Elliott, in his second monograph, used the title Nature’s Law — The Secret of the Universe in preference to ‘The Wave Principle’ and applied it to all sorts of human activity. Elliott may have gone too far in saying that the Wave Principle was the secret of the universe, as nature appears to have created numerous forms and processes, not just one simple design. Nevertheless, some of history’s greatest scientists, mentioned earlier, would probably have agreed with Elliott’s formulation. At minimum, it is credible to say that the Wave Principle is one of the most important secrets of the universe. Even this grandiose claim at first may appear to be only so much tall talk to practically-minded investors, and quite understandably so. The grand nature of the concept stretches the imagination and confounds the intellect, while its applicability is as yet unclear. First we must ask, can we both theorize and observe that there is indeed a principle that operates on the same mathematical basis in the heavens and earth as it does in the stock market?The answer is yes. The stock market has the very same mathematical base as do these natural phenomena. The idealized Elliott concept of the progression of the stock market is an excellent base from which to construct the Golden Spiral, as Figure 3-10 illustrates with a rough approximation. In this construction, the top of each successive wave of higher degree is the touch point of the logarithmic expansion.
This result is possible because at every degree of stock market activity, a bull market subdivides into five waves and a bear market subdivides into three waves, giving us the 5-3 relationship that is the mathematical basis of the Elliott Wave Principle. We can generate the complete Fibonacci sequence, as we first did in Figure 1-4, by using Elliott’s concept of the progression of the market. If we start with the simplest expression of the concept of a bear swing, we get one straight line decline. A bull swing, in its simplest form, is one straight line advance. A complete cycle is two lines. In the next degree of complexity, the corresponding numbers are 3, 5 and 8. As illustrated in Figure 3-11, this sequence can be taken to infinity.