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Robert Prechter: 100-Year Bear?

| Last Updated: March 23, 2012 | Posted in: Individual Gurus

Guru Accuracy Rating
This is below average. Current guru average is 47%

We evaluate here the stock market forecasts of Robert Prechter, mostly since April 2002. Evaluated predictions come indirectly via MarketWatch columns, which have tracked his commentary only occasionally in recent years. Robert Prechter is president of Elliott Wave International and has since 1979 been publishing the Elliott Wave Theorist. He is the author of multiple books related to the Elliott wave principle. The table below quotes forecast highlights from the cited source and shows the performance of the S&P 500 Index over various numbers of trading days after the publication date for each item. Grading takes into account more detailed market behavior when appropriate. Red plus (minus) signs to the right of specific forecasts indicate those graded right (wrong) based on subsequent market behavior, while red zeros denote any complex forecasts graded both right and wrong. We conclude that:

  • As indicated by the name of his company and his newsletter, Robert Prechter  relies essentially on Elliott wave analysis to forecast stock market behavior.
  • He has been very negative on stocks for the entire sample period, generally  taking a very long-term view.
  • Robert Prechter’s sample is very small, especially because of his very long forecasting  horizon, so confidence in the measurement of his accuracy is very low.
  • In fact, Mr. Prechter’s reported forecasting horizon is so long that testing  multiple independent forecasts within his or any evaluator’s lifetime is problematic.

Here are additional notes to augment the tabular summary:

From Peter  Brimelow in MarketWatch (7/15/10): “…year to date, by Hulbert Financial Digest count…[Elliott Wave Financial Forecaster is] up 3.1%, versus negative 5.8% for the dividend-reinvested Wilshire 5000 Total Stock Market Index. …over the past 12 months it was down negative 2.13%, versus 22.89% for the total return Wilshire 5000. But over the past three years, the letter is up annualized 5.81%, versus negative 9.36% annualized for the total return Wilshire. …Over the past ten years, the letter was up an annualized 1.51%, versus negative 1.51% for the total return Wilshire 5000. (On the other hand, …EWFF had an absolutely horrible time in the 1990s.)”

From Mark  Hulbert in MarketWatch (11/25/09): “…Prechter’s advice over  the last couple of years has been top-rated. …On the other hand, …the  newsletter’s timing advice for traders is in last place for performance over  the last 20 years among all stock market timing strategies tracked by the  Hulbert Financial Digest.”

From Peter  Brimelow in MarketWatch (8/31/09): “Over the past 12 months  through July, EWFF [Elliott Wave Financial Forecaster] is up 11.4% by Hulbert Financial Digest count, versus negative 20.03% for the dividend-reinvested  Wilshire 5000 Total Stock Market Index. Over the past three years, the letter  has achieved an annualized gain of 3.58%, against negative 5.78% annualized  for the total return Wilshire 5000. Over the past 10 years, the letter has  achieved a 1.2% annualized gain, compared to negative 0.26% annualized for  the total return Wilshire. …Over the year to date, EWFF is up just 0.1%  versus 12.5% for the Wilshire.”

From Peter  Brimelow in MarketWatch (3/4/09): “…the Elliott Wave Financial  Forecaster…is currently actually ahead over the past 10 years by Hulbert Financial Digest count, up 1.49% annualized, vs. negative 1.84% annualized  for the dividend-reinvested Dow Jones Wilshire 5000. Over the past 12 months  through February, EWFF is up some 24% by Hulbert Financial Digest count, vs.  negative 46% for the dividend-reinvested Dow Jones Wilshire 5000. Over the  year to date, EWFF is up 4.6% vs. negative 21.71% for the total-return DJW.”

From Peter  Brimelow in MarketWatch (10/20/05): “…the EWFF’s [Elliot  Wave Financial Forecast] trader’s portfolio has endured a staggering annualized  loss of 18.1% over the 20 years through September. (EWFF split off in 1999  from Prechter’s Elliott Wave Theorist, which no longer offers specific portfolio  advice. But the two seem to work in tandem.) EWFF’s advice for investors,  however, currently matches the dividend-reinvested Dow Jones Wilshire 5000  on a risk-adjusted basis and has quite often exceeded it.”

From Peter  Brimelow in MarketWatch (1/12/04): “…by Hulbert Financial Digest count, the stock market timing of Elliot Wave Financial Forecast  (which HFD treats as the successor to Elliott Wave Theorist after the latter  stopped giving portfolio advice) has outperformed the Wilshire 5000 on a risk-adjusted  basis over the entire period since July 1980. Over the past five years, it  gained 3.5 percent on average annually, vs. 1.8 percent for the Wilshire 5000.  This, however, was the Prechter people’s investors portfolio, which switches  between the stock market and cash. The traders portfolio actually goes short,  with the result that it has an annualized loss of close to 20 percent since  1985, when buying and holding produced an annualized gain of more than 12  percent.”

From Peter  Brimelow in MarketWatch (6/30/03): “Prechter has been out  of the stock market since before — note carefully, before — the 1987 Crash.  Naturally, this has hurt but has also served him well in the bear market of  the past three years. Indeed, because of that high cash component, Prechter  has recently been ahead of the Wilshire 5000 on a risk-adjusted basis over  the 23 years that the HFD [Hulbert Financial Digest] has been following him.”

From Peter  Brimelow in MarketWatch (4/26/02): “Exactly how much Elliot  Wave forecast fans lost depends on whether they actually went short the market  when Prechter turned bearish. In that case, they are in a deep hole: down  99.2 percent over the last 15 years. In contrast, the stock market yielded  a 398.6 percent dividend-reinvested gain. But if Prechter’s followers merely  went into cash in the wake of Prechter’s bearishness, they would have gained  135.2 percent over those same 15 years.”

