Prechter Recommends 200% Short Again!

If any of you is preparing to short the end of this Hope Rally, you should read tonight's Elliott Wave Theorist (EWT). A great EWT! Concise, clear and very informative. I have waited until his subs could take positions before commenting.

Prechter lays out a stock pattern with a line in the sand a little above Dow10800. (Exact number in the EWT, with stops and recommendations on how to play this.) His count makes it clear that we are in the final wave, and it is close to being done (if not done already). For those of you who are wave-minded, here is his count:

• we are in the final wave of a triple ZZ back to Mar 2009
• the ZZ had a triangle B wave - those funky square waves around Thanksgiving
• the ZZ is finishing with an ending diagonal (ED) - the Santa Rally

This all adds up to the final wave:

• triple zigzags never go to quads
• triangles always appear as the penultimate wave (2d to last)
• an ending diagonal is, well, always the end to a pattern.

All three point to the end of the Hope Rally. The reason for the specific Dow target is the ED: in an ending diagonal, wave 5 is less than 3, and 3 less than 1; since we have reached wave 5 (under his count), we have all the information required to peg an outside end point. 

Now, the pattern may evaporate, or may be plain wrong; this is all about probabilities. The pattern he describes of a triple ZZ with a triangle and an ED is not hard to see; we could quibble over whether this pattern is a triple ZZ or not (see my recent post on this, where like Prechter I count the action since Jul8 as a double ZZ), but that hardly changes his call, since the triangle and ED are clear. I should point out, however, that the whole pattern of a trip ZZ with a triangle B followed by an ED is rare. Prechter himself has only seen one other triangle/ED combo, back in 1986. 

The other reason to read this EWT is he lays out his picture of the rest of this wave down and when/where it might end. Yikes! Given all the zigzags, a triple Yikes!

I have commented on his very-low bottom prediction & timing previously, and plan to put up another Long Term Wave Count post after we truly bifurcate down off the Hope Rally into the Change Market. If his Yikes! Wave emerges, part way down will come the "Prechter Point" where attitudes about the severity of this bear market and the coming deflationary depression will change into a stampede of Yikes! Suffice to say, if his predictions turn out to be correct, all the longs will have at the end of the Change Market is spare change in their pockets (if they can hold onto their shirts). Yikes!

Comments

[David Lefcourt]

Question for you Yelnick. Prechter talks about a peak in pessimism and a cycle
it has seemed to follow over the last ? years. He points to another peak in the year ?. If what he is predicting in 2010 - 2011 comes to pass, the readings
since the last peak would get blown out of the water breaking the cycle of ? years. It seems he is contradicting himself if he feels the next peak in pessimism won't happen until ?. I would greatly appreciate your thoughts on this.

Thanks,

Dave

[Hank Wernicki]

Question: How can one go 200 % twice ?

What is EWT using as a trading vehicle ?

What's Neely's position ?

thanks

[math wizard]

Yeah, I don't get the 200% short twice thing because you'd be almost wiped out by the first 200% short.

I could see, say 200% short followed by getting your ass handed to you followed by, say 2% short.

Could it be a typo? Maybe he meant 2% short. I'm guessing it's 2% short. Could anyone confirm? 2% short, right?

[yelnick]

math wiz, prechter means use margin to double the size of the position, what ever it is. Neely recommends never risking more than 1% of capital n a trade

[yelnick]

Hank, I am sure he had limits and got stopped out last time. Neely put out an emergency bulletin for his trades to re-short.

[Anon]

Out NQ short + 31 pts.

[math wizard]

Use margin to double the size of the position? Whatever it is???!

This is meaningless advice! Yelnick, I have read your posts. You can put logical thoughts together. How can you take this cr-p seriously????

[DG]

Hank, I am sure he had limits and got stopped out last time.

See, that's just purely unethical right there. Recommend 200% short without a stop-loss in place and then don't talk about it any more when the trade goes against you? Jeez, man. That's bad enough to merit "frontier justice", in my opinion.

At the very least, he should present a coherent trading plan WITH STOPS.

[Canadian Money]

Re: 200% Short Question

I have used a Canadian Exchange Traded Bear Fund (CA:HSD). It gives one times two or 200 percent on the SP500 Index move. Unlike directly shorting a stock, the maximum downside is limited to the initial amount invested. I used this ETF to make a little profit on the way down to the March 2009 low.

