ANSWER:

A customer in France made this query, which I’m surprised has never been addressed in this forum. Its answer is the reason I felt compelled to write “Mastering Elliott Wave” (I should have called it Mastering NEoWave) and why I’m so passionate about making NEoWave the “defacto” wave analysis standard around the world. 

The three core elements of Elliott Wave are the Fibonacci number series, pattern recognition and the Golden ratio (.618). All three elements have a “forecasting” or “anticipatory” aspect, where the analyst is expecting the market to move up or down a certain number of “waves” (a concept not defined in any literature until Mastering Elliott Wave), adhere to a certain design and have specific relationships. 

The three core elements of NEoWave are Logic (e.g., a strong correction must yield a powerful move), self-defining price/time Limits (e.g., a smaller degree pattern cannot take more time and price than a larger degree pattern) AND Self-Confirmation (i.e., the market’s post-pattern behavior determines whether your prior structural analysis was correct). All three NEoWave elements have a “back-casting” or “reactionary” aspect, where the analyst is making sure (after the fact) a pattern did not take too much or too little time, that it was not too complex or too simple AND that post-pattern price action achieved the minimum movement required to confirm the prior pattern. 

For example, in 1988 (for those who remember), I was one of the only bullish analysts in the world. Among orthodox Elliott Wave practitioners, who were extremely bearish (and remained that way for most of the last 20 years!), I stood alone and was heavily ridiculed for my extremely bullish, long-term forecast. It was the LOGIC of NEoWave that allowed me to remain so adamantly and confidently bullish on the U.S. stock market (despite massive public condemnation) and even in the face of negative national and international news. 

It was NEoWave that allowed me to turn adamantly bearish on the U.S. stock market near the highs of 2000 and then, two years later, turn bullish again just six months after the 2002 low. Finally, in January of 2008 – once again, despite strong opposition – I turn adamantly bearish on the U.S. stock market. It was NEoWave that gave me the courage to announce to the world, in mid January 2008, that a new bear market began and that there was virtually nothing that could be done to stop the downward spiral of the U.S. stock market for the next 4-6 years!

In its orthodox form, Elliott Wave never allows for such dogmatic forecasts. To the contrary, Elliott Wave typically allows for multiple, completely contradictory scenarios. If you have simultaneously bullish and bearish counts it is of little value for trading.

In conclusion, the same way calculus elevated mathematics beyond algebra and trigonometry, the logical, self-defining limits and self-confirming aspects of NEoWave raise the field of wave analysis (and technical analysis in general) above the realm of opinion and hearsay and closer to the realm of science and fact.

ANSWER:

This is a strange question since it involves speculation in the first sentence that is later assumed to be fact in the second and third sentences. But the general idea is, “can markets be manipulated and if/when they are does it impact wave structure and, therefore, one’s ability to forecast.”

First, the world’s primary markets (currencies, Bonds, the stock indices of most industrialized countries, etc.) are too large to manipulate. To manipulate the Euro currency or U.S. stock market would require trillions of dollars. No one person or group has that kind of money. Individual stocks can be manipulated, but wave theory (as a result) does not work well with individual stocks. 

Second, wave theory measures and quantifies MASS psychology, not limited or individual psychology. As a result, it only works well when applied to large, man-made markets where thousands or millions of people are financially interacting. The smaller a market, the less its behavior represents mass psychology. If someone attempts to manipulate a small-cap stock or futures contract, they might be able to accomplish their goal, at least for short periods. On the other hand, such manipulation is likely to make wave structure indecipherable. So, for those practicing wave theory (at least NEoWave), they won’t be able to decipher structure so they won’t be able to trade, thereby avoiding the victimization intended through manipulation. 

Individual stocks can be manipulated, but if a person or group focuses their money on a stock or industry, the money pushing up their chosen equity must be pulled from another area or industry, creating a yen-yang balancing effect in the overall stock market average. 

Finally, even if someone had trillions of dollars to move into or out of a market, they could not do so without having a serious upward impact on price as they entered and a serious downward effect on price as they exited. Frequently, when such manipulation is attempted (in any market), the mere act of entering and exiting causes a loss for the person taking the position. I experienced this about 10 years ago when I was managing a multi-million dollar Australian fund. I was confident the S&P was about to collapse (which it did a few days later), so I got greedy and started trading the S&P futures 300 contracts at a time in the overnight market. At the time, the overnight market was not liquid. I entered my 300 lot Short position at the market and was immediately filled. Ten seconds later I entered a 300 lot buy-stop 10 points above the market. In the blink of an eye, my buy-stop was filled and ten seconds later the S&P was back down where I originally went Short. In other words, I WAS the overnight market, trading against myself. I did this 300 lot maneuver 3 times over the next 3 days, losing each time, before I realized I could not take such a large position in an illiquid market. Thereafter, I limited trading to liquid U.S. market trading hours only. Today, trading such volume is not an issue in the “overnight” S&P, but 10 years ago it was. 

What can we learn from my experience? Simply having large sums of money to trade does not mean you will automatically profit from or “manipulate” a market. Frequently, the “manipulator” becomes the financial victim, not only through big losses but due to high commissions, also.