of 1986, Prechter started to deviate away from what I was observing in the marketplace. Then by the spring of 1987, my analysis suggested, the market was about to conclude Primary wave three, and enter a serious correction. I analyzed the DOW, and several other indices. And they all indicated the same conclusion. In May 1987, I wrote a 10-page report and forwarded it to Prechter, and Barrons. Richard Rescigno, from Barrons, contacted me, and we abbreviated the report into a one-page article. It was published in Barrons on June 29,1987, entitled; "NEW WAVE One Interpretation of Elliott's Theory Backs the Bears". In July, Prechter adopted my count as his alternate count. Here is the article:
 

New Wave --- One Interpretation of Elliott's Theory Backs the Bears
By Anthony V. Caldaro
675 words
29 June 1987
Barron's
English
(Copyright (c) 1987, Dow Jones & Co., Inc.)
 
THE Elliott Wave theory currently has a big following on Wall Street, and justifiably so. Although it's a subjective approach to the stock market, when interpreted properly, it is the best tool available today.
Indeed, Robert Prechter, the chief theorist, has made many excellent calls during the bull market. However, during the past four years, I have studied this theory extensively, and my findings currently point to a less bullish scenario than he and some other Elliott Wave practitioners foresee.
 
There is a high probability that the current series of new highs in the Dow Jones Industrial Average will mark the end of this leg of the bull market. The market will not exceed 2500 in 1987 or 1988, unless we crash to under 1900 by early 1988. Secondary stocks, Amex issues, Nasdaq offerings and low-priced stocks will have very serious corrections, possibly all the way back to their 1984 levels.
 
Here's why I hold that view:
The wave counts on all four of the charts shown here follow every rule of the Elliott Wave theory in structure, form and alternation (see accompanying illustrations -- Barron's June 29, 1987).
Chart One plots the Dow's annual high-low range, on a logarithmic scale, since 1905. Although my wave labeling differs somewhat from Prechter's, the results are the same, and thus nothing new to his followers.
 
Chart Two tracks, on a monthly basis, the Dow's high-low range, on an arithmetic scale, since 1982. Here again, I totally agree with Prechter . . . until July 2, 1986, when I believe only a minute wave three -- rather than a more substantial wave -- was completed.

Look at Chart Three. Wave three's (in this case, intermediate wave three) always peak on maximum breadth and volume. Wave fives peak at a lower accumulated breadth level. The market has hit a new high, although breadth is nowhere near the March 23rd peak. This means that intermediate wave five is finishing. Thus, primary wave three is ending.

With primary wave three concluding at approximately 2400, perfect Fibonacci relationships, according to the theory,are occurring throughout the entire bull market. Primary wave one rose 61.8% (500 points) from the level around Dow 800 at which it started. Primary wave two corrected 200 points, or 38.2% of primary wave one. Primary wave three, which is ending around 2400, will have traveled about 1300 points, a perfect 2.618% relationship to primary wave one.

Another thing to consider: Wave fives are always accompanied by overspeculation. Option premiums are a direct reading of this, much as low-priced stocks were in the past. Throughout the 200-point (intermediate wave four) correction of April-May '87, option premiums actually edged up, typical of movement in a wave four. Intermediate wave five (primary wave three) will peak with new highs in the six-month call option premiums.

In addition, secondary stocks historically peak during wave three of a blue chip bull market. As mentioned before, there's strong evidence of this. In addition, according to my wave count of the S&P 500, shown in chart four, the bull market that began in 1974 has completed its third primary wave. Thus, a serious correction is in store for both New York Stock Exchange issues and the S&P.
 
The Elliott Wave Theory reflects the mass psychology of the market, and the masses look for higher prices at tops and lower ones at bottoms. Currently, many Elliott Wave followers and their disciples (and thus the masses, since the theory is so popular these days) are looking for 2700-3200 on the Dow before any serious correction.
 
To me, however, the theory's current message is that we're at a top. Time will only tell whether I'm right. But if the market crashes to 2000 instead of flying to 3200, don't be surprised.
---
Anthony V. Caldaro does his investing and chart-watching from Laurel, Md. 

 

The market exceeded 2700, as Primary wave three completed in Auguest 1987. In October 1987, the market made history for the largest one day point drop ever. It crashed! By the end of the month the DOW had hit 1700, and everything fell into place as anticipated. After that, the bull market resumed. My Objective Elliott Wave technique had proven itself in real time. With a record shattering display of precision. I was even amazed with its uncanny accuracy. RN Elliott had made an amazing discovery, which only needed a little fine tuning.

 

The following year I started publishing a newsletter; "Long-Term Trends". Prechter, AJ Frost and I all became well acquainted. I was doing trade shows, making television appearances, radio programs, etc. In 1989 I was honored with Market Technician of the Year by the Financial News Network (FNN/CNBC), for my accuracy in calling for a resumption of the bull market, and projecting new highs in the DOW, early in the year. I was the only one ever to be honored with that title, as FNN merged with CNBC in the early 1990's. Around that time, I decided to close up shop and return to anonymity. Being in the public eye was not what I wanted to do. I just wanted to trade and follow the markets.

 

In the late 1990's I sent another report to Prechter suggesting a bull market top was approaching. We had lost contact over the years, and the report was ignored. I only found out recently that he had been calling for a top since 1995. In late 2002, I was in touch with Jon Markman, when they were just getting MSN Money off the ground. And, we discussed the bear market ending on October, 2002.

 

Recently, I was amazed at the advances of the internet and the technology readily available. And, starting publishing my thoughts in the form of a blog; "the Elliott Wave lives on", link below. Now, I can trade and follow the markets, and still keep many informed with relatively little effort. OEW analysis continues to work with uncanny accuracy. Please review the archives of the blog, and see for yourself. The OEW technique has never been published anywhere, nor have I taught it to anyone until 2006.

 

Sharing is an important aspect of a life. Over 100 people have joined our group, from all walks of life, covering twenty three countries across the globe. It's been the most fun I have ever had in the market. Sharing uncommon knowledge, with investors. In hope of aiding them in finding their financial independence.