Following the stock market can be a real bear. There isn’t a single person, signal or system I know that has not been spectacularly wrong at one time or another. Robert Prechter Jr. knows this, having first made his name with a wildly optimistic call in 1982 that turned out to be on the conservative side, he missed out on the 1996-1999 bull bubble but redeemed himself with a harshly negative prediction in 2000.
He is the leading champion of Elliott Waves, which are an esoteric, but respected theory of interpreting market movements, and recently published two books which he believes will found the basis for the new science of socionomics, which is based on the application of Elliott Waves to broader social trends.
In my opinion, the jury is still out on the usefulness of Elliott Waves for short-term trading – since May, the experts at Elliott Wave International have been predicting an end to the March rally followed by a steep decline that has not, as yet, appeared – but I think the fundamental notion that market movements are primarily reflective of social mood is a good one.
For example, the fact that Uday and Qusay Hussein no longer tread this mortal coil is assuredly A Good Thing, but to imagine that their deaths will have any impact on the economy whatsoever is absurd. If we are to accept the widely reported notion that the markets rose in response to the news of their demise, then social mood is the only realistic explanation for such movements.
Prechter has taken things one step further, though, in developing what could become an intriguing tool for social analysis. His thinking is logical – if social mood governs market movements, and if Elliott Wave theory allows for predicting market movements, then changes in the social mood and all of its attendant effects can be predicted using Elliott Waves.
Prechter coined the term socionomics to describe his new idea, and it is a big one. It reverses the conventional wisdom of social causality, which states that events govern mood. Socionomics, in contrast, insists that moods govern events. This makes a degree of sense in a historical context, as a historian can often see how shifting moods preceded the supposedly causal events, even if those living through them usually could not.
The impressive thing about socionomics is that it has a much stronger scientific basis than most accepted social sciences. By this, I mean that its conclusions are consistent with its premises, and its assertions are independently testable. In his two books, Prechter has assembled a list of things he considers to be important components of mood, as well as some cultural expressions of social mood trends that allow for easy examination of his theory on an ongoing basis.
Some of these cultural expressions of mood which fit a bull-market peak are save-the-world social concern, bright fashions, short skirts and individual style, fitness, revered politicians, religious tolerance, peace agreements and pop superstars. Bear-market peaks feature riots, drab fashions, conservative dress, indifference to physical fitness, hated politicians, religious fundamentalism and cults, war and a divergence in popular tastes. It is important to note that these are considered trend peaks, which means that the trend is about to reverse in the opposite direction.
Prechter is certainly not shy of making bold predictions. He calculates that we are presently at the beginning of Intermediate wave (3) of Primary wave 3 of Cycle wave a, which in English is a Very Bad Thing. Some of the implications he has drawn are: George Bush will not be re-elected, American birth rates will fall, sexual ambiguity will increase, open homosexuality will be increasingly accepted and the Dow will fall below 6000.
Is he visionary, or is he a lunatic? Time will tell. But I must say, I did find myself raising an eyebrow when I looked up from reading Pioneering Studies in Socionomics to see the latest volume in the world’s best-selling fiction series being unveiled on television a few months ago. The ominous blue shades of the cover, combined with a description of the text as being the “darkest” yet, did appear as if it might have the potential to mark a real shift in the social mood.
I can certainly recommend socionomics to the intellectually curious. It’s an interesting concept, if nowhere nearly as precise as Hari Seldon’s psychohistory. But if President Bush, whose approval ratings are currently running at 55 percent, is not re-elected, I’ll have no qualms about using it myself.