3.3.11

Social Mood Turns Negative: Markets Will Soon Follow, Robert Prechter Says

From the Mid-East to the American Midwest, constituents are rising up in protest against the government.  Not all these events are specifically linked but they do reflect a broader shift in human psychology that will have major ramifications on society, from politics to the markets.

At least that's what Robert Prechter, the foremost follower and evangelist of the Elliott Wave Principle believes. 

What's an Elliott Wave?
"The Elliott Wave Principle is a detailed description of how groups of people behave. It reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific and measurable patterns," according to Prechter's website.

In this case, we're witnessing "a change towards a negative social mood," says Prechter.  This shift has already manifested itself in a top in emerging markets, Prechter tells Aaron and Henry in this accompanying video

But it's only the beginning: Markets around the world will sink as the mood darkens.  (See:Bob Prechter: We're Still in a Bear Market and Stocks Will Crash to a New Low).
"Even though we have deteriorating fundamentals, people are focusing on the optimistic things: 'the economy is expanding, the Fed is savings all the markets,'" he says.

He does have a point, in the face of all this uncertainty and turmoil, the markets are proving to be quite resilient. Tune into CNBC and you'll hear pundits brush off major
concerns, saying how the threat of rising commodity prices will drive the Fed to save the day again with another round of quantitative easing; or that any inflation that's emerging is good for stocks.

Prechter believes we're simply in the midst of a bear market rally that will eventually fail and brings us to new lows. Not until the doom and gloom becomes unanimous will the stock market have bottomed and begin the upturn to a sustainable bull market.  "Until people are afraid of stocks and give you a litany of reason why they can't go up...we just want to keep our powder dry," he says.

On the political front, Prechter believes that growing negative mood here at home will manifest itself in protests akin to the riots seen at the 1968 Democratic convention in Chicago, which paved the way for the massive anti-war protests of the early 1970s. In other words, 2010's Tea Party rallies and 2011's pro-union protests may just be the beginning.

http://finance.yahoo.com/tech-ticker/social-mood-turns-negative-markets-will-soon-follow-robert-prechter-says-535967.html

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