December 2001

R.N. Elliott studied price movement in the markets and observed patterns that repeat themselves.  He used this discovery to make accurate forecasts in the stock market.  To the untrained eye, market movement may appear random and unrelated.  In reality, the markets are tracing out patterns that you can learn to recognize and profit from.   Mr. Elliott named this discovery the 'Wave Principle', but died before his work became well known.  In the late 1970's Robert Prechter and A.J. Frost brought Elliott's work out of obscurity in their book 'Elliott Wave Principle'.  This article offers a few basics in understanding the Wave Principle.

Society behavior trends and reverses in recognizable patterns.  This principle is found in market behavior because investors act and react to transaction information.  The behavior forms repetitive patterns, and because the patterns are repetitive, they have predictive value.  Elliott identified thirteen patterns that recur in the markets.  He then assembled these patterns or waves into larger versions of the same patterns.  These became building blocks to patterns of the next larger size.

The most basic pattern is a structure consisting of 5 waves.  Three of the five waves are directional and referred to as Trend waves.  These trend waves are separated by two interruptions that are counter trend and referred to as Retracement waves.  Using T for a Trend wave, and R for a Retracement wave, the pattern can be described as T-R-T-R-T.  The classic pattern is shown in this theoretical chart.

The three Trend waves are labeled 1, 3, and 5.  The two Retracement waves are labeled 2 and 4.  Each Trend wave has a 5 sub-wave structure and each Retracement wave has a 3 sub-wave structure.  In the illustration the larger degree wave is labeled with the large red numbers.   The Trend waves to labels 1, 3, 5 consist of  5 sub-waves labeled with the small blue numbers 1-2-3-4-5.  The 3 sub-waves in Retracement waves to labels 2 and 4 are labeled with small blue letters a-b-c.  Keep in mind that each wave is just a member of a larger structure, and conversely each wave can be subdivided into waves of a lesser degree.

Basic Elliott Wave Principles:
1)  Trend waves subdivide into 5 waves.
2)  Retracement waves subdivide into 3 waves.
3)  Wave 2 never retraces more than 100% of wave 1.
4)  Wave 4 never retraces more than 100% of wave 3.
5)  Wave 3 always exceeds the price level of wave 1.
6)  Wave 3 is often the longest and never the shortest of waves 1, 3, and 5.
7)  When wave 5 does not exceed the price level of wave 3, it is called a Bull or Bear Market Failure, and gives warning of underlying weakness or strength in the market.  The 5th wave was cut short or truncated because of the underlying weakness or strength.
8)  A Trend wave may form a diagonal triangle pattern, or wedge shape, still containing 5 sub-waves.
9)  A Retracement wave may form a horizontal triangle pattern, and these may have 5 or more sub-waves.
10)  If wave 2 is a sharp retracement, then expect wave 4 to be a sideways correction, and vice versa.
11)  Lines drawn to form a parallel trend channel often mark the upper and lower boundaries of the waves.  Drawing a trend line using points 1 and 3 may forecast the end of wave 5 when waves 1 and 3 are normal.
12)  The Wave Principle does not provide certainty about any market outcome.  But, it can be a means to assess possible future market action.

Fairly often, a retracement wave retraces a Fibonacci percentage of the preceding wave.  Sharp corrections often retrace 61.8% or 50%.  Sideways corrections often retrace 38.2%, particularly in wave 4.  Most analysts focus on Retracement waves and measuring wave heights to forecast a price objective using Fibonacci ratios.  Tip: Use Fibonacci principles to forecast a price, and use Elliott principles to determine when a wave is mature or finished.  Look for correlation of the two.

There will be times when market analysis is confusing and the interpretation is unclear.   My advice is to leave confusing patterns alone until subsequent waves clarify the picture.  The best approach is to apply deductive reasoning.  Learn Elliott Wave Principles, rules and patterns, and use this knowledge to deduce what will be the likely course for the market.  A primary purpose of the analysis is the determination of whether a pattern is complete, whether a wave is finished.  If the market changes direction as expected, you caught the turn.  If the market misbehaves, your conclusion is wrong and money at risk should be immediately reclaimed.  Tip:  Be patient and understand first where the market is at in the unfolding pattern, and then trade with the trend.  

This past month I made several upgrades to my system and had the following problems which might be of interest to you..

Memory Upgrades:

First Computer = Compaq Presario 5600i

I removed all existing memory cards and installed 3 new cards of 128MB each for 384MB total.  New 128MB memory cards were purchased at Sam's Club for $19.95 each.  Computer booted okay and has worked perfectly with 384MB memory.

