Is it 1973 all over again?
Commentary: Scary scenario, but not everyone is buying
By Peter Brimelow, MarketWatch
NEW YORK (MarketWatch) — Wednesday’s bad break has the bears bugalooing. But one judicious bull is standing firm.
A really scary comment from Elliott Wave Theorist’s Bob Prechter: “In my judgment, the situation is very like that of 1973. …The market has been in a two-year bear market rally, per our interpretation of the Elliott Wave model; and a broad bullish consensus had developed on stocks, recalling January 1973’s ‘Not A Bear Among Them’ headline from Barron’s.”
“In 1973, the stock market topped in January and was weak into August; then it rallied hard right through September and October, statistically the two most bearish months of the year. It was a convincing rally and optimism returned. That rally ended on Oct. 31, leaving the ‘bear months’ in the dust. But instead of continuing higher, the market turned lower, and in just a month plunged below its August low. November is usually a benign month, but that year it wasn’t…”
Prechter was quick to add: “None of this PROVES anything. Today’s huge intraday TICK and TRIN [two technical indicators] numbers, in fact, would usually be associated with a near-term bottom, so there is plenty of room for uncertainty. But the main exception to that tendency occurs at the kickoffs of major declines, and that’s how the waves seem to be positioned.”
A whole generation of investors has grown up thinking Prechter has always been bearish. But this has not always been so, and anyway the Crash of 2008 (after which his letters were briefly bullish) nearly got him onside. ( See Oct. 13 column. )
Dennis Slothower of Stealth Stock Daily Alert, who also dodged the Crash of 2008, isn’t always bearish either. But bearishness has worked for him this year. ( See Oct. 6 column. ).
He said flatly last night: “Given the horrible developments in Europe and the chaos we are likely to see in the next few weeks as details emerge from the ‘Super Committee,’ it would not surprise me to see a 50% or 61.8% retracement off the October rally, which would be another 4%-6% drop from here.”
Slothower is currently 100% in cash.