See Guru Grades for a snapshot of the accuracy of various experts in predicting the direction of the U.S. stock market, including links to evaluations of the commentaries of other individual market pundits and gurus.

    S&P 500 Index  
Date Comments re:  Robert Prechter at MarketWatch 21-Day Return 63-Day Return 126-Day Return 254-Day Return  
3/23/12 …investors should shun every asset class that’s popular now, including stocks… “Hold cash, and keep it safe,” Prechter said. “There will be another buying opportunity, probably about four years from now.” -1.8% -5.1% 4.5% 11.8%
11/10/11 “…TICK and TRIN [two technical indicators] numbers, in fact, would usually be associated with a near-term bottom, so there is plenty of room for uncertainty. But the main exception to that tendency occurs at the kickoffs of major declines, and that’s how the waves seem to be positioned.” -0.3% 8.3% 9.2% 9.2%
7/15/10 “The selling pressure will abate at times, but by the end of 2010, stock prices should be much lower. …Experienced traders should be short the S&P 500 Index…”  -1.6% 6.7% 16.2% 19.1%
6/17/10 “”The topping process is over for the countertrend rally that started in the first quarter of 2009. The next leg lower that commenced in April should now deliver a decline that will ultimately be bigger than the 2007-2009 sell-off.” -4.0% 0.8% 11.2% 14.5%
1/21/10 “2010 is the year when the bear market in stocks returns in full force. …a meaningful close below [Dow] 10,489 should see a similar collapse to new bear market lows.” -0.8% 8.0% -4.2% 15.6%
11/25/09 He is now recommending that traders allocate 200% of their stock trading portfolios to shorting the stock market.  1.5% -0.6% -0.7% 6.3%
8/31/09 “The Dow is just short of the most likely stopping point, 9654/9764, previous fourth wave extreme. … The worst seasonal month of the year is at hand (September). Prices should decline at least as fast as they rebounded.” 3.6% 6.9% 9.6% 6.8%
4/2/09 “…based on our projections, the bear market is more than halfway done in time. It is less than halfway done in price, however, as the steepest portions of the decline lie ahead.” 8.7% 10.7% 26.7% 41.7%
3/4/09 “Some measures of investor pessimism have reached extreme levels, suggesting the decline has reached its latter stages. But it’s not over yet.” 17.0% 32.5% 43.2% 59.7%
10/28/08 We look forward to the day when we will put our cash back to work in the investment markets, but that day has not arrived yet.  -5.6% -7.1% -7.1% 10.2% +
10/20/05 “Expect the market to develop into a crash, with panic increasing into Halloweeen and then culminating within hours. From that low, the market should stage a dramatic three-day bounce for wave four and then resume declining to lower lows for wave five. This decline should leave 10,000 behind for good. Investors stay in cash; speculators stay short.” 6.0% 7.1% 11.3% 16.9%
10/13/04 “One thing I’ve repeated consistently is that the great bear market will take the DJIA at least below 1,000 and likely to below 400. Precedents for this severe a decline are the English stock prices in 1720-1722 and American stock prices in 1929-1932.” 5.4% 6.2% 5.4% 6.5%
5/11/04 …a stock market crash began Thursday. Prechter predicts that a “panic should set in” later this month. 3.7% -1.5% 6.3% 5.3%
3/24/04 Prechter has also been sounding the alarm in recent months… 4.5% 4.8% 2.0% 6.8%
10/22/03 “Understand that I am not nervously bearish or on the fence. I am all-out, no-holds-barred, shout-from-the-rooftops, yet-another-opportunity-of-a-lifetime bearish… “After this bear market is finally over, almost no one will remember the Pollyanna psychology that existed in the summer of 2000, the spring of 2002, the spring of 2002, or the fall of 2003. The S&P and Nasdaq will look like one big slide with a few rallies along the way, and historians will probably not even imagine that investors could have been stark raving bullish during any one of them.”  0.3% 11.0% 10.6% 7.8%
6/30/03 The Dow is currently headed down. Ultimate target: “at least below 4,000.” 1.3% 2.3% 12.5% 15.5%
6/9/03 …he expects the stock-market rally…to fizzle. “I am as bearish as I have been at every rally peak of the past 3 1/2 years,” says Prechter. “…the bear market is very young. I think 18 months from now, the financial and economic landscape will be very different from what they are today. The optimists will be gone.”  2.7% 4.7% 9.6% 16.4%
1/30/03 In Prechter’s view, the worst part of that decline — the so-called third wave of the Elliott Wave theory — is somewhere just ahead of us. -1.2% 8.6% 16.9% 34.5%
1/8/03 Like his boss Prechter, Hochberg expects lower and lower levels for U.S. stock indexes over coming months and years. -8.8% -3.5% 10.1% 23.9% +
11/27/02 …squarely in the bearish camp. -6.3% -10.4% 2.6% 13.6% +
10/17/02 The 30-stock Dow Jones Industrial Average will lose half its value in the next six months to about 4,000 on the blue-chip index, says Prechter. When it’s all over several years from now, the Dow will trade below 1,000… 3.5% 4.0% 1.6% 19.0%
9/5/02 “What’s going to happen when the stock market finally bottoms? You’ll be able to go in there and buy stocks that used to trade at $85 a share for maybe half a dollar or a quarter of a dollar.” -8.9% 4.7% -6.5% 16.4%
8/21/02 “One of the best investments you can make now will be to hold cash.” -11.0% -5.2% -11.8% 4.7% +
4/26/02 …we’re in a bear market. And he means a B-E-A-R market — equal in magnitude to the entire bull-market move over the last 70 years. -6.7% -12.1% -27.2% -23.0% +
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