By Elliott Wave International
Sure, it’s highly important to get out of value-losing risk assets before the onset of a big bear market.
No analytical method offers a guarantee; however, our experience shows that if you follow the message of the Elliott wave model, you’ll have a good chance of protecting your wealth during the next financial downturn.
Having said that, there’s more to a severe bear market than collapsing investment prices. Keep in mind that the shift from a positive to a negative social mood — which brings on a financial bear market — also brings on an array of societal problems.
Here’s what Robert Prechter says in his March Elliott Wave Theorist, a monthly publication which provides analysis of financial markets and social trends:
The main social influence of negative social mood is to cause society to polarize in countless ways. That polarization shows up in every imaginable context — social, religious, political, racial, corporate and by class. The change is a product of the anger that accompanies negative mood, because each social unit seems invariably to find reasons to be angry with and to attack its opposing unit.
With that in mind, Robert Prechter urges Theorist readers to make plans to protect one’s physical safety.
This might seem to be an overly dramatic step, but keep in mind that in the wake of every major bear market, major social unrest developed.
A historical example is the worst bear market of the past 100 years — the one that occurred in the early 1930s. By the way, other financial downturns also occurred later in the 1930s and 1940s. As a result, communists and fascists challenged political institutions. The negative actions which are prompted by an extremely negative social mood usually take time to play out and World War II eventually erupted.
Returning to the latest Theorist, Robert Prechter also mentions the financial downturn of the 1970s, which up to that time, was the worst bear market since the one which started in 1929:
During the 1970s bear market, students challenged police, and blacks challenged whites. In both eras, labor challenged management, and fringe political parties challenged the status quo. When social mood is negative, rallies, marches and protests become common events.
Now, here’s what you need to know: If Elliott Wave International’s read of the Wave Principle is correct, the next bear market could rival the one of the early 1930s.
If you’d like to delve into the details of the Wave Principle, you are encouraged to read Frost & Prechter’s Elliott Wave Principle: Key to Market Behavior.
Here’s a quote from the book:
The Wave Principle is governed by man’s social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value.
You can read the entire online version of the book once you become a Club EWI member.
Club EWI is the world’s largest Elliott wave educational community and is free to join. Members enjoy free access to a wealth of Elliott wave resources on investing and trading.
Just follow the link to get started: Elliott Wave Principle: Key to Market Behavior — free and unlimited access.
This article was syndicated by Elliott Wave International and was originally published under the headline What a Brutal Bear Market Brings Besides Crashing Stock Prices. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.