1987 ALL OVER AGAIN?

Robert Prechter of Elliott Wave International says the current chart pattern in the equity markets is eerily similar to the August 1987 chart pattern:

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. The situation in 1987 was completely different. The market had gone up without a single 10% correction for 3 years. Of course, the bond market, foreign policy (namely the US getting into a spat with foreign trading partners such as Japan and West Germany) etc all had a part to play.
    It was only ‘after’ the event in 1987 that massive manipulation came into play, particularly Greenspan with money printing and low interest rates (which never really stopped from that time onwards btw).

    Now, we are a year and a half out of a long and painful slide, genuine small investors have not been optimistic or involved in this market (all hedge funds, wall street banks and soverign ‘entities’).

    There is far too much manipulation already, that was simply not there in 1987. The large players are aware of the stakes and are frightened senseless, being willing to do almost anything to prevent it.

    Prechter deserves the sort of credibility that should in reality be attributed to Bernanke/Geithner. He seems in my opinion, to be little more than a snake oil salesman with a slippery formula that can be bent to show he was ‘right’ about everything (after the event of course). He had his day in 1987. Since then he has been wrong about everything, yet the story is always the same.

    • This is a great point. Many people forget that the equity market was up 40% YTD when the crash occurred in 87. That’s awfully bubbly for an 10 month move. We were more than ripe for a decline. And even after the crash we were still sitting on healthy YTD gains. Crashes are almost always preceded by irrational upside moves. This environment, though risky, simply does not mirror that sort of environment.

      • I wouldn’t discount this so quickly, Wave 4 just crossed down through inter wave B1 while at the time Jupiter was crossing Haley’s Comet, a very ominous sign.

        • Nice one!

          More seriously though, I do see the market dropping, but over a long period of time and bit by bit, with lots of rallies and drops. The Japanese would be very familiar with this path…

          Stagflation (with a bit of both inflation and deflation thrown in for fun) would seem to be the word of the decade in my opinion.

          • I agree with Mozaic; I think our pattern will be very similar to what he’s talking about.

            For anyone that has access to sell-side research, a few months ago Morgan Stanley’s Gerard Minack outlined a very likely economic environment that looked like the fall and recovery we have experienced, then some wide gyrations and volatility for an extended period of time. I think that’s how it will look. We’ve entered into a very volatile and moody market phase.

            The market is probably going to stay volatile and flat. Short term, we look to be stalling out on rally that’s within a longer-term upward trend which is also stalling out. …which is within a longer term trend that appears to be rolling over.

            Watch the 10-year. Watch the dollar. The trend is your friend.

            GMO just released a new economic piece– projects 2% growth. Imagine 15%+ market swings within a market with a 2% annual expected growth rate. It’s going to be a rodeo.

  2. TA is only a guideline and is 15-20% of the equation cause it assumes a vacuum environment

    dollar goes up 2.5% and gold goes down .5%(priced in dollars)………….thats net up for gold priced in dollars because it I$ (IS) priced in dollars

    bob has his uses tho…….he can be a piece of this puzzle