Monday, October 5, 2009

Robert Prechter of Elliott Wave Sticking to His Bearish Bets; No Change to Call for New Lows

Robert Prechter is unbowed by the market's levitation; thus far near term bears of any sort (Kass, Prechter) have been mocked by the market. Last we checked with Prechter was August when he was calling for a quite substantial pullback [Aug 11, 2009: Robert Prechter of Elliott Wave Meets Yahoo Tech Ticker] It is hard to string together bold calls, back to back. [Feb 24, 2009: Robert Prechter of Elliot Wave Fame Advises Closing Shorts]

He still could be right, but just early. We'll know in 6 months.

Via Bloomberg
  • U.S. stocks may suffer a “major decline” after climbing to the highest levels in almost a year two weeks ago, according to Robert Prechter, founder of Elliott Wave International.
  • The Standard & Poor’s 500 Index will probably fall “substantially below” 676.53, the 12-year low reached on March 9, he said. The measure surged as much as 58 percent to 1,071.66 in the ensuing seven months on signs the recession is ending. His projection implies a drop of more than 34 percent from last week’s close. Technical analysis, Prechter’s field since 1975, involves making predictions based on price and volume history.
  • “Stocks are very overvalued,” Prechter, who advised betting against U.S. equities three months before the market peaked in October 2007, said in an Oct. 1 telephone interview. “Stocks peaked in September and are back in a bear market.”
  • Prechter, 60, said he’s basing his prediction for a decline on chart patterns, dividend yields and extreme levels of investor optimism. The combined dividend yield for the 30 stocks in the Dow Jones Industrial Average is too low at 2.94 percent, he said, citing an analysis of the 1929 market peak. “Stocks are still in the most expensive area in history,” he said.
  • Stocks, commodities and real-estate will suffer from a rebound in the U.S. dollar, Prechter said. “I’m very bullish on the dollar,” he said. “There’s extreme pessimism, and that usually marks a bottom.” The Dollar Index, uses to track the currency against those of six major American trading partners, dropped to 76.05 on Sept. 23, the lowest level in more than a year.
Track record
  • Prechter’s forecasts have had mixed results. While the former rock-and-roll drummer achieved fame for predicting a stock market crash two weeks before Black Monday in 1987, his standing suffered in the 1990s because he missed the almost decade-long bull market. In December 2002, he said the Dow Jones Industrial Average would fall below 1,000. It hasn’t dipped below 6,000 since then, climbing 25 percent in 2003 and then another 35 percent through Oct. 9, 2007.
  • Prechter is an advocate of the Elliott Wave Theory developed by accountant Ralph Nelson Elliott during the Great Depression. Elliott concluded that market swings, or waves, follow a predictable, five-stage structure of three steps forward, two steps back.
[May 15, 2009: Robert Prechter of Elliott Wave Theory Still Bearish]

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