The Neely View - Dow 100K

Yelnick readers have been pointing out that much of Zoran's approach is borrowed from Glen Neely, an Elliottician who split from the Prechter school in the 1980s, and made a bold prediction in 1988 that the 1987 crash was not the end of history (as Prechter predicted back then, as now) but merely a blip on the path to a spectacular Dow 100K.  Neely laid out a 70 year view, seeing the 100K peak in 2050-2065.  He was roundly ridiculed at the time, although his view looked a little more prescient (but just a little more...) around Dow10K in 1999. Neely is back, holding to his prediction, and laying out a near term scenario that is similar to the Yelnick View: the peak in 2000 was the end of a wave 3, and we are in a wave 4, with new highs ahead in a coming wave 5.   But to make it clear, Yelnick differs from Neely in how he gets there and how far he gets - Yelnick does not subscribe to Dow100K in anything like a reasonable investment horizon! 

More on Neely's view can be found in a recent interview, reported here and discussed below. 

Neely sees this wave 4 as what Yelnick and Zoran have been calling 50W4, a correction that should last until 2014. At the moment, it is not yet clear if the correction from the 2000 peaks is 50W4 or 82W4, but the difference is not a major issue until after 2008, since the two wave patterns until then should be similar.  (If 82W4, we either ended in 2002/03, or more likely will end in 2006/07; if 50W4, we are also likely to have an interim bottom in 2006/07 and a counter-trend rally into 2008/09.)  However, 50W4 should go longer than 82W4, as it is a correction of higher degree. If this is 82W4, the counter-trend rally into 2008 and beyond is the beginning of 50W5, and should follow a different path than the remainder of 50W4. 

As to the length of 50W4, the three prior waves all went as long as 16-18 years: 50W1 went 1949/50 - 1965/66; 50W2 went 1966 - 1982; 50W3 went 1982 - 2000.  This does not require or predict that 50W4 would go as long, but it should go in that order of magnitude.  2014 is a convenient end point as it reflects the bottom of the four year cycle between Presidential elections in 2012 and 2016, and also is likely to be the end of the current Kondratieff Wave (more on that in a subsequent post); hence likely to be a low, even if not THE low.

The interview above reveals some aspects of Neely's thinking that have been borrowed by Zoran. Both Neely and Zoran believe in the Bifurcation Point, and both use the Fall Line as a tool to determine bifurcation.

*  Their first insight is that a change of direction moves in the opposite direction faster than the prior move, and hence they look for a move that goes farther than the prior wave in less time; then the bifurcation is in.

*  A second insight is that often a trend change occurs at a point which is not the highest high or lowest low of a move. Mainstream Elliotticians tend to pick the nominal high and lows as the beginnings and ends of waves, but often the ends of patterns bounce a bit before the bifurcation moment sets in. The indecision around a trend change is reflected in market jitter near the end. A recent example is Mar03 - it ended a bit higher than Oct02, but after it came the bifurcation that some pundits call a new bull market.  The leap off Oct02 was also fast and strong, but it did not get outside the prior corrective range from Jul02-Oct02.  In contrast, the move off Mar03 has never dipped back down into that lower range reflected by the interim tops in Aug02 and Dec02.  It is a much better moment to mark the end of the initial drop from 2000.

* Their third insight is that the fibonacci relationships of 61.8%, its square 38.2% and its square root 78.6%, and its derivatives of 50%, 100% and 161.8%, are seen with more precision in moves counted from bifurcation points than from nominal highs and lows. Consequently, predictions can be made with more precision, and after a bifurcation move the degree of trend change can be determined with higher probability by fitting it to prior moves based on fib ratios.  To put this the way Neely argues it, his counts do not flop around as much as mainstream Elliott counts. 

Prechter and Neely parted ways in the '80s. Bob was very upset by Glen's early work, demanding he not call it Elliott Wave, suggesting it be called Neely Wave.  On the Foundation for the Study of Cycles Board - a very interesting organization that brought all these thinkers together for a time - this caused quite a stir.  Yelnick reports on Prechter and other popular Elliotticians, but not Neely except as it comes from Zoran's work;  yet parts of Neely's work seem quite sound if not clear improvements over orthodox Elliott Waves - the three points above in particular.  Other aspects of Neely's work, such as identifying different wave forms and using different ratio sets than fibonacci, seem much less sound. 

There is much more to say about this, and I encourage any Neely followers to contribute to our understanding by commenting to this post.  Also note that Zoran is extending Elliott and Neely primarily by adding in the concepts of Chaos Theory. We hope to see more of Zoran's progress over the next few years.

