Two Ways: Sounding the Bear Alarm

By Terry Woo  MAY 14, 2009 5:20 PM

Strengthen your portfolio in good times and bad.


Renowned technician Robert Prechter is sounding the bear alarm: He warns that the current rally isn’t sustainable, and that the S&P 500 index could drop to half its March lows.

According to Reuters, Prechter, who correctly forecasted the 1987 stock market crash, stamped out the “green shoots” statement recently put forth by Fed Chairman Ben Bernanke.

“It’s not the start of a new bull market,” Prechter, chief executive of research firm Elliott Wave International, said. “Our models are (showing) right now that it is a much bigger bear market than most people realize, something along the lines of 1929-1932.”

Prechter continued to describe the current scenario as a very rare event, and said he expects another leg down in stocks to possibly be as severe, if not more severe, than the declines suffered in 2008 and 2009.

“Deflation is coming,” he said. “We’re not at the bottom yet… I think we are going to have bouts of deflation separated by recoveries.”

For another look at the economy, see Professor Satyajit Das’ The End of American Financial Dominance?

From the Bull Pen: So long as sell stops are in place, bulls need not worry about a market crash. If you’re in the camp that the S&P 500 had a successful retest of the 20 day moving average, consider the S&P Depository Receipts (SPY) with a sell stop below $88.

From the Bear Cave: One can keep an eye on Apollo Group (APOL) re-approaching its 50 DMA ($65.80) and gapfill. Could be a decent place to make a downside bet, if and when.

Have a great night! See you for a special edition of Freaky Friday: Expiration Day.
No positions in stocks mentioned.

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