In January, Steve Hochberg, a leading authority on "Elliott Wave" technical analysis, had forecast that 2008 would be the "year that everything changes." His forecast called for a credit crunch, a housing collapse and a bear market.

In his Elliott Wave Financial Forecast the advisor warns, "The bear market is far from over." Here, he again looks at stocks, housing and the case for deflation.

"The typical seasonal market patterns usual result in 'summer doldrums. But with a third wave lower starting to unfold, the traditional summer lull may turn into a real downside barn burner.

"The Dow has broken its 34-year trendline, which confirms our bearish forecast. This trendline connected the market bottoms from December 1974 and October 2002. This break virtually eliminated any remaining bullish potential for a rise back to new highs.

"In addition, the nominal Dow, denominated in UD dollars, is now beneath its January 2000 high, leaving the stock's senior index with a loss for the past 8 years. The nominal S&P 500 and NASDAQ are down 17.5% and 53%, respecdtively, from their 2000 peaks, and the 'real' Dow as measured in terms of its gold value, is off by over 70%.

"There certainly will be counter-trend rallies, but when they occur, they should be viewed as opportunities to add to established bearish positions.

"The recent stripping of both MBIA and Ambac's AAA ratings by Moody's came on the heels of previous downgrades by Fith and S&P. We cannot overstate the importance of this event.

"Ratings on much of the debt backed by these insurers must now be cut in turn. A downgraded bond does not necessarily meant default. But a decrease in the aggregate value of dollar-denominated debt in a credit-based economic system is deflation.

"The word on the street is 'inflation.' But there are huge holes in this widely-held assertion. For one,  real estate, the #1 inflationary hedge through all prior inflations, is not rising. In fact, the fall in housing prices is the fastest on record.

"The latest housing how-to books, Foreclosure Investing for Dummies, captures the breadth of the belief that a decimated asset is a buying opportunity.

"Its appearance surely means that the housing debacle is hardly closer to ending than it was in January 2007 when we cited its predecessor -- Flipping Houses for Dummies -- as a sure sign that the downturn in housing was about to get nasty.

"Another inconsistency with a new era of inflation is the still-unfolding credit crisis. Inflation generally supports increased rates of credit expansion, as it allows borrowers to pay back their obligations in cheaper dollars.

"Currently, however, the credit bust is intensifying every day. Banks are tightening lending standards as borrowers curtail demand for new loans.

"Meanwhile, past due notices are piling up. In every sector, delinquency levels are rising. And banks are woefully unprepared for a flood of bad debts. When deflation rages, cash will get far more scarce and deliquencies will surge. 

"In a bear market, it is much safer to watch the 'knife-catching' rather than take part. The sooner that investors recognize the advantages of this approach, the more capital they will conserve and the smarter they will look at the bottom."