There's no rest for the weary -- or for the wary, we should add. Earlier this week, Bob Prechter sent out a late-evening special report about the stock market to Elliott Wave Theorist subscribers (August 10). The very next day, he did an interview with Bloomberg TV's Pimm Fox. The day of the interview, the Dow dropped more than 250 points. You can hear the interview on Bloomberg here.

Bullish on the U.S. Dollar

In short, Prechter said that he's bullish on the U.S. dollar and bearish on stocks. He reminded Fox that last fall when everyone hated the dollar, it was the only market he liked. More than 90% of traders were bearish in sentiment readings, yet he had called for it to advance -- which it did in five waves that peaked in June 2010.

Since then the dollar has been in a correction, making bears out of the bulls. In fact, last week, there were only 6% bulls left. "They loved it at the top and hate it at the bottom," Prechter pointed out. With strong bearish sentiment and a wave structure forming a low, he explained that he is once again bullish on the U.S. dollar. Here's the chart that should have appeared on the television screen during the interview rather than the generic chart Bloomberg TV put up.

 Bearish on Stocks

As for the stock market, after its sharp rally in June, it dropped to a low and then spent many weeks getting back to where it was. Yet Prechter says now there's a "swing toward pessimism that will bring stock prices lower and the dollar higher."

But what caused him to send out a special report to his Theorist subscribers? Studying the Dow's wave structure since the top in April 2010 and comparing it with other wave structures, he discovered a similar set-up to 1987 before the October crash. On Bloomberg TV, he said to Fox, "It doesn't mean there has to be a crash, but it does mean keep your cash cool. The market needs another leg down." Here are the two charts for you to compare with your own eyes.

 

 

When Pimm Fox commented that if people were out of stocks, that probably meant they were in cash, Prechter said, yes, he believed that his subscribers were 100% in cash. He said that the 250-point drop on August 11 made for an exciting day in the market, particularly for short sellers. But, overall, he cautioned most investors to sit tight with their cash. "Our buying opportunities in stocks, in commodities, in real estate -- even foreign currencies -- lie ahead of us. Let's get through the bear market before we put any of that cash to work."

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