Prechter Forecasts Dow 1,000

Posted Jul 7th 2010 11:00AM by Connie Madon
Filed under: Forecasts, Market Matters, Technical Analysis, DJIA

Robert Prechter is best known for his use of the Elliott Wave theory. He rose to prominence in the 80s, especially after he advised clients to exit ahead of the 1987 crash. Today, Prechter foresees the U.S. economy sinking into a deflationary depression with stocks plunging. The Dow Jones Industrial Average may sink to between 1,000 and 3,000.

Prechter uses the Elliott Wave principle to plot market movement in waves. In a traditional bull market Prechter projects a five wave primary bull pattern. In a primary bear market he uses three waves down (ABC). According to his theory, the first leg down was from Dow 14,000 to 6,400 (A). The next wave up was from Dow 6,400 to 11,000 (B). He feels that we are now in wave (C) down. This is the most powerful and vicious wave.

Using this method, he predicted a bull market starting in 1982 and ending in 1987. He got his investors out before the crash of 1987.

In early June this year, he predicted a rebound of 10% in the euro based on technical factors -- mainly as too many investors had become overly bearish. Prechter further predicts that the euro will continue upward for about the next two months. So far, the euro has gained 6% against the U.S. dollar.

Prechter forecasts that the dollar would weaken to parity with the Swiss franc. On Tuesday, the dollar was buying 1.059 Swiss francs. According to Reuters, he prefers the Swiss franc over the euro in a bet against the dollar.

He also thinks that "U.S. house prices are about half way down in their bear market."

With high yield corporate bond spreads widening over treasuries he notes, according to Reuters, "We think we are back in a widening spread trend between reliable debt and risky debt."

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