You are on page 1of 256
ELLIOTT WAVE PRINCIPLE KEY TO MARKET BEHAVIOR by FROST and PRECHTER With a Foreword by Charles J. Collins PUBLISHED BY New CLassics LipRaRY ELLIOTT WAVE PRINCIPLE KEY TO MARKET BEHAVIOR Copyright © 1978-2006 by Robert Rougelot Prechter, Jr. Printed in the United States of America First Edition: November 1978 Tenth Edition: 2005 For information, address the publishers: New Classics Library Post Office Box 1618 Gainesville, Georgia 30503 USA The material in this volume up to a maximum of 500 words may be reprinted without written permission of the authors provided that the source is acknowledged. The publisher would greatly appreciate be- ing informed in writing of the use of any such quotation or reference. Otherwise all rights are reserved. ISBN: 978-0-932750-75-4 Library of Congress Control Number: 2004116120 PUBLISHER’S NOTE FOR THE 207 ANNIVERSARY EDITION (1998) Elliott Wave Principle came out in November 1978, with the Dow at 790. While reviewers immediately regarded it as the definitive textbook on the Wave Principle, it handily missed the best-seller list by several hundred thousand copies. Neverthe- less, due to the spiraling interest in the book’s content and the success of its long range forecast, it has sold more copies every year, achieving the status of a Wall Street classic. Like the Wave Principle itself, this book has stood the test of time What’s more, Elliott Wave Principle has gotten better as it has evolved. The book fulfills its purpose as a comprehensive text more satisfactorily with each new edition, as Robert Prechter has meticulously refined, enhanced and expanded it through the years. This effort has borne fruit. In the 1970s, AJ. Frost had often recounted Hamilton Bolton's observation in the 1960s that “For every 100 people who know Dow Theory, only one has ever even heard of Elliott.” In the summer of 1986, Frost called Prechter to say, “the tables are finally turning.” Until a few years ago, the idea that market movements are self-similarly patterned was highly controversial, but recent scientific discoveries have established that self-similar pattern formation is a fundamental characteristic of complex systems, which include financial markets. Some such systems undergo “punctuated growth,” that is, periods of growth alternating with phases of non-growth or decline, building into similar patterns of increasing size. Nature is replete with such “fractals,” and as we demonstrated in this book twenty years ago, and as R.N. Elliott revealed some sixty years ago, the stock market is no exception, It is hard to believe that twenty years have gone by since we introduced the world to Frost and Prechter’s vision of a great bull market in stocks. While its extent has been much more than they originally expected, the authors maintain their labeling of the advance as Cycle wave V. Today, the market's character is exactly as Prechter said it would be in his depiction of fifteen years ago: “At wave V’s end, investor mass psychology should reach manic proportions, with elements of 1929, 1968 and 1973 all operating together and, at the end, to an even greater extreme.” Here in 1998, every market statistic and every investor's racing heartbeat reflect exactly that condition.