Saturday, November 15, 2008

Sell & Hold

My father was the investment guru of my entire extended family back in Detroit in the 1950's through 1987. That was an entire generation of splendid performance for him and anyone who listened to him, including, moi. Only thing was, my father only knew how to buy stocks. During those 35 odd years of investing, I think the only shares my father sold were to buy his family a house on Roselawn near Curtis in 1950 and then again to buy us a house in Southfield, Mi. in the mid-1960's. Although he tracked every stock he owned, every day, in a ruled spiral notebook, including a rather sizable margin balance, he just never sold.

My father had never heard of R.N. Elliott, nor of Robert Prechter (until I brought him to my father's attention in the mid-1980's). But he was investing exactly as those two gentlemen would have suggested he invest at the time.

This is a chart from Robert Prechter's, Conquer the Crash (extended samples reviewable through Google Books). Look at the years that my father was Mr. Buy & Hold. From about 1940 through his death in 1987, he rode the waves, first a Wave III, then he held through the sideways Wave IV and then through the first half of Wave V.

Here is a another perspective showing  how my father was fully margined and invested during major phases of expansion and growth in the U.S. Economy. Note how throughout most this entire time stock prices went up, a little sideways, and then mostly straight up again.

From this perspective, Buying & Holding from the late 1940's on was the only game in town and my father, through insight or just plain dumb luck, rode the waves up like the champion surfer that he was, always in, always fully invested, always on his board waiting for the big one. He didn't have the benefit of these charts, nor was he a proponent of The Wave Principle. He was just at the right place, with the right attitude and at the right time. When it comes to investing, it just doesn't get better then that.

Or does it? Take another look at the last chart above. It it a Grand Supercycle Chart of the entire 300 year bull market, roughly correlating to the rise of America on the global scene. If the Wavesters are correct that this Grand Supercycle Degree Bull Market has ended and that we are in a "Wave 4" correcting the nearly 300 year advance, where is this market going?

A major guidline of Elliott Wave is that, "Wave IV ends when it is within the price range of the previous subwave four of 3" Frost and Prechter, The Elliott Wave Principle, p.87 Now look at where the previous wave IV ends on all of the above charts.......

Yes, that's right, under 1000 on the DJIA.

Whether or not we get that low, if one accepts the basic tenants of Elliott Wave theory, that social mood drives society and that social mood can be measured with uncanny accuracy by stock prices, there's trouble ahead in River City (and all other cities). The perfect investment stance then is the exact opposite of my father's steady Buy & Hold brilliance on the way up. That would be taking a Sell & Hold position for the ride down (or at least that part of the ride down we will experience in our lifetimes).

"Sarah and Alana, if you are reading this after my time is up, remember what your grandfather built for you and your Dad. Now look back on your Dad's trading during the next 25 years and ask yourself, how did it work out? I suspect you will now know what to do with all that I have left you."

As for you, my loyal readers, I recommend you learn this stuff. Just click on any of the Elliott Wave content on the right side of my Blog. Much of it is free. Some of it an incredible bargain ($20/month for Robert Prechter's Elliott Wave Theorist). For those of you who reject it just because of the seemingly outrageous conclusion, do yourself a favor and learn it first. Even if you still reject it, as events unfold in the years ahead, at least you'll know where it was first above written.



met61 said...

Allan,even if we are in a grand cycle bear market,won't there be smaller waves where we will be able to trade on the long side?

Allan said...

Ron - just as there were some whopper of declines on the way up, there will be some explosive rallies on the way down. It will take something like the MC Triangles to keep one on the right side of the market for when those counter-trend blips are over and the main trend re-asserts itself.

Tapan said...

Also beware that some of them might not be true-rallies and really short lived false bull indicators.

david said...

Those first two charts are thought provoking, and frightening. It's amazing how from the end of the Depression up through probably last year, the first 5 waves of the 8 wave fractal are right there on the Dow chart in textbook fashion.

If we assume that Wave V ended last fall when the Dow hit 14000 then it's all downhill from here. We should now be in Wave A down. But it took 75 years to complete the first 5 waves, so given that timescale I wonder if this Wave A could go on quite a bit longer? It's only 1 year old!

