View from the Top of the Grand Supercycle

View from the Top of the Grand Supercycle, Year 2001 Edition, by Robert Prechter, Jr., includes essays that use the Elliott Wave Principle to analyze the great bull market from 1997 through 2000. The book includes two major sections:

Section One: Key Essays on the Topping Process of the Great Asset Mania
Section Two: Retrospective: Errors Made and Knowledge Gained

You may buy the book from the Elliott Wave International bookstore.

Review of View from the Top of the Grand Supercycle

View from the Top includes 34 essays written by Robert Prechter, Peter Kendall and other contributors during the period when the broad stock market was making its extended upside advance and top. Many of the essays use the Elliott Wave Principle to analyze the over valued nature of stocks from 1997 through 2000.

Section One: Key Essays on the Topping Process of the Great Asset Mania includes essays grouped into three periods:

Leading Up to the Peak of the Average Stock in April 1998 includes eight essays from May 1997 through April 1998.
Leading Up to the Peak in the Dow in January 2000 includes eight essays from September 1998 through December 1999.
Battling Euphoria in the Post-Peak Topping Process includes 13 essays from February 2000 through December 2000.

Section Two: Retrospective: Errors Made and Knowledge Gained includes three essays in which Prechter describes how he incorrectly called for the premature end to the 1974 - 2000 bull market. And he shares the lessons that he learned, and how they apply to future Elliott Wave analysis of price patterns.

Review Comments on Section One: Key Essays on the Topping Process of the Great Asset Mania

Three of my favorite essays by and about Bob Prechter are in Leading Up to the Peak of the Average Stock in April 1998, the first group of essays in section one.

Bull, Bears and Manias describes how manias work for stocks and other asset classes. The charts of the Gouda Tulip Bulbs mania (1634 through 1637) and the South Sea Company bubble (1712 through 1722) illustrate how manias come to a bad ending. The price charts of the two manias are particularly effective at showing the sharp rise and ultimate crash of prices in an asset bubble.

In Style of the Bear Market, Prechter uses the downside of the South Sea Company stock bubble (1719 through 1722) as a model of the forthcoming coming bear market in the broad stock market. The price upside was almost vertical and the downside was relentless, the adjective which Prechter used to depict a downside disaster. If the broad market were to crash as he predicts, many investors could lose in excess of ninety percent of their money.

The Nostradamus of Wall Street by David Black is an absolute must read. He tracks Bob Prechter's ups and downs as a Wall Street prognosticator describing some of his best and worst calls. And the two-paragraph summary of the Elliott Wave Principle captures the essence of the wave patterns. The article is succinct, yet very insightful.

Leading Up to the Peak in the Dow in January 2000 includes two essays about Bob Prechter and one essay about Elliott wave theory, which I found very interesting.

In Elliott Wave investing William Mitchell, a foreign stock analyst at Elliott Wave International shows how the author used the Elliott Wave Principle to correctly warn investors of forthcoming drops in the Malaysian and Hong Kong stock markets. These timely calls saved astute investors years of profits from being wiped out.

Game Over by Ken Kurson describes Prechter's travails after the media and Wall Street types began to attack him in 1988. He concludes his 1999 article with," An embarrassing public defeat has left Prechter defensive but unbowed, shaken but not stirred."

Technical Analysis Profile: Robert Prechter by Kira McCaffrey Brecht is a lively piece about Prechter's thoughts on stock market manias, social behavior and the economy. You can get a quick read on Prechter's thinking in this six-page essay.

If you are new to the Elliott Wave Principle, be sure to read An Overview of the Long Term Elliott Wave Case for Stocks. This well illustrated paper is an excellent overview of Elliott Wave Principle and how it is applies to stocks, gold and other asset classes.

In Battling Euphoria in the Post-Peak Topping Process I particularly enjoyed the following essays.