As to Dow100K, Neely gives himself 50 more years to get there. It may not be that hard to achieve. If we continue to inflate the currency by 3% per year, the Dollar will halve in value in 25 years and halve again in 50. Dow25K is a mere double from the top in 2000. Putting that aside, is a true Dow100K out of reach?   50W5 should go the length of 50W1, since the Greatest Stock Market Mania of All Time in the late 1990s would suggest that 50W3 extended, and only one of the impulse waves in a pattern extend. Normally in that circumstance waves 1 and 5 tend to equality. 50W1 went about 6x, suggesting 50W5 will do the same. If 50W4 bottoms no worse than Dow7200 (Oct02) - which is what Neely believes, as 50W4 may break as a triangle - then Dow45K is reasonable, and if the end of 50W4 is closer to Dow10K, then Dow60K is in range. If 50W5 goes another common relationship, 1.618 x 50W1, we could be within range of Dow100k.

Of course, as Keynes said, in the long run we are all dead. More useful than a far away Dow100K is how to manage investments over the next decade, and for that Neely and Zoran's views may be worth studying.

Comments

[yelnick]

Zoran wishes to clarify certain points - errors I made in the post above about his work - and sent me this comment. The main point is that although some of Neely's concepts may seem similar, Zoran has largely developed his theory from orthodox Elliott modified by Chaos Theory, in particular the work of Nobel Chemist Ilya Prigogine. Enjoy:

1 - BIFURCATION comes not from Neely but from Ilya Prigogine and Chaos theory. That Neely is using the term is new to me. As far as I know nobody used that term in the past. I had a long debate on the word for my medical friends insisted it was the wrong use of the word. It was due to Ilya Prigogine work that I finally used that term to define the precise point where the market reaches balance and can run ether way.

2 - The fast move after BIFURCATION is also Prigogine. However, Neely does comment after a 5th wave completes the subsequent return move should take the fifth wave out in less time it took to form. In this way Prigogine and Neely would look similar - something that would be so - if both were observing natural systems and they indeed worked that way. It is possible to arrive at the same conclusion from entirely separate fields without copying one another.

3 - The 1987 end being an wave three end and 94 being a RUNNING WAVE 4 and from 1994 being a FIFTH EXTENDED wave from 1982 is an EWP count long time before it was accepted by Neely as being the most likely labelling. In his book he also starts the count in 1976 not 1982. Here he does not seem to keep to his own rules.

4 - His count of the DOW to 100,000 is attention seeking and useless. The task is figuring what the DOW is going to do this year, next year - the next ten years - if you have gone backwards even three years you may be completely out of the market, so you can forget DOW 100,000 as a marketing ploy. Gets interviews and give a good feeling to the audiences.

5 - One of the points in EWP is that the future seeks to order itself and will do so precisely and in many ways as possible. But in doing so it will need to go through BIFURCATION or BALANCE POINTS which may swing the market either way. In other words the future is unpredictable but because of the natural self-seeking order in all systems all will always look predictable and orderly looking hindsight. If the markets are as orderly as they seem why do we get it wrong most of the time! In other words, there are endless possible futures, all orderly. That is in fact what CHAOS THEORY is all about.

6 - I have quoted Neely in the past as well as Prechter and Elliott. They have all various insights and observations. Wisdom is available everywhere. I do not mind standing on someone's shoulders and peering a little further over the horizon. In this, I have a great deal of respect for Ilya Prigogine and a great deal of EWP conceptually is based on his work. A leading Elliottician suggested that I was wrong for my labelling did not follow rules. I presume he meant his rules. He should have realized I also have capacity to invent my own rules. However, I do not have the arrogance to claim that "my rules" are the only correct ones.

7 - EWP is still completing the fifth and final wave from 1994. It still has not started 50W4. In this way EWP is again different from the rest of the crowd. This count has been so from November 2003. And yes! it is a possible orderly future amongst many.

[Bill C]

Very interesting. I think we will know if Neely is on the right track by the shape of the correction over the next few years. I am more inclined to believe Prechter's call that we are ending/ended a Grand Supercycle wave because of the length of the fall in the S&P 500. Other indicators like sentiment and the potential of a housing bubble lead me to believe we are likely to fall further than a wave four would allow. But it is difficult to say this when you are in the middle of it. I guess my problem is that predicting large waves is not very relevant to investment decisions. Either way, we are in a correction for a while.

I had forgotten about Neely and his prediction before I stumbled across your blog. I will be back!