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(NEW Prechter Video) What Were You Watching at Dow 14,000?
Prechter’s October 19, 2007 Bloomberg interview was more than a 20th anniversary special.
Most days at the office are busy ones for Bob Prechter, so his schedule on Friday, Oct. 19, 2007 may not sound exceptional: He published his October Elliott Wave Theorist that morning and was in an Atlanta television studio by late afternoon for a satellite appearance on Bloomberg television (video below).
But that Friday was exceptional indeed, and for more than one reason. First, it was the 20th anniversary of the infamous Black Monday stock market crash. And, as it turns out, the Dow Jones Industrial Average was in the newborn stage of a long-term bear market that had begun just 10 days before. (Ed. Note: The Dow Industrials registered its all-time closing high at 14,164.53 on Oct. 9, 2007.)
That said, October 19 of 2007 was a cool breeze compared to that same date 20 years before.
Rewind to October 1987: Credited by most major media outlets as the man who predicted the crash, Bob Prechter’s phone was ringing off the hook. Hot-shot reporters were appearing in his driveway. Bob's neighbors were being probed to tell any personal details they knew about him. Media outlets around the globe labeled him with wild monikers like “Wall Street Whiz” and “Drummer who rocked Wall Street.”
They even make the ridiculous claim that Bob’s “sell” recommendation earlier that month (Oct. 5, 1987) "caused the crash" – a claim with which any market technician – Bob Prechter most of all – would vehemently disagree.
Back to Oct. 19, 2007: Gone is the bizarre frenzy of attention that surrounded Bob two decades ago ("Thank goodness," if you ask him).
So, the TV interview began as most do: Bloomberg host Pimm Fox welcomed Bob back. Bob joked that Fox picked him to play the “old dinosaur,” commenting on the anniversary of the biggest one-day stock drop in history. Another guest joins the discussion about the current state of the stock market. Yet as Bob scrolled through a few charts, it was clear – even to the other guest – that his analytical skills are anything but extinct. (Watch the entire video on this page.)
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The Bloomberg interview also makes it obvious that if Bob Prechter is a dinosaur, he is yet to be replaced by something better. And because the video excerpt gives only a snapshot of his forecast at the time, we’ve reprinted a selection from The Elliott Wave Theorist Bob published on the day of the interview.
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Figure 1
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[Figure 1] shows how the greatest tops of the 20th century compare in terms of the duration of optimism. The X axis records the length of time that bulls consistently outnumbered bears by a ratio of at least 50/52 in Investors Intelligence’s weekly readings. (I estimate that at the tops in 1929 and 1937, bulls had outnumbered bears continuously for about 2-2.5 years.) The Y axis records the length of time that the dividend yield from the Dow was less than it was at the 1968 top, the peak with the highest dividend payout among these five tops. As you can see, the other major tops cluster around an area of 2-3 years for a lopsided bullish consensus and 7-11 months for extremely low dividend payout.
Now look at [Figure 2]. This is the same graph but with two added data points representing the top of January 2000 and now. Compared to past market tops, the current juncture is nothing less than grotesque. I hope you can see some reasons why we have expected a major top at each interim peak.
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Figure 2
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Figure 3
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[Figure 3] is even more striking. It uses the greatest top in U.S. history (in 1929) as a value benchmark. At the 1987 high, just before the crash, bulls had reigned for 3 years. Then, just three months after the annual dividend yield from the DJIA fell below that of 1929, the market crashed. At the 2000 high, dividends had been below the 1929 level for a full six years, but the duration for a preponderance of bulls was only 1.25 years. That was enough for the S&P to fall in half and the NASDAQ to collapse 78 percent.
But the situation in October 2007 dwarfs all these experiences. Advisory bulls have consistently outnumbered bears for 9 years, by an incredible 51/52 ratio, and the dividend yield has been below that of 1929 for 13 years. Thus, optimism is not only historically extreme in terms of extent but also—by a huge amount—in duration.
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At Elliott Wave International, we’re the first to say that we’re not always right. We’re often criticized for too-early forecasts (which Bob actually note above). But we can guarantee that we’ll never bow to conventional wisdom, and we’ll always strive to give our readers an unbiased look at the markets’ current junctures.
Yet, we’re completely aware that most investors were NOT watching Bob Prechter back in October. After all, the Elliott Wave Principle is based upon the knowledge that markets are measured by swings of optimism to pessimism and back. And, given the historically extreme optimism in October 2007, it’s no surprise that most people quickly dismissed Bob’s modest voice of reason.
Can you afford to do likewise, now that you’re provided another chance?