Almost all of Elliott’s research and analysis was done on the cash stock
indexes, primarily the DJIA. The Wave Principle is a reflection of mass
or social psychology. It is best reflected by a large group of people from a
wide variety of backgrounds with a single interest. Of all the financial or
futures markets, this is best reflected in the stock market, and it is in the
stock market indexes that we find the Wave Principle most applicable on a
consistent basis over the greatest variety of time periods.
Cash versus Futures
Ideally, all wave counts should be done on cash prices to avoid the distortions
that are inevitable in continuous futures prices. Today’s price of a
futures contract includes adjustments due to carrying charges, interest
charges, etc. No future’s contract price represents today’s idea of value
except on expiration day. Cash charts are much less likely to violate the
“rules” than futures charts.
Other than individual stock and stock index analysis, most wave
counts are done on futures contract data including long term, continuous
data because this data is much more available from data services than long
term cash data. Ideally, the analyst will double check his or her work on
cash data to see if the form and pattern are the same as the continuous
futures data.
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