Scoring competing wave counts after a crash

Two hypotheses on one chart

Elliott wave analysis is framed as nested five-wave advances and three-wave corrections. A three-wave decline is treated as a correction of the preceding five-wave advance. Editorial reading: a post-crash market is more useful as a two-hypothesis lab than as a place to declare a bull or bear verdict. Keep a completed-cycle decline and an unfinished fifth-wave advance on the same chart, then score which label is still alive.

The completed-cycle decline

One 1987-crash count treated the August 25, 1987 peak as the orthodox end of Cycle Wave V. The December 4, 1987 low was labeled the end of Primary Wave 1 down. Wave 5 of that decline finished above the October crash low, a wave-failure that did not make a new low.

Retracement depth as a score

A rebound from the December 1987 low that only reached the prior uptrend line would have been a 48 percent retracement of Primary Wave 1. The early-1989 break above that line took the recovery to 63 percent. After a five-wave decline, recoveries of 38.2 percent, 50 percent, and 61.8 percent are treated as the usual Fibonacci retracement depths. The observed depth is used to infer relative market strength or weakness.

Editorial reading: retracement depth is a score for whether the completed-cycle decline still fits. A recovery that stalls near a typical depth keeps that label in play. A deeper recovery begins to challenge it. Neither reading is a market call.

The unfinished fifth-wave advance

The competing count keeps Cycle Wave V unfinished. It labels the August 1987 high as Primary Wave 3, the crash as a zigzag Primary Wave 4, and the still-open rise from those lows as Primary Wave 5. From the 1982 lows, Primary Wave 2 retraced only 40 percent and 36 percent into July 1984. Primary Wave 3 then advanced 323 percent and 271 percent, near the 262 percent third-wave multiple on the broader index.

Local waves after the crash

The first two intermediate waves after the crash lasted slightly more than a year. Corrective wave (2) took the form of an upward-sloping contracting triangle with shallow 38 percent and 42 percent retracements.

Ending minor wave 3 on June 8 would make it only 88 percent as long as minor wave 1. That labeling would violate the impulse-length rule that a third wave is never the shortest of the three impulse legs. An extended subdivision instead makes minor wave 3 150 percent and 167 percent of minor wave 1.

Triangle geometry before a last advance

Minor wave 4 first appeared as an irregular flat with only 21.6 percent and 15.6 percent retracements of minor wave 3. The October 13, 1989 spike was then read as possibly the fifth leg of an expanding triangle. That spike printed a 38.2 percent retracement exactly on the broader index and 45.9 percent on the industrial average.

A triangle pattern in a fourth-wave position is described as typically preceding the last advance of the larger trend. The 1986 Intermediate Wave (4) triangle before the 1987 Primary Wave 3 high is used as the prior analog. Editorial reading: the analog is a structural comparison used to keep or reject the unfinished fifth-wave count. It is not a claim that a later advance must repeat.