In May 2008, the Dow Industrials were rebounding from an earlier decline. But prices then met resistance at the lower trendline of a price channel. The trendline had been three decades in the making.
Once prices touched that trendline, the market reversed and accelerated downward. The trend didn't bottom until March 2009.
In his August 2011 Elliott Wave Theorist, Robert Prechter refers back to this May 2008 price reversal: He calls it the "kiss good-bye."
Of course, even after the sharpest Dow decline since the Great Depression, we know that market optimism reached record levels during an 83% upward price retracement which lasted well into 2011:
"...the March-April rally was one of the most passionate bouts of stock buying I have ever witnessed. From March 17 through April 11, 14 out of 17 trading days began with an up gap in the S&P futures; and from April 19 through May 2, the day of the top, 8 out of 9 trading days began with an up gap. Investors wanted stocks so insistently that they paid above the previous day’s close more often than at any time I can remember."
Elliott Wave Theorist, June 2011
In turn, this sentiment has become "an anvil around the market's neck," as Prechter states in his latest Theorist.
Indeed, Dow prices have sunk about 2000 points since that May 2 intraday high.
Where will prices go next?
Well, remember what happened after May 2008 when the Dow "kissed" that trendline. Prices plummeted. It wasn't until March 2009 that they finally bottomed at 6,547.
Also remember that what followed was a two-plus year rally, which peaked this past May.
And May 2011 also saw prices "kiss" another trendline -- and this trendline is MAJOR. The market itself has "drawn" this trendline for about eight decades. Its history is far longer than the one prices touched in May 2008.
If prices fell as far and fast as they did after touching a three-decades long trendline, consider the implications of prices "kissing" the trendline which is much longer.
An imaginary sign hangs from this longer line and reads No Trespassing. So far, prices have obeyed.
Does Robert Prechter see a re-test of this eight-decades long line, or is his market forecast entirely different?
The answer to the above question will be clear to you after you watch a special video edition of the August Elliott Wave Theorist. Prechter has prepared a tour de force for you which includes over 50 charts and a transcript of the almost hour-long video.
There's never been a Theorist like this since the first one in 1976!