Guestblog from Eric Noel:
There is not much debate among technical analysts that the 2000-2015 time period has been and will continue to be a secular bear market in stocks. Elliott Wave Theory aside, the stock market has been following a sequence of alternating 15-20 year secular bull and bear markets for decades. The real debate begins when the question is asked: "How low will the market go before the next secular bull market is born?"
From an Elliott Wave perspective, two very divergent camps of thought have emerged: 1) Robert Prechter and his followers; and 2) Glenn Neely and his followers. Prechter practices traditional Elliott and has applied it to the social sciences in the fascinating 2 volume book "Socionomics". Neely has extended Elliott's original work into a discipline he calls "NeoWave". Both Prechter and Neely are highly creative thinkers.
According to Prechter, the year 2000 marked the start of a Grand Supercycle bear market to last almost a century. Prechter's preferred count has Grand Supercycle degree Wave IV as a contracting triangle, of which the first wave (A) will take the DOW to below 400 before 2015. This, of course, will be accompanied by severe deflation and a global depression. There is not much wriggle room in this count; the US market should start collapsing fairly soon if it is to reach the bottom of an A wave zig-zag within the next 10 years. This should then be followed by a fantastic B wave zig-zag towards the year 2000 highs, followed by C-D-E for the remainder of the century. Such a volatile count presents the trading opportunity of a lifetime.
According to Neely, however, the year 2000 commenced a Supercycle degree Wave IV. Under this count, the stock market is likely forming a flat, a triangle or some complex combination of such corrective patterns to end around 2015. Neely's present count has Wave A down from 2000 to March 2003 and Wave B from March 2003 to present (but presently unfinished). Neely, in 2004, stated: "the 2002 stock market low in the Dow and S&P will not be broken for the next 50-100 years. Structural clarity on a daily time frame is very low, so I prefer to reserve specific forecasts on that time frame." He said the same thing about the crash low of 1987 back in 1988 while most others were convinced that a depression was imminent. Following this Supercycle Wave IV correction, Neely's forecast calls for a final fifth wave to commence and bring the DOW to at least 100000 and the S&P to 10000 by mid-century. Neely's NeoWave approach is followed by a much smaller contingent of analysts than Prechter's traditional approach as most find its complexity daunting, myself included.
Neely's work is often dismissed by Elliotticians based on the supposed argument that "it is not even Elliott" or "it is a twisted version of Elliott". However, this is not an argument against NeoWave but rather an observation that it is not the exact same as Elliott. It is like saying "Quantum Theory is NOT General Relativity, therefore it must be dismissed."
Both Neely and Prechter are bearish on Gold for the next few years. They are both expecting an ultimate secular bear market bottom in Gold around 2009/10 at approximately 200 USD or under followed by a new secular bull market in gold that will bring it to all time highs.
Prechter is a deflationist. Neely believes there could be a period of deflation soon but not to the same degree Prechter does.
Both their views on Gold and deflation appear to be consistent with being in a Kondratieff Winter phase, which is overdue since the last one occurred in the 1930s. The present credit bubble adds credence to this view.
Prechter's view on the Stock Market is
consistent with a population crash around mid-century as wave C in his
contracting triangle draws to an end, bringing about a major world
conflict, as per the socionomic perspective. Neely's view that
mid-century will mark the end of the long advance from the 1700s is
also consistent with the end of a growth phase and a dramatic
restructuring of the human population.
The view that economic output and population growth will come to a
sharp end by mid-century has been articulated in a paper by physicists
A. Johansen and D. Sornette entitled: "2050: The End of the Growth
Era?". In this paper, the authors state that human population and
economic output have grown FASTER than exponential, especially in the
last two centuries. Further, this super accelerating growth is
consistent with a spontaneous divergence at the same critical time
(2052 ±10) and with the same fractal patterns. As the faster than
exponential growth approaches this finite time singularity, the system
will become unstable. This is explained by an interplay between
population, capital and technology producing an explosion in the
population and in the economic output, even if the individual dynamics
do not. The authors claim to have used their model to predict the
April 2000 crash in the NASDAQ within a one month time horizon, in a
paper released in April 2000 entitled: "The NASDAQ Crash of 2000: Yet
another example of log-periodicity in a speculative bubble ending in a
crash". This work is compatible with the DOW reaching 100000 or more
by mid-century (The Neely view). D. Sornette will be publishing a
paper on the US Housing Bubble in the coming weeks on his web-site.
The next five years should point to whether Neely or Prechters view is to be preferred from a wave perspective. For decades, the US stock market has been following a decennial cycle of single and double bottoms each decade, e.g., 1962; 1970/1974; 1982; 1990/1994; 2002; (2010/2014?). The notion of a double bottom in 2010/2014 is consistent with both the Prechter and Neely's counts. As an amateur technical analyst, I see the price action since 2000 as corrective in nature and think it unlikely we will see DOW 400 in my lifetime; thus, I prefer the Neely count, if I must choose. Perhaps this is evidence of the unsophisticated majority's false hope?
Time will be the judge.
Eric Noel wrote: "Neely vs. Prechter - Time will be the judge."
There is no comparison between the two Eric.
Neely offers tradeable Advanced Placement Graduate Level wave analysis. Prechter offers un-tradeable guesses.
Comparing Neely to Prechter is like comparing Jonas Salk to a girl scout with band-aids.
