It's no secret Robert Prechter has a reputation of being bearish. But let's put that label aside for a moment – we're not ashamed that his recommended cash portfolio outperformed the stock market for 10+ years running; it's just that labels are beside the point for this column.
So let's travel back about three months, to Feb. 23, 2009, when Prechter urged Elliott Wave Theorist subscribers to cover "our short position at today's close," which, in effect – at least in mainstream media eyes – turned the long-time bear into a bull. (By the way, I'm convinced the story about Bob closing his short trade nearly blew up the financial newswires.)
Prechter explained his reasons in the February issue:
"To be successful, you have to sell when people love 'em and buy when they don't. The DSI (Daily Sentiment Index) reading for the S&P on Friday (Feb. 20) was just 3 percent bulls! That’s a long way from weeks of 90%-98% bulls and complete faith in the New Economy, which was widespread when we got short (July 17, 2007)."
We've said before that it's never wise to be contrary just for its own sake; but when there's such a one-sided bearish consensus, it's only natural for an astute contrarian to take the opposite stance. Believe it or not, Prechter's no stranger to opposite stances – least of all a bullish one.
It takes more than guts to survive in the newsletter business for 30 years. See what kind of perspective Robert Prechter provides his subscribers in his latest issue. Learn more.
Now my time machine will go even further back before I return you home. Let's turn the dial to 30 years ago – 1979.
Prechter's first claim to fame was the stunning forecast he released in his first book, Elliott Wave Principle – Key to Market Behavior. Now one of the best-selling technical analysis books of all time, Elliott Wave Principle was, by all accounts, a very bullish book.
In it, Prechter boldly stated:
"In order for the Dow to reach the heights expected by the year 1987 or 1990, and in order to set up the U.S. stock market to experience the greatest crash in its history, which, according to the Wave Principle, is due to follow wave V, investor mass psychology should reach manic proportions, with elements of 1929, 1968 and 1973 all operating together and, at the end, to an even greater extreme."
In case you're too young (like me) to remember 1979, it's hard to grasp how bullish and bold Prechter's forecast was. I did some digging to get a sense of what the consensus was back then. It didn't take long to get the picture. The following popular book titles show you what I'm talking about.
- "How You Can Find Happiness During the Collapse of Western Civilization"
- "The Warning – The Coming Great Crash in the Stock Market"
- "Crisis Investing – Opportunities and Profits in the Coming Great Depression"
- "99 Ways to Make Money in a Depression"
- And my personal favorite work of fiction: "The Crash of 1979"
You see, the consensus was not only negative; it was desperately bearish – even downright scary.
Let's take another look at Prechter's 1979 forecast, especially this part: "Investor mass psychology should reach manic proportions, with elements of 1929, 1968 and 1973 all operating together."
You can't be more bullish than that!
Prechter's forecast was not only bold; it was daring – downright off the wall to many – and an apparent waste of time to many more.
The point? Prechter's contrary opinion put him and his readers on the winning side of the trend when virtually everyone else was on the losing side. To get opportunities like these, you don't want to follow a "bull" or a "bear" – you'll get only half the picture. What you need is access to someone with the tools to put you on the winning side of the trend before it begins.
If forced to describe Prechter's forecasting in a single word, my first inclination is to blurt out "GUTS!" If given a few more seconds, I realize it's not guts at all – it's PERSPECTIVE.
The Wave Principle is the only tool I know of that can provide you with perspective on multiple time frames. Sure, it takes guts to tell the world you disagree. …
But it takes perspective to be right.