Horizons BetaPro S&P 500 Bear Plus ETF (TSX)

Chart link

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=ca%3Ahsd&sid=0&o_symb=ca%3Ahsd&freq=2&time=10

Hope this helps.

[Hockthefarm]

Yelnick:

First I heard someone from the Stock Trader's Almanac projecting Dow 15,000 by 2011. Then I read about Intel's blow out quarter and then I read the January EWT. Talk about an eclectic environment. Some folks are going to be dead wrong.

Getting the shape of the waves correct is one thing, but if Prechter is right with respect to price and time, who will be left standing? It would be "Johnny get your gun" on Main Street.

Prechter speaks in terms of probabilities, but I've never seen him assign any to shape, price and time.

I wonder what he'd think of these:

Structure: 60%
Price: 20%
Time: 5%

Seems to me that if you talk probabilities, you are talking about known outcomes and their frequency.

Hock

[cloudslicer]

5 minute waves down
3 minute waves up

That is what I need for a trend change. Having said that I sold some longs today. I won't make any call on the market until I see 5 down and 3 up on a daily price chart.

[yelnick]

math, he gives more concrete recommendations, as does Neely. I just respect their services and leave that level of detail to subscribers.

[yelnick]

DG, he did in the EWT, although he doesn't get as precise as Neely.

[cloudslicer]

Concerning Prechter I don't pay attention to his investment advice, he has no discipline. But in terms of a big picture I tend to agree with him.

[yelnick]

Hock, he doesn't give specific percents, but it is clear that his primary factor is price and close to it is structure, while he comments that time is the least predictable. His price level comes from his larger wave perspective - this I will post on soon. His structure is pretty straightforward: he sees us in a C wave after a flat off 2000, and about to start wave 3 of that C. It should truly be the dreaded Big One if his count is right, since it should be faster and at least as long (in percent drop if not pts) as wave 1 in 2008. After that we get either a flat or more likely a triangle, since P2 was a zigzag. Then a final drop.

If he is correct this should drop something like wave 1 did in 2008: a fall from late Jan to March in wave 1 of P3 down, then a bounce. That is the last chance to get out, or in, depending on your perspective. After that we get the Summer of Disillusionment, when the wheels fall off just about everything.

[Hank Wernicki]

Thanks for the response ....

[yelnick]

David, his view is we are correcting at major scale, back to 1784, and the closest analog is the South Seas Bubble in 1720 and its aftermath. As such, the drop in 2008 is but a precursor to what is ahead. The rapid rise off 2002 and again off Mar 2009 both came with renewed optimism and excessive bullishness. We haven't really had that pessimism other than momentarily at 9/11 and 9/15 (Lehman Day). Until that gets wrung out, we haven't gotten to the social despair of a bear market. Also, his work says the market despair happens ahead of general societal despair. His example: market bottomed in 1932, depression bottomed in 1933. So the current economic bottom is ahead, and likely after the market bottom.

IF we back off the scale of his vision (like 1720-1784), we have a bubble and aftermath that seems at least the worst since the 1930s. The 1970s lasted from 66-82, so at that scale we should expect a 2000-2017 period. If we think of this as the Depression, it lasted 1929-1949, so this might go to 2020. If we think of this like Dent, he compares 1995-2000 to 1914-1919, and hence would have the current period from 2008-?? be like 1929 - 1949. He goes way out into the 2020s.

Even within Prechter's dire view, he thinks the coming bottom is only an big A leg down, with a big B to follow. The B might last around 16-18 years, and hence might be seen as a new bull market from say 2017-2035.

[Chuck]

Yelnick

Could you please share with us your longer term projection for the S&P. I know you are projecting a test of the Nov. lows in 2010.

Thank you
Chuck

[Mamma Boom Boom]

Looks like some posters woke up. Rub your eyes, guys.

"we are in the final wave of a triple ZZ back to Mar 2009" Do tell!

[yelnick]

Mama, yes, all those ZZs put the bears to sleep. Now they are rousing themselves!

[yelnick]

Chuck, despite Prechter's call, I still think we have a final up wave to go, but not too far away. I am one wave behind him - today is part of a wave 4 with a 5 to go. This will be shown right or wrong most likely [Monday - oops, not this Monday] Tuesday morning - do we get a pump up again? So my target for the S&P is Sp1158-1170 to top, most likely at Tony Caldero's 1168 pivot, and then a drop. This year I think we get to the Nov 2008 levels of Dow7400/SP800 level, then bounce; and then go lower. My eventual targets are Dow3600/Sp400, the 1994 levels.