Second Computer = Compaq Presario 5600i

I added one more 128MB card to the existing memory. Computer would not boot up.  Problem caused by mixing memory cards from different manufacturers.  Memory cards were probably different speeds or different parity check.  I removed the new 128MB card and installed surplus memory from computer #1 for a total of 256MB.  Computer booted okay and has worked perfectly with 256MB memory.

Third Computer = HP Pavilion XP789

I will need to remove the power supply and DVD drive and CD-RW drive to get access to the memory slots.  Will leave this project for a future date. Computer works fine with the 128MB that it came with.

Internet Access:

I recently installed a high speed Internet cable into the office to replace the dial-up Internet access.  The girl at CableOne told me to buy my own cable modem so I purchased a matching pair - Linksys Cable Modem and Linksys Router from the local computer store.  After the cable was installed the technician could not get the cable modem to activate.  I then found out that CableOne only recognizes a few specific brands of cable modem and Linksys is not acceptable.  Problem is with the MAC address internal in the modem.  Anyway, I got my money back on the Linksys modem and rented a modem directly from CableOne. 

The Linksys router has been flawless from the first day and it self detected all 3 computers and all 3 computers are linked together and all 3 on the Internet cable.

I really love the high speed of the cable Internet connection.  A previous download of the Ensign Windows program took 9 minutes by dial-up modem and now takes 36 seconds on the cable modem.  I have canceled the dial-up internet account and hope to get rid of the 20 messages per day of junk SPAM.

Windows XP Upgrade:

First Computer - installed WinXP upgrade from WinME - everything went okay and took 76 minutes.  Computer works fine and network self detected - takes a little getting used to the differences from ME to XP.  Sound volume is real low which indicates that I do not have the correct driver for the sound card.  I am searching the internet for the driver upgrades but the driver on the XP disk is not the correct driver for the sound card.

Second Computer - installed WinXP upgrade from Win98 - everything went okay and also took 76 minutes.  Computer works fine and network self detected.   I think Win98 is faster than WinXP after observing program loads for the past week.  Have not tested sound volume - no speakers.

Third Computer - installed WinXP upgrade from WinME.  Nothing but headaches.  Got a major error message immediately after the first reboot.  I spent nearly 2 hours continuously on the phone at my expense with a Microsoft technician.  The problem is a known problem to Microsoft and is caused by the ADAPTEC driver on the CD drive that is installing the XP upgrade.

Solution:
a) reversed the partial XP install and got back to a WinME operating system.
b) forced the computer to remove the ADAPTEC drivers.
c) forced the computer to shutdown all startup processes.
d) turned off the McAfee virus checking at startup.
e) removed the USB mouse and hooked up a PS/2 mouse
f) removed the USB keyboard and hooked up a standard keyboard
g) put the XP disk in the CD-RW drive instead of the DVD drive
h) copied 6107 files in 133 folders from the XP disk onto my C: hard disk
i) installed the XP upgrade directly from my C: hard disk

Now compatibility problems are really jumping up:
a) attached the USB mouse and USB keyboard - the mouse started flying all over the screen and after a dozen power off - power on cycles with different mouse combinations attached to the computer I was able to delete the extra mouse drivers from the hardware list.  (This was not easy!)
b) I have lost my multi-monitor setup. WinXP does not have the correct driver for the S3 VIRGE DX/GX video card hooked to the second monitor.  I have been on the Internet searching for drivers but the S3 company sold the graphics business to S3GRAPHICS last January and nobody seems to have a new XP compatible driver for the older graphics cards.  Looks like I will buy another video graphics card that is compatible with WinXP to get my multi-monitor setup restored.

Conclusion:
Do NOT install WinXP on older computers.  There are lots of compatibility problems yet to be worked out.   If you want the XP operating system then BUY a computer that already has the WinXP system installed.

Multiple Monitors (follow up to b.):

My multi-monitor setup is now operating on the Windows XP system.

Through trial and error I have learned the following:
a) when the AGP card is the boot video card then the PCI card is disabled
b) when the AGP card is removed then the PCI card works fine
c) when 2 PCI cards are installed the second card is disabled
d) I changed the BIOS setup to have the PCI card as the boot video card with the AGP card as the second card and everything is fine.  I switched the monitor cables to position the screens in the correct order and now I have a working multi-monitor setup again.

The solution is to set the BIOS to make the PCI card the boot video card.

Digital Camera:

Downloaded new driver for digital camera from Polaroid.  Driver is labeled for Windows NT and now my camera works fine with Windows XP.