Grand supercycle

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In Elliott wave theory (or the Elliott Wave Principle), the Grand Supercycle is the largest degree of the Elliott Wave Fractal that was proposed by Ralph Nelson Elliott. Elliott speculated that a Grand Supercycle advance had started around the time that the United States declared independence from mother-England on July 4, 1776.

In Kondratiev wave theory a grand supercycle is a business cycle of 50 to 60 years.

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[edit] Possible Elliott Wave Position of Global Stock Markets in the 2000s

Many Elliott Wave analysts believe that a Grand Supercycle bear market in US and European stocks started in 2000. Others view the 2000-2002 bear market in US stocks and 2000-2003 bear market in European stocks as being of lesser degree, such as Primary, Cycle or Supercycle.

The picture in Asia is occluded by the divergence of the Japanese market from other Asian indices; the Nikkei 225 is still far below its late 1980's high, whilst other indices are presently (2006) at all-time highs.

If a Grand Supercycle bear market started in the USA and Europe in 2000, the Elliott Wave forecast would be for several hundred years of turmoil. If there are an infinite number of fractal degrees in the Elliott Wave fractal, then the wave position at above Grand Supercycle degree is unknown, meaning that the forecasted bear market in stocks could be at least one degree larger than that of 1929 to 1932.

As of October 2006, the situation has been clarified: the Dow Jones Industrial Average made a new all-time closing high, which confirms that 2000-2002 was NOT the beginning of a Grand Supercycle bear market, but a complex correction of the bull market that began in 1982. Those who believe in the Grand Supercycle expect their bear market to begin once five waves up are complete from the October 2002 lows. Those who do not believe in the Grand Supercycle say that a new bull market is underway and that a Grand Supercycle bear market will never occur, instead forecasting a never-ending series of Supercycles.

[edit] Kondratiev Cycle position of the Global Economy in the 2000s

Conventional Kondratiev analysis would suggest that the 2000s should represent a Kondratiev winter. The fact that it is thus far (2006) not occurring suggests either monetary inflation and pumping of global liquidity on a massive scale in an attempt to deny the business cycle, or that a cycle of a larger magnitude than the Kondratiev cycle is operative and that the Kondratiev winter has effectively been overwhelmed by this larger-degree up-thrust.

There is no credit-led expansion in recorded history that has failed to end in a dramatic credit crunch and economic catastrophe. See Financial Reckoning Day by Bill Bonner and Addison Wiggin, and The Great Reckoning by James Dale Davidson and William Rees-Mogg.

Kondratiev's own work showed a Winter beginning 1914-20. That would normally have ended around 1945, but most theorists would agree that it lasted until 1949, with a new Spring commencing in that year. Given the shortest time period for the K-Wave of 40 years that would mean a new Spring Phase beginning in 1989, and an Autumn Phase beginning in 1999, with the Winter beginning in 2009. With the longest time period for the wave of 60 years, then the new Spring Phase should begin in 2009, but that would mean the Winter Phase should have begun in 1994, and now be almost over. Given any time period between the shortest 40 year and longest 60 year span of the cycle it is impossible to arrive at a Winter Phase beginning in 2000 or thereabouts.

In fact, a Spring Phase beginning in 1949 and last around 25 years until the mid 70's does appear to conform with the post war boom period, and the collapse of that boom into the slump of the 1970's, and protracted rcessions of the 1980's and early 90's. Trying to connect this to periods of Stock Market performance is a corruption of Kondratiev's work which was to do with cycles in the real eocnomy not in the fictional economy of Stock Markets.

