Neil Cavuto recently interviewed Robert Prechter, founder of the Elliot Wave Theorist newsletter and author of Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression, regarding his readings on the current investing climate.
Cavuto brought up the fact the markets and economy have come back while corporate balance sheets have been cleaned up. Prechter replied all these economic statements are more or less correct in their own context, but using them to forecast stock prices would get investors in trouble.
Prechter said the situation today is opposite of three years ago when investors were scared to death with the S&P 500 at 667, while now they’re really, really optimistic as the rally is slowing down. He just heard a major bank say we’re about to launch a new bull market.
Prechter said Market Vane has been keeping tabs for decades on what investment advisors are saying. The last time the 30-day moving average of percentage of bulls was as high as it is now was in July 2007. Prechter said, relative to the fundamentals, it is a remarkable reading. Prechter added that contrarian readings don’t give you the exact timing, but they do give an indication of the investing climate. Right now he is excited about not being involved in the market.
Prechter believes investors should be 100% in cash, but it doesn’t mean he thinks the market can’t go up further. Prechter warned he got bearish too early in the last two big moves, but eventually “the piper gets paid” when you see moves like this. Prechter stated there is no point in trying to squeeze out the last bit because you can get in real trouble that way.
The interview (available below) continued with Prechter commenting on some of his past predictions, the momentum indicators he has been following, his reading of trading volume which has had an unprecedented trend, similarities between now and the nifty fifty market between 1970-1973, the Fed’s monetization of debt, the dangers of allowing investment banks to leverage 30:1, and the internal deterioration evident in recent market breadth figures.