Dow Jones Industrial Average (1937 to 1939) ~ Five Wave Moves?

I recently saw this count which was trying to make an analogy to the current market conditions.
The author labeled the move down a “clear” five wave and the move up another “clear” five wave.
This highlights the perils of wave counting and being “certain” of an impulse. Mistaking a
“2”
correction for an impulse is probably the most worst thing one can do in terms of trading profits.
For instance, back in 1938, if you counted this as a five up after seeing a five down, you probably
thought it was the start of whole new bull market. This count is actually a terrific illustration of the
need for rigorous application of wave counting principles. Because, if you were a buyer of the
new bull market in 1938, there were still a few more years of heartache ahead….

Start of a brand new bull?

“1” 5

“4”

1
4

“3”

“5”

Andy’s Technical Commentary__________________________________________________________________________________________________

 Dow Jones Industrial Average (1937 to 1939) ~ Many Issues….

“2”

The five wave move higher as it’s own “issues” as well. The most
glaring one is there was no true “extended wave.” An extension
should be 162% larger than the next longest wave. In this case,
the wave-5 is 78% the size of the wave-3. So, it just doesn’t
“square” as an impulse.

“1” 5

The problems with the wave count actually started 3

at the very beginning. This Wave “1” was not an
impulse. Where was the “extended” wave?
There was none--it was just a choppy move lower
that channeled too perfectly to be an impulse.
True impulsions DO NOT channel perfectly.

“4”
1
4

“3”

2
The other “issue” is that the final Wave “5” was extremely “short-lived”
compared to the rest of the wave structure. In order to be of the “same degree,”
a Wave must be at least 30% of the duration of the Wave it’s connected with. It “5”
was just too brief in comparison to the rest. (That’s one of the issues with the
proposed fifth wave in 2009 as well!)

Andy’s Technical Commentary__________________________________________________________________________________________________

 Dow Jones Industrial Average (1937 to 1939) ~ The “Double” Combination

“b”
c The actual count probably looks something like this. The 1937 decline was a
“double” combination, which is a double (a move with an x-wave) that ends with a
triangle. This concept highlights how important it is to know where to begin and end
a wave structure. It’s very tempting to start a count at absolute low or high, but in
a reality, that is OFTEN not the correct starting point. This case provides one nice
example of this idea.

“a” b
“c”

“a”

(X)

“b” “b”
“d”
The Wave down finished here and
not at the absolute low.
“c” “e”
(W) (Y)
“c”

“a”

Andy’s Technical Commentary__________________________________________________________________________________________________

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