BTW like Prechter I think the Summer of Disillusionment is Summer 2010, which is about when he expects the Prechter Point of Yikes! to be felt.

[DG]

DG, he did in the EWT, although he doesn't get as precise as Neely.

I see. Then I guess all I can fault him for is being wrong and there's no crime in that.

[DG]

His structure is pretty straightforward: he sees us in a C wave after a flat off 2000, and about to start wave 3 of that C. It should truly be the dreaded Big One if his count is right, since it should be faster and at least as long (in percent drop if not pts) as wave 1 in 2008.

---------------------------------------------------------
Yelnick,

I take it then that you (concurring apparently with Prechter) don't agree with Neely's contention that a Triple Zigzag (I don't agree with that wave analysis, but just for argument's sake, let's say it's real) doesn't get completely retraced ever?

See, that's a very difficult position for me to agree with because the very nature of a Triple Corrective pattern is to indicate strength in whichever direction it occurs. To then imply that a massive movement in the other direction will occur next is illogical (even just based on the standards of mass psychology).

[Mamma Boom Boom]

Mama, yes, all those ZZs put the bears to sleep. Now they are rousing themselves!

"I loved the bears and cubs feeding in the stream right in front of us!"

"This is where black bear gather to feed on runs of pink, Coho, and Chum salmon, as they head upstream to spawn."

"Bald eagles perch in the surrounding trees waiting for fish scraps left by the bears."

"The bears really put on a
show!"

- A Thing Of Beauty Is A Joy Forever -

[yelnick]

DG, that a triple ZZ is not fully retraced? Hadn't heard that, and skimmed the Neely book to find it. Can you point to where in the book?

BTW I count this as not a triple ZZ but a double ZZ A wave and now a double ZZ C wave - in other words I compact the first double ZZ into one "3", and so to the second. Reason is the scale of the first X is larger than Prechter's purported 2d X, and it is simpler to compact both double ZZs. It shouldn't really matter.

I have also been expecting more a triangle shape ending this, and we still might see that. EWI would count it is a nested 1-2 1-2 on the way down, but Neely would see a contracting triangle.

[joe]

"I still think we have a final up wave to go..."

I agree. It should have another up leg.

Joe

[Mamma Boom Boom]

Short term sell, I issued, has now gone neutral.

[joe]

I think the markets are closed Monday for MLK.

Joe

[DG]

DG, that a triple ZZ is not fully retraced? Hadn't heard that, and skimmed the Neely book to find it. Can you point to where in the book?

---------------------------------------------------------
Yelnick, page 10-3 at the bottom.

That entire chapter is another one which allows a person to eliminate a lot of wave counts just on the logical implications of the patterns.

[Chuck]

Thanks Yelnick for your prompt, detailed response. I really enjoy this blog.

Chuck

[Jay]

Hi DG,

Is there a common retracement zone for a potential triple zz?

[DG]

Jay,

Neely says a pattern that powerful should only get retraced 60-70%, if it is real. Significant, but not the type of retracement and then some that a 3rd wave down would imply.

[yelnick]

DG, ok, got it. Section 10-3 says that "if part of a Flat or Contracting Triangle, a Triple Zigzag can never be completely retraced by the pattern which immediately follows it of the same degree." Well, if we call P2 a trip ZZ, then P3 is of the same degree. Supports my view that P2 will turn out to be an X wave (or a B wave of a running flat) which will end above the Mar lows. It would be the next correctiv e wave that takes us down.

[Chris]

My best investment in the last year have been to short Precther 200%.

[DG]

Yelnick,

Yes, I don't know if anyone's got a real handle on what Progress Labels belong where in this rally, but I'm pretty sure that it isn't a Triple (or any other type, really) Zigzag. The waves at lower degrees don't meet the rules for Impulse wave construction.

[Jay]

Excellent. Thanks DG.

[Steiner]

I think it was "controlled" sell-off today. I noticed that anytime we go down, it stops in 110-140 range on Dow. If you compare to 2007-2008 market, all significant moves down where in 200 pts range on the Dow. It would not surprise me to see another pump on Sunday/Monday night.
I share views of EWI on macro economy, but today may have been yet another fake move down.

