Who is Robert Prechter?

I don’t know him and have not seen in person before, but I have been following his works over the last 12 years. Robert has been in forecasting business in the last 30 years and has run an investment company based on the Elliot Wave Theory, propounded in 1948 by Ralph Nelson Elliot.

In 1981-82, in the bear market days with Dow of around 800 at that time, he predicted that the US stock market was about to enter a huge uptrend, which might last as long as 20 years and for which 3,000 on the Dow was only the first stage. It was considered bullish, which would have been 15% above the index’s all-time peak set in 1972.

But Robert was right!

He was again right in 1987, when he forecasted the sharp bull run of that year would end but that pull back would be only a temporary problem before the market went on to greater things.

In the late 1990s, Robert turned bearish, explaining that the ‘fifth wave’ of an Elliot Wave cycle, and therefore the bull market was coming to an end. He was a few years early but by following his advice after about 1998 you would have avoided a decade in which your money made an all-in return of approximately zero.

He even managed to call this year’s March bottom, expecting a substantial bear market rally at around 6,300 on the Dow. However, he expects the market to resume its downtrend trend shortly, ending with a decline similar to the 86% in real terms of 1929-32 as we are in a long Elliot Wave downswing – and that would take Dow down to around 2,000 level.

Personally, I would not go that far, but the downward macroeconomic momentum looks bigger than in either 1974 or 1982 bear markets that bought real-term drops of slightly more than 50% from previous highs. I see similarity to the British crisis of 1972/75, which caused a drop of 72% from the high, or the Japanese crisis after 1990, which bought a drop of 70% within three years and led to a long-term bear market that has left that market in its current doldrums, about 80% below its peak. If that being translated to Dow, it will be around 4,400 and at that point, it would about as cheap as after the 1987 crash, though still not as cheap as it was in 1982, before the great bull market began.