Crash Expert: “This Looks Like 1929” → 70,000 Hedging Here
Mark Spitznagel, who made $1B in a single day during the 2015 flash crash, warns markets are mimicking 1929. Yeah, just another oracle spouting gloom and doom, right?
Vanguard and Goldman Sachs forecast just 5% and 3% annual S&P returns respectively for the next decade (2024-2034).
Bonds? Not much better.
Enough warning signals—what’s something investors can actually do to diversify this week?
Almost no one knows this, but postwar and contemporary art appreciated 11.2% annually with near-zero correlation to equities from 1995–2024, according to Masterworks Data.
And sure… billionaires like Bezos and Gates can make headlines at auction, but what about the rest of us?
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Shares in new offerings can sell quickly but…
*Past performance is not indicative of future returns. Important Reg A disclosures: masterworks.com/cd.
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Have you ever watched waves crash onto the shore? One after another… following patterns that seem both chaotic and orderly at the same time. What if I told you the financial markets move in similar wave patterns that can be predicted?
Welcome to the fascinating world of Elliott Wave Theory. 🧙♂️
The full end-to-end workflow is available in a Google Colab notebook, exclusively for paid subscribers of my newsletter. Paid subscribers also gain access to the complete article, including the full code snippet in the Google Colab notebook, which is accessible below the paywall at the end of the article. Subscribe now to unlock these benefits!
The Man Behind the Waves 🕰️
In the 1930s, during the Great Depression, an accountant named Ralph Nelson Elliott made a remarkable discovery. While most saw only chaos in market movements, Elliott saw… patterns.
Patterns that repeat themselves. Patterns that follow specific rules. Patterns could predict future price movements.
Elliott was bedridden due to illness, giving him ample time to study market charts spanning decades. What emerged from his observations would change technical analysis forever.
What Exactly Is the Elliott Wave Theory? 🤔
At its core, Elliott Wave Theory suggests that markets move in predictable cycles driven by investor psychology — waves of optimism and pessimism that create repetitive patterns.
The basic pattern consists of:
5 waves in the direction of the trend (impulse waves)
Followed by 3 waves in the opposite direction (corrective waves)
Let’s break it down…
The Impulse Pattern: Waves 1–5 ⬆️
Wave 1: The beginning. Often dismissed as a temporary movement, this initial wave emerges when a small group of investors starts buying (or selling) against the prevailing sentiment.
Wave 2: The pullback. This wave retraces some of Wave 1’s progress, but crucially… it never retraces beyond the starting point of Wave 1.
Wave 3: The powerhouse. Usually the longest and strongest wave. Fear of Missing Out kicks in as the broader market finally recognizes the trend. Volume typically increases dramatically.
Wave 4: The breather. Markets rarely move in straight lines. This consolidation phase allows the market to digest gains but doesn’t retrace into Wave 1’s territory.
Wave 5: The final push. Often accompanied by divergence in technical indicators and waning enthusiasm, despite prices reaching new extremes.
The Corrective Pattern: Waves A-B-C ⬇️
After the 5-wave impulse pattern is completed, a 3-wave corrective pattern follows:
Wave A: The first decline after the peak.
Wave B: A temporary recovery, but one falls short of the previous high.
Wave C: The final decline, often meeting or exceeding the low of Wave A.
Potential Trend Reversal or Continuation
The corrective wave (A-B-C) completes and a new impulse wave begins in the same direction as the previous cycle, the trend continues.
A new impulse wave starts in the opposite direction, it suggests a trend reversal.
Elliott’s Golden Rules 📜
For a pattern to be considered a valid Elliott Wave, it must adhere to three rules:
Wave 2 never retraces more than 100% of Wave 1. Break this rule, and you’re looking at a different pattern entirely.
Wave 3 is never the shortest among Waves 1, 3, and 5. It’s typically the longest and most powerful wave.
Wave 4 never overlaps with the price territory of Wave 1. With one exception: in diagonal triangles, which form in special conditions.
Let me explain diagonal triangles in more detail:
They have a wedge-like appearance, with converging trendlines
Wave 4 CAN overlap with the price territory of Wave 1
Each wave is shorter than the previous one
The overall pattern resembles a wedge
The Fibonacci-Based Approach: Nature’s Code in Market Waves 🌀
One of the most powerful aspects of Elliott Wave Theory is its relationship with the Fibonacci sequence — those magical numbers that appear throughout nature, from sunflower seeds to spiral galaxies. This isn’t coincidence… it’s the mathematical rhythm that underlies both natural phenomena and market behavior.
When applying Elliott Wave analysis, Fibonacci ratios don’t just help identify price targets — they also help define the time dimension of waves. Here’s how to incorporate this approach:
Fibonacci Time Intervals
Elliott Wave often uses Fibonacci numbers (e.g., 21, 34, 55 days) to identify potential turning points in the market:
21 days (~1 month): Perfect for capturing intermediate waves within patterns. This interval often marks the completion of smaller degree waves.
34 days (~7 weeks): The sweet spot that balances minor and major moves. When a trend has persisted for approximately 34 days, watch for signs of reversal or continuation.
55 days (~11 weeks): It is ideal for large trends, helps filter out market noise, and identifies significant wave completions.
Setting Peak Detection Parameters
When using algorithms to identify Elliott Waves (as shown in the code example), incorporating these Fibonacci-based distance parameters can dramatically improve accuracy:
# Using Fibonacci-based distance values
peaks, _ = find_peaks(prices, distance=55) # For major trends
troughs, _ = find_peaks(-prices, distance=55) # For major trends
# For intermediate analysis
intermediate_peaks, _ = find_peaks(prices, distance=34)
intermediate_troughs, _ = find_peaks(-prices, distance=34)
# For shorter-term analysis
short_term_peaks, _ = find_peaks(prices, distance=21)
short_term_troughs, _ = find_peaks(-prices, distance=21)By layering analyses at these different Fibonacci intervals, you can identify waves within waves… the fractal nature of market movements becomes clear.
Applying Elliott Wave Theory to stock prices
Let’s dive into …
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