[edit] Controversy about the Elliott Wave Grand Supercycle

Many controversies surround the idea of the Grand Supercycle:

  • Elliott's Wave Principle is far from accepted by the vast majority of market practitioners, analysts and academics. Elliott Wave analysts are notorious for being wrong more than a valid theory should perhaps allow, thus calling into question whether the Wave Principle has practical validity, or whether there is indeed anything to it. The notion of the Grand Supercycle is thus viewed with caution by the great majority of market commentators.
  • Stock transactions did not occur during the first years of the United States and price data is thus not available. The notion of the Grand Supercycle was thus implied by R. N. Elliott and belief in its existence might be considered fanciful.
  • Elliott Wave analysts are in general notorious for frequent changes of "wave counts" and for switching between impulsive and corrective labellings in retrospect; this apparent fluidity of hindsight leaves the discipline open to accusations of arbitrariness. Equally, not all Elliott waves subdivide, meaning that the labelling of a wave as belonging to a particular degree can be down to the personal preference of the analyst rather than objective criteria. For example, the 2000-2002 decline in the US stock indices has been labelled as Primary, Cycle and Supercycle degree by different analysts. With this much disagreement on even the degree of a wave, let alone the count, what consititues a Grand Supercycle is therefore a matter of opinion rather than of objective fact.
  • The hypothesised Grand Supercycle is conjectured to span more time than a human life, which some say means it cannot exist. Followers of Saeculum Theory take this view and align instead around a belief that defined sequences of generations relearn approximately the same lessons as their forebears. Similar ideas can be found in the Bible. The Saeculum might map to the Kondratiev cycle.
  • If a social cycle of such large degree does indeed exist, then present-day scientific and economic understanding is at a loss to explain how it would propagate or what causes it, or even the smaller-degree waves that the theory suggests.
  • If financial and social trends exhibit a constrained, patterned architecture then there would be wide-reaching ramifications in terms of the modern-day Western belief in Free Will, thought inspired by the Age of Enlightenment and its belief in the supremacy of Reason, predestiny and the nature of the relationship between the individual and society.
  • Rumours abound in conspiracy-minded bulletin boards and newsletters that the Federal Reserve Bank of New York is fully aware of the Wave Principle and its dire Grand Supercycle forecasts. There is a common view here that it actively intervenes in the markets whenever Elliott Wave advisories are predicting crashes. There is a large body of evidence suggesting that the Fed regularly intervenes in the markets [1], so the neutral point of view requires that the term Conspiracy Theory is avoided. If the Grand Supercycle were to exist in truly free markets, there is controversy over whether it could exist in managed or manipulated markets. Analysts have attempted to get round this problem by looking at inflation-adjusted charts, which has some theoretical basis.
  • The idea of a Grand Supercycle bear market implies that mankind will never learn from its past mistakes, or become self-aware in a macro-economic sense. The historical study presented in David Hackett Fischer's The Great Wave (Oxford University Press, 1999), however, presents a meticulously-argued case that the periodic crises in human history are becoming steadily less volatile, which suggests that some kind of species-wide learning is occurring. This could be consistent with Rupert Sheldrake's theory of Morphic Resonance.
  • If the Grand Supercycle does actually exist, then it is still not clear that a bear market in US stocks is in progress (April 2006), but not just for reasons of ambiguity in wave-count. More simply, many stock indices, such as the Russell 2000, are making fresh all-time highs. Typically a bear market is lead by small-cap and mid-cap stocks, but these are presently the leaders on the upside. A bear market cannot be in force until all stock indices are declining and have made failure highs.
  • A famous saying regarding Elliott Wave has it that "if you put 10 Elliott Wave analysts in a room, you'll get 12 opinions". Another says that "Elliott Wave called 10 of the last 3 crashes." These aphorisms are as relevant today as when the theory was first formulated in the 1930s and there is no consensus on exactly where in the "wave count" stocks really are. This ambiguity together with the Grand Supercycle's unprovenness leaves the Wave Principle open to many criticisms.
  • The Wave Principle was used at various times in the 1990s to call for a Grand Supercycle top in US stocks. The 1990s bull market did not, however, actually get properly going until after a good many of these calls had been made and been wrong. Controversy rages as to the validity of a theory that lead people to miss the biggest bull market of all time.

Whatever one's opinion about the validity of the Wave Principle or the existence of the Grand Supercycle, these topics have a remarkable ability to provoke heated controversy, controversy that is not yet going to go away.

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