Formerly Beloved Technical Analyst For Wall Street Warns Massive Market Crash Coming

Pick any Roland Emmerich disaster movie and randomly select a scene–that’s more or less what Robert Prechter, a market forecaster who was widely lauded as a technical analyst in the 1980s, says is coming to the Dow, writes the New York Times.

Buy-and-hold stock investors will be devastated in a crash much worse than the declines of 2008 and early 2009 or the worst years of the Great Depression or the Panic of 1873, he predicted.

For a rough parallel, he said, go all the way back to England and the collapse of the South Sea Bubble in 1720, a crash that deterred people “from buying stocks for 100 years,” he said. This time, he said, “If I’m right, it will be such a shock that people will be telling their grandkids many years from now, ‘Don’t touch stocks.’ ”

Prechter bases his doom and gloom on something called the Elliott Wave theory, which is based on the work of an accountant who discovered patterns in the stock market in the 1930s and ’40s. He’s used it to provide investing advice for decades now, and the paper says that since 1980, a portfolio based on his advice “has slightly underperformed the overall stock market but has been much less risky, losing money in only one calendar year.”

Now he’s saying that within the next 5 to 6 years, the Dow–currently over 9,000–will fall to less than 1,000.

The Times also talks to another analyst who recently moved his money out of stocks into cash, but who says he thinks that after a coming 10 to 15% drop, there should be another “meaningful rally.”

The “mathematics don’t work,” Mr. Acampora said, because such a big decline would imply that individual stocks would need to trade at unrealistically low levels. Furthermore, he said, “I don’t want to agree with him, because if he’s right, we’ve basically got to go to the mountains with a gun and some soup cans, because it’s all over.”

Still, on a “near-term” basis, he said, “We’re probably saying the same thing.”

“A Market Forecast That Says ‘Take Cover’” [New York Times]

Comments

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  1. Dinhilion says:

    I refuse to believe that the Dow is going to trade under 1000. I will however, believe that it could experience another drop.

    • Clyde Barrow says:

      It’s not about doomsday and conspiracy predictions but on mathematical calculations and human nature. It uses past models that look at cycles to suggest what could happen based upon constant and applicable patterns of the past.

      Robert Prechter is the guy that predicted the 1987 crash to a “t”. In fact so well was his prediction based upon this mathematical algorhythm that Wall Street tried to have him “banned” from speaking about his “predictions”.

      Google it because its pretty good reading to see how this thing works; “Elliott said that “because man is subject to rhythmical procedure, calculations having to do with his activities can be projected far into the future with a justification and certainty heretofore unattainable.”

      http://en.wikipedia.org/wiki/Elliott_wave_principle

      • Nytmare says:

        Flim flammers with a persecution complex? “I’ve got secrets that ‘they’ don’t want you to know!” Sure you do buddy.

      • Andy S. says:

        Mathematical models used to predict stock prices do NOT work.

        http://www.fool.com/school/dowinvesting/dowinvesting.htm

        Beating the Dow used ten low price, high yield stocks to assert that one could play the math and always win. The Motley Fool refined that system only to finally conclude that the Beating the Dow model and all similar math based systems don’t work given any random period since the inception of the stock market.

        Beating the Dow worked for one period of time and ONLY one period.

  2. Cicadymn says:

    I love doomsday and conspiracy predictions. They’re always so fun to watch.

    My personal favorite conspiracy theory is that the US has a fleet of star ships that fly around the galaxy contacting aliens and being generally awesome.

    It feels crazy even typing it, but there are people that believe it. Hell there are people that will believe anything nowadays.

    • DeepHurting says:

      Good Sir, your theories interest me and I would like to subscribe to your newsletter. Please provide me with more literature regarding awesome outer space adventures, and how one could become part of said adventures.

      • GirlCat says:

        Are there jet packs involved?

      • Cicadymn says:

        Haha it’s not my theory. But I’ve seen it mentioned every now and then on conspiracy websites. Always get a kick out of it.

        Would make a great book though. I’ll have to keep it in mind.

    • Bakergirl says:

      It almost sounds like it some kinda….Starfleet… 0.o

    • Not a Fan Boy says:

      Sounds way to much like Stargate SG1.

  3. Halloween Jack says:

    For a little perspective: criticism of the theory. Plus, of course, the fact that he’s underperformed the market using this allegedly infallible method of predicting it. But, if everyone follows his example and pulls their money out of the market because the sky is falling, hey, self-fulfilling prophecy in da hizzouse.

