Friday, February 27, 2009

Don't Look Now But Market Going To 500

Or at least according to Robert Prechter, who had forecast the 1987 stock market crash, and is chairman of popular technical research firm Elliott Wave International. It is not like the Legion of Doom really needs any more groupies, but if that's the man's opinion we will take it.

My long term opinion is that the bear market has several years left to run, and stock prices will go a lot lower," Prechter, said in a telephone interview. "So any rally that happens is going to be a bear market rally."

The S&P this week broke below 745 points -- 19 months after Gainesville, Georgia-based Elliott Wave International had recommended shorting the benchmark index down to that level.

Now, Prechter said, the S&P index could fall by half from these levels over the long term, although he declined to give a specific forecast.

"We are less than halfway through it price-wise," he said. "The market is still overvalued, one reason being that companies continue to lower earnings."
But near term, the risk of a kneejerk rebound in stock prices has risen.

Granted, Prechter does admit that the "bear side has gotten a little crowded in the stock market." Prechter also goes to burst some other bubbles namely that of gold and treasuries:

Gold and silver should go significantly lower. Too many people now think owning them is a good idea. Remember when everybody thought owning real estate and stocks was a good idea?

Treasury bonds have started a bear market. Several scenarios could unfold to explain why: one of them is that government borrowing demands could go up and up and creditors could demand higher yields.

Curiously, to the more and more people who demand lynching for shorters and blame them as the reason for the market collapse, we recommend they read Eddia Lampert's letter in which aside from the substantial propaganda, he raises the valid point, that investors can only short shares because original holders allow the shares to be repoable by custodians such as Bank of New York. If everyone were to demand their brokers make their shares non-repoable, you might see the most insane short covering rally in the history of the market, although current short interest is actually lower than it has been historically (getting chart). Sphere: Related Content
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