Prechter: The Market is Ready for a 1987 Style Crash

I began studying Robert Prechters work in 1986, met him in early 1987, and then saw him predict the 1987 crash just 3 days before it happened.

Now, he is saying that the last time the stock market looked like this....was just before that crash in 87. And as I have shared before, his forecast for the Dow is 400.....that is not a typo...400.

While I don't share his views entirely (but I do think the floor on the Dow may be as low as 3000), I agree entirely on his 1987 comparision. The news that almost no one is talking about is the re-emergence of the crisis in Europe. Ireland is in big, big trouble....Greece never left being in big trouble...Spanish banks cannot access the debt markets...and the $1 trillion bailout of the European Union is now in doubt. Once we see the bailout officially cancelled, all hell is going to break lose globally.

And all of this is happening in the face of a big slowdown in China, where they have 60 million vacant homes that were built and never moved into. Their housing crisis is about to begin. Add to this the recognition that the US never really left our recession...which will soon be recognized as a Depression. At least thats what I call 17% unemployment (U-6 figure...the only one that matters).

Finally, the bulls continue to say that "all is fine because corporate earnings have been strong". But they forget two very important things. One, the earnings numbers are phony because you just can't count the trillions in government stimulus (taxpayer funded bailouts) as anything remotely "real", and two, that bear markets like this do not bottom until the average p/e (price to earnings multiple) for the US stock market is 5-7. Since the p/e is about 17 now, you can see how much further we have to fall.

This is not the time to be invested in the stock market. This is the time to be short the stock market.

Here's Precthers video: 

http://www.businessinsider.com/prechter-the-last-time-the-market-looked-like-this-was-right-before-the-87-crash-2010-8

Kip

Comments

[Volker Schaefer]

I think he is 100 % right, the market is ready for the next crash before Christmas 2010.

Best regards

Volker

[Matt]

Tough though with the temporary stops put in place during the day...would cause a nice down day (1000?), but I'm not 100% sold on a "1987 crash style."

I tend to think it more of a slower decline...either precipitated or not by a huge down day to start. Otherwise, a couple hundred down here, 300 there...maybe a nice 400+ sell off day along the way. Then there's a nice little mini-hundred, 200 point rally back to ease some fears, before things jump down some more....

Suddenly a month to 6 weeks later, you're off about 1500-2000 overall in the Dow. Yikes. And maybe it might just happen by Xmas.

[John]

I just read that the National Bureau of Economic Research said that recession in USA ended in June 2009. The article says:

"The NBER, the institution that officially decides when the U.S. economy enters and exits recessions, said that the recession that began in December 2007 officially ended in June 2009, lasting a period of 18 months. It is the longest recession the U.S. economy has experienced in the postwar era.

NBER’s decisions on when the U.S. economy enters and exits a recession are often made months after most economists have come to similar conclusions because the research group uses the most conservative of economic data to construct its research."

So the question is who is right: the doomsday guys like Kip or those that have at least some kind of optimistic view which are based on "conservative economic data"?

I guess only time will tell.