Where my head starts to spin is when I realize that that 75 year upleg is actually contained within a just ended Wave V of a larger 200-yr fractal, and that 200yr fractal is actually a larger Wave III of a centuries-long fractal.

So this supercycle wave IV will last for the rest of all our lifetimes. The Wave A of the fractal that began in 1790 could also last for the rest of all our lifetimes. As for the fractal that began after the Depression this Wave A will surely end in our lifetimes, but who knows when? Ahhh... at last I understand the reasoning behind the sell and hold philosophy. ;)

As a side note, I have to say that South Sea Bubble was really something! It took over 100 years to finally break that high!

Allan said...

It looks to me that the "C" wave we are in now will complete only Wave A of a multi-year ABC. That means ahead of us is a robust B wave rally that certainly will be worth playing on the upside. After that, another "C" wave decline, only this time a "Wave C of Wave C" which should hurt even more then the current Wave C. DId I write, "hurt"? Hurt only if you are on the wrong side of the C-wave decline. After being long for the B wave advance, if one were to flip Short for C, it will be a very nice ride down, indeed.

Anonymous said...

Allan, how long will the Bwave up last? Months or years? Some of the 'gurus" I've heard comment say it will be a 2-4 month move up? How's that jibe with your analysis?


Allan said...

One of the major differences between Prechter and Neely's respective EW analysis is that only Neely uses time as a significant element of his analysis. So there is no universal application of time, but a lot of theories, many of them dealing in fibonacci-based analysis. I haven't answered your question yet, have I?

Ok, my best guess is that the B wave will last the better part of a year or longer. Remember we are taking about a 4-6 year bear market (for first A wave) and 1/3 of that is the B-up wave. So 1-2 years sounds about right.

Are we having fun yet?

Wayne said...

Speaking of "bear", a very interesting read on some folks who saw it coming:


Anonymous said...


With the market crashing, where do you see NNVC falling to? Today it is trading somewhere near .56.


Allan said...

NNVC: Monday is when most folks expect press releases and on Monday's like today, where there is no press release (not yet, anyway) there is natural sell bias. Today is a GREAT DAY TO BUY THIS STOCK, with an artificially low price and pending the release of news on any one of a half dozen ongoing studies or projects. If you have ever been to Cape Kennedy to watch liftoff of Space Shuttle, this is that eerie silence just before ground starts shaking......

Anonymous said...

NNVC the ONLY way to fly!

Kat said...

Hi Allan, your buy call on NNVC was spot on. Bought it at 56 cents and it closed at 64 cents, a one day 14% return! Been watching it for a while and your post was all the push I needed to jump in. Thanks! Beginning to see your thought process in this post. Use the EW knowledge to get the big picture, and MC triangles to trade the moves and ignore terms like Bear or Bull markets. Just wondering about one more thing you you used to post about - the Xyber9 system. Is that still in your arsenal of positioning strategies, or are these current tools taking more of a front seat in your thinking now?

Allan said...

Kat - you continue to get the most out of my work here, which in turn encourages me to stay on the path of the practical and the oblique. As for Xyber9, it is something I just haven't been following for almost a year now. I know some people who still swear by it, others who like me had mixed results and others like you, who are curious. You will have to investigate this one on your own, if you wish, for I have moved on.

Thanks again for the feedback and don't sell those NNVC shares for one year, or $100, which ever comes first.

david said...

It's interesting that there's no agreed upon application of time in EW analysis. So that Dow 1000 target... since it's correcting a 300 year advance I would think this low would occur many decades from now. But theoretically, it could just as easily occur a few years from now?

Allan said...

david - yep, although there are alternative counts, one from Glenn Neely, that are less dire, but also much closer in time. He is suggesting a 4-8 year bear market that began about one year ago and for the low to be sometime in the next six months, under 600 S&P. I'll see if I can find a public domain chart of Neely's count for a future blog. Neely's ultimate top is 100,000 DJIA, this century.