The advance for U.S. stocks since a 12-year low in March 2009 has been a bear-market rally as the economic recovery has faltered, according to Robert Prechter’s Elliott Wave International Inc.
“Part of the proof that it’s a bear-market rally is the fact that the economy has really stayed in the dumps,” Prechter said today in a radio interview on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “Mostly we’re in cash. The only other things I recommended recently were bear funds and short sales,” he said. “I’m staying completely safe right now.”
The Standard & Poor’s 500 Index climbed 73 percent through yesterday from March 9, 2009, following government stimulus measures and higher-than-estimated corporate earnings. The benchmark gauge for American equities fell 14 percent from this year’s high on April 29 on concern about Europe’s debt crisis and a political battle over the U.S. debt ceiling that prompted S&P to cut the country’s credit rating.
“Even in early 2009 when we were looking for a big rally, we said it’s going to be a bear-market rally -- a partial retracement -- not a new bull market,” Prechter said.
The S&P 500 advanced yesterday, following the Federal Reserve’s announcement that it plans to keep its benchmark rate at a record low through mid-2013 as it considers other tools to bolster growth. Yesterday’s gain pared a 6.7 percent slide on Aug. 8, the first trading session following S&P’s reduction of the U.S. credit rating to AA+ from AAA.
“We’re quite oversold, everybody knows that,” Prechter said. “We’re not at the kind of readings that would prompt me to come out as in early 2009 and say it’s an opportunity.”
Prechter is famed for predicting the stock market crash of 1987 via a system of measuring investor psychology known as the Elliott Wave Principle, though his forecasts have had mixed results. His standing suffered in the 1990s when he missed the almost decade-long bull market. In December 2002, he said the Dow Jones Industrial Average would fall below 1,000. It hasn’t dipped below 6,500 since then, climbing 25 percent in 2003 and another 35 percent through Oct. 9, 2007.
The Elliott Wave Theory was originally developed by accountant Ralph Nelson Elliott during the Great Depression. Elliott concluded that market swings, or waves, follow a predictable, five-stage structure of three steps forward, two steps back.