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Question of the Week: 9/23/2009
Regarding market suitability, in MEW you stress "Current value must build on the past and time cannot automatically have a negative effect on value." What does that mean?
Answer:
What I am addressing in that section of Mastering Elliott Wave (MEW) are the characteristics a market should possess before it can be considered a good candidate for accurate wave analysis.
For example, if you eat an ear of corn, its value drops to zero (i.e., it no longer exists). Then, starting from zero, it has to be grown and harvested again, where it has a temporary value that is eventually destroyed again. As a result, its value does not build on its past, it goes from zero, to valuable, back to zero. Corn, as with all agricultural commodities, automatically decays with time, eventually reaching zero once it has been consumed or is no longer edible or usable. So, that is what I mean by time automatically having a negative effect on value.
If you want to use wave theory (especially the more logical, highly defined rules of NEoWave) to label and predict future price action of any market, you do NOT want a market where its pricing or value automatically decays with time and where its future price has no connection to the past. You want markets with what I call "perpetual life" (i.e., an item that is not consumed but simply passed around due to its intrinsic value or its exchange value). Some examples of markets that fall into this category are stocks along with currencies and gold (since all three are, for the most part, indestructible, they have "perpetual life").
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