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Dow 1000, NOT!

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by Peter Switzer

No we’re not off to the races just yet and Wall Street’s slip overnight is proof but it doesn’t mean that US big bear, Robert Prechter is right when he says the Dow Jones is heading to 1000! Given the Dow Jones index is at 10,812.04, that’s a long way to fall — a very long way to fall.

US-based Robert Prechter has been scaring investors for years with mixed success with his Elliott Wave theory big calls.

I reckon this is the big call that he has to live or die by. If he gets this wrong he should disappear and every media outlet should ignore him forever!

The US market overnight

More on this big bear later.

The Dow Jones index lost 48.22 points or 0.4 per cent, to 10,812.04 while the S&P 500 dropped 6.51 points or 0.57 per cent, to 1142.16.

But the interesting story has to be the tech-heavy Nasdaq, which fell 11.45 points or 0.48 per cent to 2369.77. This index is up about 10.6 per cent in September and that’s huge and it gives a pointer to what is likely to happen in coming weeks.

I expect some kind of pullback — that’s my view for the short-term traders — as gains of eight to 12 per cent in a month are too big to be true and profit-takers have to do what they do.

That said, I believe the next quarter of US company profits plus the mid-term elections in the States will set us up for another rally. I don’t think the economics in the US nor Europe are so unambiguously good that we could see the global stock market uncoil like a wound-up and tight spring to unleash a massive rally. It will happen, but my gut feeling and my reading of the economic tea leaves tells me: “not just yet”.

Surprise news vulnerability

It looks like we have broken out of the May-August trading range and now some supportive economic data is needed to take the market to the next, higher level. However, we’re still vulnerable to surprise bad news but I doubt that we’ll see a big shock and awe event that could rattle confidence to drive the stock market down to 1000, as Prechter predicts.

To underline the potential for a left-field events, credit ratings agency Moody's downgraded unguaranteed debt of the Anglo Irish bank and that rattled a few investors. When these concerns are wiped out, that’s when we’ll be off to the races, big time.

By the way, this week we’ll see some important data such as two takes on the US consumers and even a GDP reading.

Prechter’s view

Now let’s get to Prechter.

In the short-term, using his technical analysis, he sees a selling opportunity in late September or early October but that’s a view I have already said is a chance given the big run-up of the market this month.

He’s tipping down months ahead because of debt levels worldwide but he still believes a “major bottom” lies out there. He believes we have had a partial recovery in a depression and that’s why the Dow could fall to 1000.

When will this happen? He told CNBC it would happen over the next six years.

I hope this guy is wrong but what annoys me is that he has six years to be proved right or wrong and by then most media people will be out of the industry or out of a job!

My weight is still behind the muddle-through thesis and I will remain a long-term bull on the market. However, there will be a time to get out but I don’t see it coming up soon.

For advice you can trust, contact Switzer Financial Services.

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Published on: Tuesday, September 28, 2010