Rationalizing High Stock Valuation shows why investors should be skeptical of the argument that high price earning ratios can be justified because of low inflation and a strong economy. High P/E ratios can occur in all sorts of economic environments from speculative bubbles to recessions. P/E ratios often expand as prices rise, but they can remain high even as prices fall. So any P/E ratio should be subject to scrutiny. Having said that, I sold most of my technology stocks in early 2000 after seeing the chart of the historically high P/E of the S&P Composite Stock Price Index in Irrational Exuberance by Robert Shiller.

In GE 1974-2000 - phi x 100, originally published in the October 27, 2000 issue of The Elliott Wave Financial Forecast, Peter Kendall of Elliott Wave International called for General Electric to, "go way down over the next four years." And he was correct. General Electric topped out at around $51 (split-adjusted price) during August through October 2000 and then declined to $19.63 by October 9, 2002. And the stock is still down as it closed at $36.47 on February 14, 2007.

In Bust Just Ahead? Bob Prechter's Bear Watch Project Doug Monroe tells us why he is a Bob Prechter fan. Monroe feels that Prechter's "cool descriptions of economic apocalypse" are worthy of consideration - a conclusion that I share.

Review Comments on Section Two: Retrospective: Errors Made and Knowledge Gained

In 1995 Prechter published At the Crest of the Tidal Wave, a popular book with a very bearish forecast for the broad stock market and world economy. He continued to elaborate his bearish arguments in subsequent issues of the Elliott Wave Theorist, his monthly newsletter.

But, as we know now, his bearish predictions did not come true and his reputation as a market guru suffered greatly.

To his credit, Prechter recognizes his mistakes and in Perspective he candidly discusses his timing errors saying, "My timing errors for the major averages during this period were legion. I called too many tops and was wrong time after time, which became embarrassing."

In Why I Was Early and What We Have Learned, Prechter shows a chart that helps explain why he was wrong. In 1996, the Dow Jones industrial average (DJIA) moved above the upper boundary of its Supercycle Wave (V) trend channel. This is the move that Prechter and others did not anticipate back in 1995. Prechter tells us, "I really lost my bearings at that point and did not regain perspective until realizing that the channels at Cycle and Primary degree were directing the price action."

Later in the article Prechter presents five new guidelines, which he hopes will prevent Elliott wave analysts from making premature bearish calls in the future.

My Postscript

I wish Prechter had concentrated more of his work on the rise and fall of the NASDAQ and a basket of technology, telecommunications and Internet stocks like Sun Microsystems, Lucent, CMGI and ICGE which represented the stock mania better than any other stocks that I followed at the time. They were long on hype and hope and very short on revenues and earnings. And their price charts were reminiscent of the South Sea Company. Had Prechter featured them or stocks like them, his predictions of the collapse in prices would have found more credence. Many of these stocks fell eighty to ninety percent from their highs, the type of relentless price downsides Prechter had predicted.

Of course, the investors who were savvy enough to substitute the name NASDAQ for DJIA in Prechter's writings, saved themselves from the ensuing collapse of the over valued technology sector.

View from the Top of the Grand Supercycle Adds More Perspective on Prechter's Writings

View from the Top rounds out Robert Prechter's journey from The Elliott Wave Principle, first published in 1978, to At the Crest of the Tidal Wave. Prechter correctly turned into a super bull in 1974 and incorrectly became a super bear in 1995. He was rewarded for his bullish stance and has paid the price for his ultra bearish stance. Nevertheless, he has a critical message for all investors - the good times do not last forever and when they end, they end very badly. I encourage you to read View from the Top to help you internalize his message.

To purchase View from the Top and other Elliott Wave based books please visit the Elliott Wave International bookstore.

Read Elliott Wave Principle by A. J. Frost and Robert Prechter, Jr. to become more familiar with Elliott Wave fundamentals and applications. At the Crest of the Tidal Wave and Conquer the Crash tell us how to survive a stock market crash and economic depression. They are good companions to View from the Top.

Also, be sure to view History's Hidden Engine, a free entertaining and informative video all about the Elliott Wave Principle and much more.

Reviewed by Richard Howard.

Posted February 15, 2007.