Market Analysis for the New Millennium

Market Analysis for the New Millennium, year 2002 Edition, edited by Robert Prechter, Jr., includes 21 cutting-edge articles about the investing, the stock market and financial analysis. The book includes five major parts:

Part I: New Studies in the Wave Principle
Part II: Finance and Philosophy
Part III: Understanding Investing Manias
Part IV: Associated Studies in Market Analysis
Part V: Requirements for Successful Forecasting and Speculation

You may buy the book from the Elliott Wave International bookstore.

Review of Market Analysis for the New Millennium

In Market Analysis for the New Millennium Robert Prechter and 11 other authors offer their views on diverse subjects from using the Elliott Wave Principle to help investors make money to how sunspot cycles are related to price fluctuations in the broad stock market.

I found most of the articles to be thought provoking and some of them challenged my mathematical abilities. My favorite article is What a Trader Really Needs to be Successful in which Bob Prechter describes his trading guidelines. My least favorite articles are the four contained in Part II: Finance and Philosophy. They are a bit too esoteric for my taste. I prefer to read material that more directly relates to everyday trading and investing applications. Having said that, if you are interested in how physics, economics, finance, ecology and philosophy relate to markets and investing, you will find chapters 8 though 11 an excellent read.

Here are my comments about seven chapters, which struck me as particularly interesting.

Chapter 1: R.N. Elliott's Fundamental Challenge to Mechanistic Social Models is a lively essay in which Dr. Michael K. Green tells how R.N. Elliott challenged Keynesian economic theory, Marxism, monetary theory and the Efficient Market Hypothesis. Elliott argued that modern economics failed to account for "the emotional and impulsive side of human existence." It seems that the traditional economic man was too rational for Elliott's taste.

In Chapter 5: The Hidden Similarity of Two Wave Forms Bob Prechter executes his usual precise analysis to compare corrective formations (downsides) of the Dow Jones industrial average during 1975 and 1977. The plots of the two corrections look very different but their internal characteristics are similar. Prechter lists 16 price relationships and seven time relationships that show the parallels between the two formations. He concludes, "Very few market approaches even suggest that the market has a "memory" for what it did last week, last month or last year, as it most obviously does." Later he makes an even stronger assertion, "Not only can we conclude that the market remembers every single move it has made in the past, but also that corrective processes are essentially all of the same nature." Put in other words, for broad markets all downsides end with the same result - lots of people lose money.

Chapter 13: The Rationalization of Value in a Mania includes an excerpt about the stock market mania of the 1920's from the classic investment book called Security Analysis by Benjamin Graham and David Dodd. The similarities between then and now of investors' unmitigated acceptance of high prices as the norm is are scary.

In Chapter 14: Packet Waves Bob Prechter analyzes a sideways formation, which he calls a packet wave. This wave is composed of expanding and contracting waves with Fibonacci numbers of 3, 5 and 8. Packet waves were evident from 1966 to 1982 and again from May 1999 to February 2001.

In Chapter 16: Cyclic Analysis in the Financial Markets Bob Prechter tells us waves rather than repetitive cycles describe the form of mankind's progress and regress. He says, "It is for this reason that I find the Wave Principle a truer representation of the psyche of mankind than the idea of cycles."

I have found in my own work that cyclical analysis does work well for some individual stocks. For example, the semiconductor and semiconductor equipment stocks exhibit a repeating pattern of troughs and peaks.

Although I found Chapter 17: The Sunspot Cycle and Stocks a bit obtuse, I enjoyed reading it. I understand that Peter Kendall and Bob Prechter are trying to make a connection between mass human behavior as seen through stock prices and the activity of the sunspot cycle. But the association, it seems to me, is at best spurious. And to attempt to use sunspot activity as a predictor of stock price fluctuations is too much of a stretch for me.

Chapter 21: What a Trader Really Needs to be Successful is my favorite chapter. It is a must read for anyone who trades stocks, particularly if you are just getting started. Bob Prechter tells us to throw away those detailed lists of specific trading rules. They are full of contradictions which usually prove frustrating to most beginners. Rather, he takes a broader view and presents five requirements for successful trading. For example, he says to develop your own method for trading and then follow it. He knows his business so I urge you the read this chapter.

For a quick, but informative, introduction to the Elliott Wave Principle see Appendix A: A Capsule Summary of the Elliott Wave Principle.

Market Analysis for the New Millennium

Market Analysis for the New Millennium summarizes the most current thinking, as of 2002, of people who seriously apply the Elliott Wave Principle to investing and studying how society behaves. Consider adding the book to your investing library. Its sage advice will serve you well.

To purchase it and other Elliott Wave based books please visit the Elliott Wave International bookstore.

Read Elliott Wave Principle by A. J. Frost and Robert Prechter, Jr. to become more familiar with Elliott Wave fundamentals and applications.

Also, be sure to view History's Hidden Engine, a free entertaining and informative video all about the Elliott Wave Principle and much more.

Reviewed by Richard Howard.

Posted February 22, 2007.