11. Analysis and forecasts of corrective waves
The depth of corrective waves as one of the options market (outside of a bear market)
To date, there is no market-based approach, which would have been able to give a precise answer to the perennial question "At what level will stop falling bear market?". Practice shows that the correction in most cases carry a maximum recoil before the land on which development takes place the previous fourth wave of a lower level. As a rule, the maximum recoil corrections to the level observed in approximately the end of the previous wave. In particular, this applies to those situations where the correct themselves serve as fourth waves.
Example number 1: State of the bear market in 1929-1932.
In the above chart reflects the situation that occurred on the bear market between 1929 and 1932. Graph of stock prices has been developed and published by Gertrude Sherk in 1977 in his treatise "Foundations for the study of cycles." For clarity, the situation in the market price chart shows a single dollar. The basic wave structure as shown in the chart, is converging triangle, acting as a wave (IV). Its ending is confined to the area the previous fourth wave, which received development within the Basic level, a triangle of divergent type (see chart below).
Example number 2: The lower the value of a bear market in 1942
In the period from 1937 to 1942. development of a bear market took place within the waves of the wave of the Basic level. The end of the zigzag was dedicated to the field of the wave [4] of the bull market in the period from 1932 to 1937. Described by the wave motion is represented as a graph in Fig.5-3.
Example number 3: The lower limit of a bear market in 1962
Dive waves [4] in 1962, led the index down just above the mark the highest point in 1956 five-wave sequence of the Primary wave level from 1949 to 1959. If the situation proceeded according to the standard plan, the Bears would have reached the zone of the wave (4) (a corrective fourth wave within the wave [3]). This small mistake, however, illustrates why this principle is an indication, rather than the rule. The wave of strong elongation preceding the third wave, short wave and a strong wave in a wave [4] show the power of the wave structure, which leads to a moderate depth of the final correction.
Example number 4: The lower boundary of the bear market in 1974
The final decline noted in 1974, in fact, meant the end of the corrective wave IV 1966-1974 gg. The development of which took place within the ground wave level. The final fall of the market from the general rise of wave III in 1942 led to that index sank down in the area of the previous fourth wave located at the primary level, the wave (see Fig. 2-6).
Our analysis of wave sequences, developed in the small wave level in the past two decades, once again confirmed the fact that the area of the previous fourth wave located a level below, is a limiting factor for all bear markets. This statement is particularly true in cases where the bear market itself is the fourth wave. In addition, in some cases, correction, development of which occurs after the fifth wave is limited to the bottom of the second wave of a lower level of the wave. This phenomenon occurs when the fifth wave in the sequence is extended in nature. As an example, the fall of the DJIA in March 1978. The fall of the index, following the development of the fifth wave has reached its bottom at the lower mark-wave 2.
In some cases, triangles or flat correction may be so weak that simply can not achieve the development of the fourth wave. This is especially true of triangles, which immediately follow the wave extensions. At the same time, the zigzags are actively moving into the interior region of the second wave of a lower level of the wave. This phenomenon usually occurs only in cases where the zigzags themselves act as the second wave. As practice shows, that's a so-called "double bottom".
Extending fifth wave: what next?
It should be noted that there are few empirically derived rules, which are of particular value when considering the market situation. Among these include the following and field observations. The essence of this unwritten rule is that in cases where the fifth wave is an extended character, the next wave of its correction will be quite strong and will be supported only at the lowest point of the second wave of the same wave lengthening. In some cases, ending wave correction can occur, as shown in Fig. 2-6. In practice, situations in which a wave of "A" developed to a level lower limit of the previous extension subwave second wave 5 are rare. However, the accuracy with which the waves of "A" deployed to this mark, just amazing.
In Fig. 7.2 shows the development of a plane wave correction. For convenience we recommend you to note two real examples, which will later be used to illustrate certain situations. One such example - Fig. 5-3, which shows a zigzag. Zigzag is located at the lower mark-wave [A], which is part of wave II. In Fig. 5.3 clearly shows that the development subwave A wave (IV) completes about two subwave fifth wave, which serves as the elongation of wave V from 1921 to 1929. The second example - Fig. 2-16, which shows the development of the Expanded Flat at the bottom mark and subwave. The above is part of the subwave vodvolny A wave 4.
As you know, the vast majority of cases, the value of the second wave of the wave extension is in the previous fourth wave of a higher level, or wave at her side. Therefore, this statement is very similar to the previous one. At the same time, unlike its predecessor, it differs amazing accuracy. An additional advantage of this guidance is provided for by the fact that the fifth wave extensions, usually followed by prompt and rapid reversals. Their appearance, in fact, serves as a signal of impending change of direction to a certain level. Therefore, the value of such an indication to the objective situation in the market can not be overestimated. By the way, it does not apply to individual wave elongations fifth waves, which are themselves extensions of the wave functions as in the fifth wave.
