Bear Warning

[Joanne98]

NEW YORK (Reuters) - Longtime technical analyst Robert Prechter, who forecast the 1987 stock market crash, predicted this week that U.S. equities may plunge to half their lows hit in March as a deflationary depression bites.

Oil and U.S. Treasury bonds are also locked in long term bear markets, while corporate bond prices will plunge precipitously by next year as broad economy, banking system and company earnings sustain more damage from a financial crisis that's akin to the Great Depression, he said.

The U.S. S&P 500 stock index's .SPX rebound by nearly 40 percent since it sagged to a 12-year closing low of 676 points on March 9 is not sustainable, Prechter said in an interview with Reuters.

"It's not the start of a new bull market," said Prechter, chief executive at research company Elliott Wave International in Gainesville, Georgia. "Our models are (showing) right now that it is a much bigger bear market than most people realize, something along the lines of 1929-1932," he told Reuters in a wide ranging interview. "It's a very rare event," he added.

"I think the next leg down will be at least as severe if not more severe than what we just experienced. So you want to stay on the side of safety," he said.

As in his 2002 book "Conquer the Crash," which warned of the dangers of a U.S. debt bubble and deflationary depression, Prechter continues to advocate safer cash proxies such as Treasury bills.

SEVEN MORE YEARS?

Riskier assets such as commodities, corporate bonds, and stocks which are currently anticipating that the severe global economic downturn may be bottoming, are likely to have short lived intense rallies, but within an inexorable long-term decline that may last another seven years, he said.

Continued>>>
http://www.reuters.com/article/ousiv/idUSTRE54D4IL20090514

[ixion]

1. "This has been a prequel," Prechter said.

Exactly. We're just getting started on this ride.

[pa28]

2. Strong rallies like this one normally have their biggest move right at the top.

It seems like as prices go up people have an emotional response about missing out on profits and start to think of buying again to recoup their losses from last year. If this guy is right they'll be bear food (again).

[angryfirelord]

3. The self-correction is almost done

In fact, I'd say the S&P has broken out of its wedge pattern. Next week the S&P should begin a movement downward back to the 770-780 line since there are a couple of support levels there. If it busts throguh that, then the last support line is at the new low this year.

Short bear market rallies are expected, but given the magnitude of the economy, everything is amplified. It's hard to tell where the dust will settle because it's still falling. Just don't listen to the media as they change their tune every 5 seconds (like saying the recession will end by the summer).

[Warpy]

4. I think the warning is a sound one

because there is still too much wrong with the whole system, from the bottom up.

Until and unless they address these systemic problems, and address them from the bottom up with funding and the top down with regulation, the economy will not improve.

The stock market, now that it's lost the hyperinflation of the late 90s, will continue to go one step forward, two steps back until the economy improves enough that publicly traded corporations once again have customers.

[wuvuj]

5. It's different this time?

We might not see a lower low....but it pays to be cautious?

[roamer65]

6. Time to tighten the belt even further.

I need to ax ALL non-essential spending.