You did not tell us which Elements version you are using, but I presume it is one of the later ones, so I can tell you how I would address this problem.
The only way I see it is to specify each subfolder you want to have in your watch list. There is no way I know of in versions Elements 6-13 to exclude a folder. I don't believe Adobe has changed this in later versions... So remove the "My Pictures" from the watch list and add each subfolder you want to watch to the list. Be reminded that no images in the "My Pictures" folder will be watched. These images you have to import (get) manually into the organizer.