"The big plunge is under way," says Pete Kendall, co-editor of The Elliott Wave Financial Forecast and a leading proponent of a deflationary, bear market outlook.
He suggests, "A flight from risk has been seeping into the markets for some time. And it's accelerating now." Here's his bearish outlook on stock as well as his forecast for bonds and the U.S. dollar.
Kendall notes, "How quickly investors forget! Wasn't it really just a few weeks ago that KKR's Henry Kravis told a conference of investment bankers, 'The private equity world is in its golden era right now. The stars are aligned.'"
Indeed, Kendall adds, "At the time, we agreed that stars were aligning, but in a different way. We have been forecasting a new era that would crush the over-extended hedge funds and investment banks."
The notably bearish advisor states, "It's all part of the unfolding flight from financial risk. Most people still have almost no idea just how risky these markets are. They will find out in the weeks and months ahead."
According to the Elliott Wave Principle, Kendall believes we are in a third wave. He suggests, "What is so devastating about third waves is that they don't happen in a stealthy or contrary way." Rather, he explains, "They feature a 'point of recognition,' with deteriorating fundamentals in conjunction with a downturn in market prices. The result is a market forceful adjustment, also known as a stampede."
Meanwhile, he beleives that many investors are still largely unphased by the risk of equity ownership. One sign to support this view, he believes is the discrepancy between the NYSE advance-decline ratio and NYSE trin which he says reveals a persistent effort to buy into weakness.
Looking ahead, Kendall suggests, "The DJIA should continue to work its way toward 13,000. This move is generating relatively extreme oversold conditions, and may rally short term, but any rallies should be short lived. Once that's out of the way, however, declines may swamp advances in a way that few market observers have witnessed."
Technically, he notes that support for the S&P 500 lies near 1440, an area which he believes may be "the first stop in the S&Ps new long-term downtrend."
According to the Elliott Wave methodology, he notes that it would take a rally above Dow 13,797.67 in the Dow Industrials and the 1530 area in the S&P to begin to suggest that the bearish forecast will not occur. He says, "Barring such a rise, we will remain strongly bearish on these averages."
Similarly, he notes that the NASDAQ would have to rise through 2688.41 to re-introduce the possibility of a new high. As with the Dow and S&P, however, he says, such a move is not expected.
Rather, he forecasts, "The NASDAQ should take back the choppy advance of the last 4 months in short order. The 2530 area, which is near the index's wave 4 low and February peak, is a possible next stop."
Each day, Steven Halpern's TheStockAdvisors.com features the latest investment ideas and market commentary from the financial newsletter community.
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