Prechter: Stocks Will Plunge More than 40 Percent

Friday, 25 Feb 2011 01:24 PM

By Dan Weil

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Stock guru Robert Prechter isn’t impressed by the recent stock-market rally. He says the Dow Jones Industrial Average is headed down to 6,800, 44 percent below current levels.

Technical factors will drive the market down, Prechter, president of Elliott Wave International, tells Yahoo’s Tech Ticker.

Indicators show investors are excessively bullish on stocks, he says.

Robert_Prechter_06.jpg
Robert Prechter
The 10-week average of the percentage of bulls minus the percentage of bears among individual investors is higher than it was when the stock market reached its record high in 2007, Prechter notes. “You have to go back six years to find anything like this.”

For investment advisers the average also is higher than 2007, he says. “Just about every segment we cover shows extreme optimism.”

The market’s decreasing upward momentum signals stock are ready to tumble, Prechter says. “We’re nowhere near the end of the bear market. This is the peak of a major bull market.”

The market is set for a drop just like September 2008-March 2009, he says, and this one may last longer. The only investment he likes now is the dollar, because bearishness for it is high.

Not everyone agrees with Prechter.

“The economy is growing at a moderate pace,” Tom Wirth, senior investment officer for Chemung Canal Trust, tells Bloomberg. “That tells me that the Federal Reserve will be on the sidelines. Corporate earnings have been great. That all bodes well for stocks.”

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