Putting Prechter To The Test

Elliott WaveAnyone vaguely familiar with Elliott Wave analysis understands its theory that markets move in waves and cycles in counts of three and five either up or down; dependent on a Bull or Bear market.  However, that’s not what I’m here to discuss.

Prechter has gained more and more popularity and respect over the years, most recently for having gone  fully short in July 2007, then recommending to cover those shorts in February of 2009 stating that  a Bear market rally was on the horizon.  Pretty good call on that one don’t ya’ think?  Now on September 15, 2009 Robert Prechter, dubbed as “the world leader inUnemployment 1950.2000 Elliott Wave interpretation” by The Securities Institute, penned a letter to his Premium subscribers stating that not only were the pundits wrong in stating we were out of the Recession, but that we had been  in a slowly developing Recession since 2000.  In fact, one that engenders happy thoughts; a Recession with rallies that would not bottom out for another 5-8 years. 

In any case, what I’m driving at is to point out that according to basicElliott Wave Theory (not X wave or any type of freaky variation), Bull markets move up in a series of five (5) waves then correct with three (3) waves.  The opposite is true in a Bear market [3/5] and believe it or not there are more than a few out there that wonder if Prechter’s got it right. 

SPX Elliott Wave CountIt’s not my intention here to switch hit but rather to show both sides of the coin and explore the possibilities ahead.  Given Prechters theory, we *could* have just completed Wave c of a three-wave up in a Bear market.  In doing so, we could still re-test that upper resistance but overall the market would head lower and begin a Wave 1 of 5 down.  Scary thought but then when I remember the high unemployment, questionable consumer & commercial defaults, low consumer spending, export and manufacturing numbers, it’s a theory I must consider in the back of my head.  While things appear *less bad*, they’re still bad and far from what we considered *normal* two years ago.SPX 10.03.09

I am and shall remain Bullish as long as we don’t break decisively below the overall trend Regression Channel but I must give respect where respect is due – to Prechter.

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