    • Loias supports harsher punishments against corporations says:

      My understanding is that he chose stocks and stuck with them. The performance of those stocks slightly underperformed the overall market, but only once did they ever lose money.

      Personally, I’d rather have a reliable portfolio that a volatile one that might make it big, might lose it all.

      • craptastico says:

        over the long run more volatile portfolios outperform less volatile. the message here is that if you think you’ll need the money in 3-5 years, stay conservative. if it’s for your retirement in 40 years, go ahead and be risky. just make sure to be more conservative as you approach retirement.

      • Ouze says:

        Why settle for one or the other? Diversify and reap the benefits of both.

  4. Rachacha says:

    I predict that Verizon will eventually receive the iPhone, but unfortunately no one at Verizon will know because Steve Jobs called Verizon to tell them the good news on his new iPhone 4 that he was holding incorrectly and he could not get reception. Apple’s stock will subsequently plumet causing the entire stock market to crash.

    See, Predicting is fun and easy!

    • runswithscissors says:

      Dear Leader does not “hold his own iPhone”, he has a devoted eunuch servant in a white robe who holds the iPhone up to his ear for him.

  5. PSUSkier says:

    Grooooooooan. I hate stories like this because I know there’s always some gullible person out there who reads this and sells all his or her holdings to invest in canned food and bomb shelters. OK, maybe a bit dramatic, but come on. Stop being limelight grubbing whores people.

    Again, not saying that there is no possibility of another decline, just not a 9,000 point drop.

    • ShruggingGalt says:

      I agree…and of course the other thing which this prediction doesn’t take into consideration, is the other “people” who claim that inflation is coming.

      If inflation comes there is no way it can go that far down….companies are worth more than that.

    • Conformist138 says:

      “I don’t want to agree with him, because if he’s right, we’ve basically got to go to the mountains with a gun and some soup cans, because it’s all over.”

      Reductio ad absurdum, or a guy who truly finds the idea of no stocks so frightening he thinks we will lose our ability to survive as a society? I find the prediction to be pretty drastic and thus not likely to come true, but this dude’s comment is equally stupid and unrealistic.

  6. TailsToo says:

    It will never happen. Too many well-connected people have their money in the market, and the rich would have the government protect their interest (like the bail out). It would take the entire World Order to collapse for the Market to fall like this guy predicts (then who really cares what the market does?)

    • PsiCop says:

      +1. The same thing happened with real estate and, even now, after the housing bubble has burst, housing prices have not really cellared. They have gone down modestly but they have not hit bottom. The reason? Too many powerful people have too much of their own money invested in real estate, for them to permit too drastic a drop.

      In fact, these folks are the ones who fueled the housing bubble in the first place … in the late 80s and 90s they poured money into real estate assuming it would only go up in value. Once the market was saturated, c. 2000-2001, something had to be done to get more money into the market. Hence the “subprime mortage,” which flooded the market with new buyers and new money, and artificially propped up real estate.

      Over the last two years, things like interest-rate suppression, big-bank bailouts, the homebuyer tax credit, etc. have all served a similar purpose … i.e. artificially propping up the real estate market.

      The same will happen with stocks. If there’s ever too drastic a drop, just watch what measures are taken in Washington … and in other national capitols … to ameliorate it.

  7. apd09 says:

    the Elliott Wave theory, which is based on the work of an accountant who discovered patterns in the stock market in the 1930s and ’40s.

    And for 59.99 per person you can attend this private event to learn the secrets of the stock market and how to start making more money than you ever dreamed possible. If you don’t believe me, listen to Debi, she made over 150,000 in her first year using this proven system….

    • MongoAngryMongoSmash says:

      No, Thank you. I’ll stick with Plunder Funnel.

      • mac-phisto says:

        how’s that been working for you? money has yet to punch me in the face yet, so i’m a little disappointed with the program.

  8. pecan 3.14159265 says:

    All I need to know is this: How will my stock options in cats and buckets be affected?

  9. Megalomania says:

    So essentially, he thinks that the market will accept that Microsoft is only really worth about $30 billion or so? Don’t think so…

  10. grapedog says:

    Of course it’s going to drop again, all the debt remains. We’ve done nothing to expunge the bad debt from the system. Millions and billions of dollars of money that doesn’t actually exist are still on the books. Everyone in the government was hoping that housing was going to pop back up, and that the inflated prices were going to remain inflated and the books were not going to be need to be cleared. Unfortunately, the housing market is not going to save them.

