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‘Sell’ Advice From Well-Known GuruSaid to Play Role In Stock Spill

October 7, 1987

NEW YORK (AP) _ Wall Street’s latest plunge has been partly attributed to rumored pessimism of a 38-year-old Yale psychology graduate and former rock drummer who has emerged as one of the leading gurus of 1980s stock forecasting. He’s Robert Prechter, author of the The Elliott Wave Theorist, an idiosyncratic investment newsletter that claims stock movements reflect a mass psychological mood that sways from good to bad in waves.

Rumors were widespread Tuesday that Prechter had issued a short-term bearish market forecast on the private telephone ″hotline″ for the 16,000 subscribers to his newsletter, which costs $233 annually.

Traders said those rumors contributed to a massive selloff on Wall Street that erased more than 90 points from the Dow Jones industrial average, the biggest one-day loss in the history of the well-known indicator.

Staff members at Prechter’s office in Gainesville, Ga. said he was unavailable for comment on those reports and they declined to disclose any of his latest forecasts.

A former analyst of Merrill Lynch & Co., Prechter has attracted a wide following because of what traders call his remarkably accurate forecasts based on seemingly inconsequential trends ranging from skirt lengths to rock lyrics.

His notoriety grew in the late 1970s when he recommended buying stocks, partly because he heard an anguished song performed by the Sex Pistols punk- rock group.

An ex-rock drummer himself, he reasoned that the song’s gloom depicted a low point in the public mood and meant an emotional and market improvement would follow. His forecast proved correct, and a few months later the stock market lifted.

″Someone feeling daring enough to run out and buy a few shares of a low- priced stock is probably also dressing with more flair and buying upbeat pop tunes,″ he once said.

The stock market’s protracted rally that began in 1982 also was foreseen by Prechter, who has predicted that the best is yet to come. In 1988, he has said, the Dow Jones industrials will reach somewhere between 3,600 and 3,700.

Although the average plummeted 91.55 to 2,548.63 Tuesday, Prechter was believed to be standing by his prediction.

He derived the title of his newsletter from Ralph N. Elliott, an accountant who developed the wave theory in the late 1930s after having lost most of his money in the 1929 stock market crash. Before Elliott died in 1947, he devoted himself to studying how the market behaves.

The theory holds that stocks ocillate in predictable waves to complete any single bull or bear market. Prechter has supplemented that theory by asserting that the stock market is the best measure of mass psychology, like a thermometer that reflects changes in optimism and pessimism.

Changes in mass psychology, he has said, cause changes in the stock market, not vice versa.

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