Robert Prechter, a market forecaster and social theorist, is convinced we have entered a market decline of staggering proportions - perhaps the biggest of the last 300 years.
NEW YORK - With the stock market lurching again, plenty of investors are nervous and some are downright bearish.
Then there's Robert Prechter, the market forecaster and social theorist who is in another league.
Mr. Prechter is convinced we have entered a market decline of staggering proportions - perhaps the biggest of the last 300 years.
In a series of phone conversations and e-mail exchanges recently, he said that no other forecaster was likely to accept his reasoning, which is based on his version of the Elliott Wave theory - a technical approach to market analysis that he embraces with evangelical fervor.
Originating in the writings of Ralph Nelson Elliott, an obscure accountant who found repetitive patterns, or "fractals," in the stock market of the 1930s and 1940s, the theory suggests an epic downswing is under way, Mr. Prechter said. But he argued that even skeptical investors should take his advice seriously.
"I'm saying: 'Winter is coming. Buy a coat,'•" he said. "Other people are advising people to stay naked. If I'm wrong, you're not hurt. If they're wrong, you're dead. It's pretty benign advice to opt for safety for a while."
His advice: Investors should move totally out of the market and hold cash and cash equivalents, like Treasury bills, for years to come. But ultimately, "the decline will lead to one of the best investment opportunities ever," he said.
Buy-and-hold stock investors will be devastated in a crash much worse than the declines of 2008 and early 2009 or the worst years of the Great Depression or the Panic of 1873, he predicted.
The Dow, which now stands at just over 10,000, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, he said. That unraveling, combined with a depression and deflation, will make anyone holding cash "extremely grateful for their prudence."
Mr. Prechter is hardly the only market hand to advocate prudence now, but nearly everyone else foresees a rosier future once current difficulties are past.
For example, Ralph Acampora, a market analyst with more than 40 years of experience, said he moved entirely out of stocks and into cash late last month. Now a partner at Alverita, a wealth management firm in New York, he said recent setbacks suggested that the market would drop 10 or 15 percent, probably until September or October, before resuming another "meaningful rally."
During the next several years, Mr. Acampora expects an "old normal market," characterized by short-lived swings that will provide many opportunities for smart investors - similar to the markets of the 1960s and 1970s.
The "mathematics don't work," Mr. Acampora said of Mr. Prechter's theory, because a big decline would imply that individual stocks would need to trade at unrealistically low levels. Furthermore, he said, "I don't want to agree with him, because if he's right, we've basically got to go to the mountains with a gun and some soup cans, because it's all over."
Still, on a "near-term" basis, he said, "We're probably saying the same thing."
Larry Berman, who recently ended his term as president of the Market Technicians Association, the leading organization of technical market analysts, sees a "classic" short-term negative market trend developing now.
But he doesn't use the Elliott Wave theory, saying Mr. Prechter is trying to "measure the market in decades, which is too long a time frame for practical trading purposes or for risk management."