There is no comparison.
This debate ended long ago in 1988 when Prechter wasnt even competent enough to call the greatest market rallies since the Civil War.
If your theory misses the greatest rallies in market history, there is something very wrong with your theory.
Neely didnt miss any of them. He called them all.
Neely = 7 time Tour De France Champion of "The Great Wave Debate"
Prechter = Lost out on the course
Posted by: No bear yet | Monday, July 04, 2005 at 08:59 AM
What I like about Neely is he is a multi-millionaire who trades his own account and analysis right with his clients. On single trades Neely has profited million dollar gains.
Prechter has never made any million dollar trades because he doesnt even trade.
Who would you trust more with a million dollars? Neely or Prechter.
Posted by: HJ | Monday, July 04, 2005 at 10:13 AM
I can only feel extreme disgust for Prechter. This mechalomanic dramaqueen needs attention and wants to be immortal without the quality that comes with it. He predicted SO MANY TIMES A CRASH AND IT NEVER CAME. Disgusting, he cost a lot of people a lot of money. Neely I didn't know, I will study his predictions.
Regards.
Posted by: Pieter van der Hoogte | Sunday, August 28, 2005 at 04:56 AM
GM
Was doing a blog search and came upon your site. Technically, I feel both Prechter and Neely are incorrect. In mid 1987, I warned Bob of an impending top and he decided to use it as an laternate count. The rest is history. In 1998, I again corresponded with Bob stating that he should use his influence to warn everyone of the impending supercycle top.
We are in the next supercycle bull market. Just check my blog to see the correct count.
Best to you,
Tony
Posted by: tony caldaro | Sunday, October 02, 2005 at 03:45 AM
The one thing you can be sure about when you come across Prechter is that results don't matter, and fame does. He succeeded in bringing Elliott to the world, but now is doing daily disservice to it. He's a brilliant theorist and self-publicist, but you've got to wonder how on earth he came top of that famous trading championship when he seems to be so wrong, all the time. And how can he be SO DARN FULL OF HIMSELF when he keeps getting it wrong all the time.
His style has infected EWI as a whole it seems. They talk as if they're the biggest smart alec know-it-alls on the planet, and treat Prechter as if he's the Pope. You gotta wonder how they cope with being wrong all the time. When they're not fawning over their illustrious Bob, I guess they must just be drinking themselves into oblivion rather than opening their latest brokerage statements.
As for the cries of "Wolf! Wolf!", there are no monsters under my bed at the moment. I trade what I SEE, not what egotistical theoreticians THINK.
I devised a great new indicator: whenever Prechter publishes a book about The Great Bear Market (1995, 2002), you can be he's got a count of at least Primary degree completely wrong. I bet he publishes his next one in about 2008.
Posted by: Confuseius | Saturday, November 19, 2005 at 04:36 AM
EWI frontpage is a disgrace of pompous know-it-alls that gloat they predicted every move in every market.
Recently they ridiculed to no end long term investors who have only made 3% return.
Guess what? EWI you suck even more, you've LOST 18% PER YEAR FOR LAST 20 YEARS!!!
What a bunch of morons at EWI.
Posted by: Mike | Saturday, November 19, 2005 at 02:46 PM
Nicely put, Mike. Most people at EWI are morons and should be told so as often as possible.
Posted by: Confuseius | Tuesday, November 22, 2005 at 11:01 AM
What's the betting that Prechter was bullied at high school?!
Posted by: Confuseius | Friday, November 25, 2005 at 03:19 AM
Hello,
I feel that when you are investing your hard earned money/savings in stock or other future markets, you have to do your homework yourself, only with the help/crutches of variouis theories/indicators.
Has some one made any Elliott Wave application of wave count on all the scrips in which Warren Buffett has invested? That should prove to be a practical and useful case study for both fundamental and technical investors alike.
Remember, there is nothing like pure white and pure black. There are many shades and variations which we have to understand-now and always.
Best Wishes.
Sharad C. Kapadia
Surat/India
Posted by: Sharad C. Kapadia | Thursday, April 13, 2006 at 07:25 AM
Dear Sir,
If you are looking for Dow 100000 by mid century, simply invest 11.000 $ (the curent DJ level)at 5,75% (see 30 year T-bond yield) and get a "risk free meal" of 180000$
(11000*(1+0.0575)^50)without the need to visit the various "technical sites".
I an afraid Neely's prediction leads to the opposite direction that of equities underperformance vs fixed income securities......
Posted by: DIMITRIOS KATSARELLOS | Wednesday, July 26, 2006 at 05:43 AM
"Both Neely and Prechter are bearish on Gold for the next few years."
I guess both Neely and Prechter had gold down to near $200 by now (April 2008), it is actually just below $1000!
So much for that prediction...
Posted by: Roland Watson | Monday, April 14, 2008 at 10:30 AM
I think Neely changed his Gold count sometime back becos his site was flashing their bullish outlook at $ 650. Recently after $ 1000 was hit, Neely seemed to have turned bearish
Posted by: KRG | Tuesday, April 15, 2008 at 03:35 AM
Gold is at its peak right now. it will drop like a rock by next year.
Posted by: forex forum | Tuesday, March 24, 2009 at 04:37 PM
Tony yeah right...
So we were in a super cycle bull ?
where are we now...
Posted by: salvador | Thursday, April 30, 2009 at 11:45 AM