Prechter, the founder and CEO of Elliott Wave International, along with colleagues Steve Hochberg and Peter Kendall said in their latest Global Market Perspective that U.S. stocks are slicing the neckline of a classic head-and-shoulders pattern in technical analysis, which could lead to market disaster.
When the Elliott wave count and a head-and-shoulders pattern are saying the same thing about the stock market, they say, big trouble can follow.
"The coming months hold the potential to be the most exciting of the year so far," they wrote. "Once the neckline is breached, the measured move for the selloff targets the area surrounding 8,000."
Elliott Wave International's analysts say the right shoulder of the Dow Jones Industrial Average's pattern is now ending and the downward-sloping neckline displays market weakness. The Dow, which closed at 10,405.85 on August 17, has fallen 7.1% from this year's high on April 26.
Developed in the 1930s by accountant Ralph Nelson Elliott, the Elliott Wave principle is a type of technical analysis popular with investors who use it to forecast market trends that identify wave-like extremes in both behavioral psychology and prices.
Prechter, a media darling often quoted in the financial press for his bearish prognostications, won his fame as an Elliott Wave expert after he correctly predicted the stock market crash of 1987.
Read a story about the Hindenburg Omen from the archives of InvestmentAdvisor.com.