[MI]

Prechter Followers = Goldman Food

Goldman gang of thugs lets all bears to take positions and squeeze them to death. This is what is going on for past six months and will continue until Mr. P closes shop or Goldman decides to go short itself. Thanks to Hank Paulson's help (that caused death of Lehman and unnecessary crisis), now it is Goldman that decides the direction of market - not fed, not economy, not fundamentals and certainly not technicals that are driving markets today. In this market only one player wins - Goldman.

Well done Mr.Paulson, bad luck America.

Mr. Prechter is a smart man but no credibility.

[yelnick]

DG, I can see 4 ZZs within the structure, compacted down into a WXY structure. But curiously an alternative that treats these little ZZs as "3s" is a triangle with Jun11 as leg A, Jul8 as leg B, Sep23 as leg C (Sp1080) or Oct21 (Sp1101), Nov2 as Leg D (Sp1029), and we are in the final leg E which is breaking as a "3". In this structure legs B and D are close to 62% related, and if the final leg ends around Sp1160 it would be 62% of leg C.

[Hockthefarm]

Yelnick

"After that we get the Summer of Disillusionment, when the wheels fall off just about everything."

Thanks for your comments. Really enjoy.

I posted an url on your last discussion topic that showed a graph of real household debt, wealth and income. It just screams that the wheels are going to come off. Throw in Dent's cycle work on the boomer spending boom/commodity cycle and Dow 4000 ceases to look out of place.

H

[Sherman McCoy]

OMG! OMG! OMG! Bobby "I'm no Joe Granville" Prechter is 200% short again! Let me piggy back on that trading savvy so i too can be rich and famous and have my own yacht. Oops! I parrotted the last 10 "THIS IS THE FINAL SURGE" calls and I have nothing (nada, bupkis, zip) left in my trading account.

p.s. actually, the 10th bad call may be the charm...

[r]

I agree with MI .. EW was what nature used to be before Goldman happened.

[DG]

Yelnick,

I do Hourly NeoWave bars of the SPX and SPY every day. The Hourly charts say no Zigzag structures at any degree, except perhaps some structures covering a few days, tops.

It's all been 3s, all the way up, if you go by the rules for Impulse construction as laid out by Neely.

Anyway, this week I worked out a new trading strategy to enable me to trade a bearish view profitably, so I'm less concerned about "the count" than I have been in a while. I won't go long, but have every confidence that I can make money from the short side in this environment. Of course, I'm hoping that now that I've figured out the implications of this type of market environment, the market will shift to a different environment, which would be even better for using NeoWave.

If you haven't checked out my blog this week, you should take a look.

[Peter]

Prechter is the man, I think he has the right trade, the market seemed to complacent lately.

[joe]

Yelnik - you don't buy this "grand super cycle" crap anymore than I do.

Repeating Prechter in this is borderline lunacy - and you know it.

He can be 200% short a thousand times in a row and the only thing we will hear about from him is that 1 in a thousand times he gets close.

Some kind of low is likely in Q1 and will be followed by a lower low in Q3 - probably.

Not a grand supercycle - just a naturally recurring theme in human investing - thats all.

Joe

[joe]

By the way DG - I read Neely thru now. His theme seems to be that unless you use his system for years you are likely to calculate it wrong. How conveinient. Isn't he saying buy his service since he has all those years ahead of you to "calculate it correctly?"

Joe

[Vince]

Prechter went 200% short in November when the DJIA was at 10400+ and we all know how wrong he was. This market is being manipulated by the Bernanke Fed. I hope Prechter gets it right this time as his credibility is at stake.

[joe]

His credibility is already in tatters.

Markets are ALWAYS manipulated. He is just really s-hitty at reading that.

He should go back to playing drums. His 200% short thing - again his timing is totally wrong - and will cost people dearly for his lack of real world experience.

You give him credit for things he has never done -

Joe

[TC]

You can't be serious???
YOU actually think that Prechter still has some CREDIBILITY at this point and time?

My God, the guy inititally got SHORT in early August at SPX 1000 and added again at around SPX 1036, so he's effectively short 100% at 1018. How can anyone rationally believe that it is prudent to allow a trade to go 130 POINTS AGAINST YOU?

And now he's playing the 200% SHORT card a second time?
Get real. No one but a "paper-trader" trades like this!

[MI]

Know that Goldman does God's (Feds) job with no billion dollar bonus

Would Mr.P. be correct this time even for few hundred Dow points. Based on recent history, I doubt it.
Now Goldman knows at what level a bear would panic and cover shorts. Come next week manipulate market after-hours and squeeze bears to cover shorts. This game is being played for past six months, and only one player is making money.