  11. jefeloco says:

    So, we will end up transported through a gateway to another planet that has an alien ruling class impersonating ancient Egyptian gods?

    Cool.

  12. jamar0303 says:

    So, time to try forex instead?

  13. dreamfish says:

    What’s he got to lose? He claims there’s going to be a collapse and there isn’t, everyone forgets about it. Alternatively, the collapse happens several years later and he can claim he saw it coming but it was slightly delayed. Either way there is no come-back.

    The problem is what has happened now where no-one seemingly predicted the suddeness or level of the current downturn – and are still arguing about the possibility of a double-dip recession. Saying or giving the impression everything’s rosy just before it all goes bang is when such people are called to account.

    • Nytmare says:

      Big earthquake coming within the next few timeframes at a location that I’ll tell you about after it happens!

  14. sufreak says:

    Excellent. I’ve been waiting for a good time to buy. I can wait 5-6 years.

  15. Shampoo Lies says:

    That’s why I have all of my money in Sham Wow futures.

    • misterfweem says:

      Naw, pumpkin futures are the way to go. Just remember to sell before Halloween.

    • Traveshamockery says:

      Hitchhiker’s Guide to the Galaxy seems to indicate that traditional towels are the best investment post-apocalypse.

  16. bitslammer says:

    Glad I’m investing my money into lead ingots. It’s soooooo mcuh cheaper than gold that I laugh at those people who are buying gold.

    • Moweropolis says:

      I have been looking for someone in the lead trade, I invested in these alchemists stones last year and have yet to find a use for them.

      I’ll never ask that kid into D&D down the street for financial advice ever again, I can tell you that much.

  17. istheleftright says:

    I can explain the Elliot Wave Theory here in this video. It explains how it works, where it has issues and why this guy is telling everyone the truth, except on Tuesday at night.

    http://www.youtube.com/watch?v=k0SsR2y6Tgo

    Understand that the reality of any of these schemes is how many people buy into it, how many people ascribe to it, and how many suckers it reels in. Those same suckers will eventually be buying books, CD’s ( it used to be tapes) and various seminars that explain the rational behind it. The video above will show everyone the rational behind such schemes, and in fact show that the more complex a scheme is, the less people will understand it, and the more money they will pay to decipher it.

    • Thalia says:

      The wave theory might make marginal amounts of sense if the stocks in the Dow Jones average stayed they same. But they don’t.

  18. Rocket80 says:

    1000 is a bit dramatic, but I’ll predict within a few years the DJIA will buy 1oz of gold. Relating the DJIA to commodities is a better judge than just the number itself. either way, we are def. not in any sort of ‘recovery’ period. USA produces nothing, as soon as the govt. money (stimulus) runs out, it’s back to full on depression. It’s merely a matter of how long they can prop up the system by printing more money until that money becomes worthless. So basically I agree with the prediction in general, it’s just the timeframe that unpredictable.

  19. dolemite says:

    Somebody’s been watching too much Fox News. The for the Dow to trade out 1000, our entire financial system will basically have to collapse. Bread would be like $300. People act like our system is propped up right now, but I don’t see it. Unemployment is still 9.5%. Companies like Microsoft, Apple, Ford, etc are creating great products. I could see a double dip recession with the next one being milder than the last, but that is it.

    • Oranges w/ Cheese says:

      As much as that would suck, it might get people’s heads out of their asses.

  20. Big Mama Pain says:

    Cash, meet mattress; I think you’ll really hit it off.

  21. jim says:

    the end of the world is in 2012, so his bust has a limited time to occur….

  22. OtakuboyT says:

    Well, time to start looting….

    *smashes window*

    *Walks off with Television*

  23. FrankReality says:

    What makes the market interesting is that there is a technical basis for stock valuations, but the market also has a psychological component as well.

    I read an article a few weeks ago referring to two technical measurements that indicated as of the 1st quarter, the market was 48% overvalued. That indicates to me that psychology is driving the market now – and when market psychology deviates so much from technical analysis, odds are that the psychology is acting illogically.

    I think the more illogical market psychology is, the more likely we are operating in an artificial bubble, and bubbles are known to burst causing a sharp, quick decline.

    I have an economist friend who is predicting 8000 for the Dow by year end. I’m thinking more like 8750 to 9000 myself, but who knows what will happen between now and then.

    Certainly don’t take my advice, it’s worth no more than what you paid for it. ;-0