Mark Galasiewski, chief equity analyst for Asia and emerging markets with Elliott Wave International, explains how the Elliott Wave model can help investors make sense of apparently chaotic patterns in financial markets. Part 1 of a two-part video.

The Elliott Wave is a statistical model for understanding universal patterns in pricing and financial markets. Formulated in the 1930s by professional accountant Ralph Nelson Elliott, it continues to provide deep insight into the cycles of economic boom and bust, Galasiewski says.

The Elliott Wave turns on its head the notion that economic performance, for better or worse, is triggered by government measures or central bank policy makers. Even a catastrophic occurrence such as a pandemic doesn’t cause market dips. On the contrary, says Galasiewski, economic trends precede and precipitate those events. “Markets move for non-rational reasons,” he says. “Not by the rational explanations you read about in the Wall Street Journal and in academia.”

Galasiewski offers numerous charts to illustrate how economic cycles over past decades follow repeating patterns, creating a set series of forward waves and reactions. His observations include the discovery of a “contracting triangle” that shows the progress of economic declines, which then inevitably give way to another surge of activity and bull market. And while the patterns are clear, and seem to correlate with external events, booms and busts “do not need triggers and catalysts,” he says. “They occur in and of themselves.”

Galasiewski applies the model to current economic activity in Asia, to show that the Elliott Wave patterns continue to shed light on trends that might otherwise be impossible to interpret. And while the model can’t predict the future with perfect accuracy, he shows how it might be signaling another “all-time high” in financial markets.