Market guru Robert Prechter sees a plunge ahead for stock prices. The reason is because investors have turned way too bullish, Prechter argues in the latest issue of his Elliott Wave Theorist newsletter.
Prechter lists the signs of extreme sentiment:
• Individual investors are the most bullish in six years, according to a poll from the American Association of Individual Investors.
• Newsletter advisers are the most bullish in seven years, according to another poll.
• Futures traders are the most bullish in four years, according to a trade-futures.com poll.
• Mutual fund managers are the most bullish ever, as measured by the percentage of their holdings in cash.
• Hedge fund manager are the most bullish ever, according to a Bank of America survey.
• Economists are unanimously bullish, according to various polls.
• Top global strategists on three national panels expressed bullishness.
In February, Prechter predicted the Dow Jones Industrial Average will plummet to 6,800, a 45 percent dive from current levels.
Others are turning bearish on stocks too, though most are nowhere near as extreme as Prechter.
Byron Wien, vice chairman of Blackstone Advisory Services, says that if the Federal Reserve ends its quantitative easing (QE2) in June, as scheduled, stocks could be in trouble. That’s because much of the Fed’s money was recycled into stocks.
"I don't think there is going to be a QE3, and therefore I think the market could be vulnerable," he said.
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