another timely message from dat ew genius prechter...snort
Date Posted: October 18, 2002 at 13:00:56
Subject: DJ on EW
=DJ TECHNICALLY SPEAKING: Elliott Wave Predicts New Mkt Lows
By Shaheen Pasha Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Bulls beware - the Elliott Wave theorists are back and predicting more downside for the U.S.
equities markets.
The thought of another precipitous downturn is almost inconceivable at the moment given the recent sharp rise in the market
following its test of the July lows. As more and more bulls come out to bask in the sunshine, there is growing hope that the
rally may have legs.
But is the market on the verge of another bull market? Think again, said Tom Gentile, chief market strategist at Optionetics.
According to the principle - which was founded by Ralph Nelson Elliott and inspired by the Dow theory - the stock market
can be predicted by observing and identifying a repetitive pattern of waves.
There are simple rules for the wave pattern. In a downturn, for every three waves down, there are two concurrent waves that
counter that move. Gentile said the markets slowly grind lower in the down waves and then are followed by a violent
correction to the upside.
Gentile, a firm believer in Elliott Wave analysis, said the upturn in the Dow Jones Industrial Average and Standard & Poor's
500 Index is consistent with a wave 4 formation (a correction to the upside) in the theory's 5-wave pattern. That means the
markets are set to create new lows once the fifth wave commences, most likely in the first quarter of 2003, he said.
Since the Dow hit a low of 7282 and the S&P 500 dropped to 775.80 intraday on Oct. 9, both indexes have jumped 13%.
The rocket-like moves up "are another confirming indicator that we may see slower down moves, making long-term lower
lows" Gentile said.
Just how much lower are the markets expected to go? Gentile said the Dow is likely to face resistance at its August rally high
of 9250, before dropping to 6800 to 7000 in the first quarter of 2003. As for the S&P 500, resistance is seen at 850 with the
next low of 750 also expected in the first quarter.
The bearish outlook is certainly not popular with a number of Wall Street strategists. Market trackers like Lehman Brothers
Inc.'s Jeff Applegate are already out in force bidding adieu to the bear market. Charles Blood at Brothers Harriman recently
upgraded his intermediate outlook on the markets to bullish, saying that the worst may be over.
But Elliott Wave theorists are used to being a lone voice in the crowd. In the 1970s and 1980s, the Elliott Wave principle
gained popularity - market technician Robert Prechter used the principle to first predict the great bull market of the 1980s and
than the subsequent crash in 1987.
But Prechter's status as market guru, and the credibility of the Elliott Wave analysis, came under attack in the 1990s as
Prechter began to call for a staggering decline in the marketplace. His apocalyptic predictions came just as the tech boom
began to gain fervor, sending the equities markets soaring to record levels. That caused many Elliott wave detractors to scoff
at the principle's ability to predict the market.
While Prechter's bearish sentiment may have led some followers to miss out on the roaring bull market, Optionetics' Gentile
said the principle itself isn't flawed.
Gentile said Prechter had been on point when he called the 1987 crash but missed the boat in calling market tops in the
mid-1990s that never occurred, because he was looking at "wave counts but not confirming the money flow going into the
stocks."
He added that one of the problems with practitioners of the Elliott wave principle before was that they didn't adhere to the
basic rules, complicating the subject matter with their own versions. Gentile said the best way to use the Elliott Wave principle
in judging the market is to keep the simple rules in mind: wave 3 can't break below the beginning of Wave 1, wave 3
shouldn't be the shortest wave among wave 1, 3 and 5, wave 4 shouldn't overlap with Wave 1.
Following those basic guidelines has led Gentile to his bearish conclusion on the market - new lows are in the cards.
-By Shaheen Pasha, Dow Jones Newswires; 201-938-2312; shaheen.pasha@dowjones.com
(END) DOW JONES NEWS 10-18-02
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