Technical Situation Deteriorating

Looking at the current bull market, Prechter said he thought that in the major advance from the Depression low of 1932, the fifth wave of activity began in 1982. Once that fifth wave completes, "the entire bull market of the 1980s and 1990s will be retraced," he says. "The Dow will be back in triple digits before it's over.

"Some people say I'm forecasting the end of the world, but that's not true. The 1929-1932 drop was the most severe in our experience, and we had the Depression, but it was not the end of the world."

Examining the market from a traditional perspective, he says, "The technical situation is deteriorating. The rate of upside change is slowing. Optimism among traders, advisors and consumers is on the ceiling. There are many, many signs that we are very, very late in the cycle."

Prechter declined to offer a specific forecast in terms of timing. "I've already shown that I don't know the month or even the year of the top," he said. "What I'm quite sure of is that the major move is so mature and extended that the intelligent thing to do is prepare for a reversal. By the time a bear market in blue-chips is clearly visible, many stocks typically are already down 50%."

To prepare for this downturn, Prechter suggests, "Convert to cash. The safest things to be in are cash equivalents, which include T-bills."

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