And there shall be no new thing under the sun…
Hundreds of theories have been advanced concerning the ups and downs of business, the so-called business cycle: variation in the money supply, inventory over balance and under balance, changes in world trade due to political edict, consumer attitude, capital expenditure, even sunspots and juxtapositions of the planets.
Pigou, the English economist, reduced it to the human equation. The upward and downward swings of business as said are caused by excesses of human optimism followed by excesses of pessimism. The pendulum swings too far one way and there is glut; it swings too far the other way and there is scarcity. An excess in one direction breeds an excess in the other, and so on and so on, diastole and systole in never-ending succession.
Charles H. Dow noted a certain repetition in the markets's continuing gyrations through orderly sequense. Dow enunciated two principles that have stood the test of time. First, its primary uptrend was characterised by three upward swings. Second, there would be a reverse movement canceling three-eigths or more of such swing.
Baruch, hit the nail on the head in just a few words. "But what actually registers in the market's fluctuations," he said, "are not events themselves, but the human reactions to these events". It is people trying to read the future. And it is this human quality that makes the market so dramatic an arena where conflicting judgements - hopes and fears, strengths and weaknesses, greeds and ideals...accumulated and integrated.
Ralph N. Elliott, turned to a study of the stock market as relected by the history and movement of Dow Jones averages. Out of this protracted study, Elliot discovered the same repititious phenomena so eloquently expressed, went well beyond Dow's theory in comprehensiveness and exactitude.
The men, the four of them, had sensed the involutions of the human equation that dominated market movements. Therefore, market prices move in recognizable patterns.
And there shall be no new thing under the sun…
