here's something scary...richard russell is almost bullish.
dowtheoryletters.com
November 22, 2002 -- In this business it doesn't pay to have an ego. Because if you have an ego you are tempted to make a statement. And once you make a statement, you're putting your ego on the line. And then you're stuck, because you're tempted to defend your statement no matter what the stock market or any other market is doing.
Which is why I've learned (the hard way) to curb my ego. Strong egos don't take you very far in this business. In this business, you either listen to what the market is telling you or you look for another profession. In this business, the market is boss, and anytime you think you can tell the market what to do, you're heading for what we call "a rude awakening."
A couple of months ago a few subscribers started calling me a "guru." I told my subscribers that if I catch anyone calling me a "guru" I'll cancel their subscriptions and refund them the unused portion on their subscription. I don't want to hear that word. There are NO gurus in this business. There are only "geniuses" for a while.
I've seen the smartest and most respected analysts go wrong, and I mean horribly wrong. In almost every case these wanna-be-gurus insisted that the market follow their fearless forecasts. Didn't work.
What am I leading up to? Why all the above? Just this -- the "fatal un-attraction" of this business is that you can never be sure that you're right. Here I am, telling God knows how many readers what I think about the market, and I can never be certain that I'm right. That problem used to bother me a lot. It used to keep me up at night. Suppose I'm wrong? Suppose the market makes me look like an idiot? Suppose I really am an idiot?
Then I solved the problem, and I revealed my solution to my subscribers. I said, "Look, I promise to do my best, and that's all I can do. If you want better than my best, you'll have to go somewhere else. Sorry, but I just can't do better than my best." After that brain-storm, I felt better, and I slept better.
I spent a lot of time last night looking at the charts, the dailies, the weeklies, the monthlies. I look at the charts because the charts have to do with the markets -- as opposed to the news, because the new has to do with what has happened, with history. And the markets aren't interested in history.
What I see in the charts is the same thing that you can see in the charts. All the major averages have formed large, very clear "head-and-shoulders bottom" patterns. These are accumulation patterns. Now I don't give a damn why certain investors are accumulating, I just care that they ARE accumulating. I'll show these patterns in the next issue of Dow Theory Letters, but take my word for it, we now have very decisive "head-and-shoulders bottom" patterns forming in all the major stock averages.
These patterns are not yet completed. By that I mean that they have not yet broken out above their resistance barriers. But I have to think they will. If the breakouts occur, we will have a potential mini-bull market, much as we had during the period of 1966 to 1974.
This fits in with my original thesis that I thought this bear market could develop very much like the 1966 to 1974 bear market -- a series of mini-bull and mini-bear markets, all ending with the disastrous bear market wipe-out during 1971 to 1974. I believed it because I reasoned that the "Fed would fight the bear market tooth and nail." And this would serve to extend the bear market, taking it far beyond would normally be a more "normal" three or four years.
I can't tell subscribers what to do with their hard-earned money. Each investors must "kill his own snakes." I've suggested that my adventurous subscribers keep it simple, and by simple I mean "buy the Diamonds,"" which are proxies for the Dow. Each DIA is valued at 1% of the Dow. My thinking was that I've never seen a decent market advance which was not either led or accompanied by an advance in the Dow.
The market advance off the October 9 low has not been an ideal advance. Leading up to the October low we never had a single 90% downside day. Just as bad, on the advance from the October low we never had a single 90% upside day. I discussed this with Paul Desmond of Lowry's and his reaction was that because we had no 90% downside days, the advance from the October 9 low was not the beginning of a new bull market, it was a bear market correction. I agreed with Paul then, and I agree now.
I've described the advance from the October 9 lows on each daily site. Upside volume as a percentage of up + down volume has not been impressive. Yesterday was one of the better days, when upside volume was better and total volume was actually impressive.
The 200-day moving average of the Dow continues to decline and today it stands at 9205, a new low for the bear market.
But the 50-day MA of the Dow turned up on November 13, and its now in a rising trend. Today the 50-day MA of the Dow stands at 8193.
The breakout from the head-and-shoulders bottom formation in the Dow will come if the Dow can better its August 22 closing price of 9053. If that happens, a "measurement" or "count" of the pattern suggests that the Dow could climb above its 200-day MA and continues to as far as 10,700. But since this is still a primary bear market, the "measurement" may be restricted, and 10,700 may be stretching it a bit. But then again, maybe not.
One caveat -- the Transports should confirm, and so far they are lagging. A Transport confirmation would entail the Transports climbing first above their November 6 high of 2413 and then their August 22 high of 2464.
So there it is -- the case for a mini-bull market to take place within the context of a continuing bear market. Will it happen? Can it happen? I'll monitor the situation day-by-day as we go along.
In the meantime, subscribers who bought the DIAs should stay with them. Yesterday I said, subscribers who bought the DIAs might up you commitment by 50% and put in your stop losses.
Psychology -- Most subscribers who have been with me for a year or longer have moved out of the stock market. And most have avoided tragic losses in stocks. Once you've sold out and avoided huge bear market losses, you have joined the bears, so to speak. And you want to justify you actions. Once you've sold out, deep in your heart you want the market to continue down, thus re-confirming your actions.
Conversely, you don't want the market to advance. That's a wrong stance. You shouldn't have a vested position. You should have an open mind. We're following the market, rather than telling the market what to do. Or hoping the market will do this or that.
So you have to choose whether to buy the Diamonds and play the near-term potential bullish scenario -- or stay out of the market and wait for the great values that will ultimately appear when this bear market hits its final bottom.
How long before the market hits bottom? I wish I knew. It could be a year (I doubt that) or it could be 3,4 or 5 years or more. The Russell guess -- the final bottom will be seen somewhere around 2005-2007.
Fed Policy -- The Fed knows it -- it's INFLATE OR DIE. And the Fed is inflating, while telling the world almost daily that it will do absolutely anything and everything it takes to ward off deflation. Can the Fed do it?
It look as though they can. The CRB Commodity Index is now within shooting distance of its highest level since January of 2001. The D-J Basic Materials Index has been climbing ever since its October 8 low. It's' the same with the Goldman Sachs Spot Commodity Index.
And despite massive shorting of gold by the Commercials, gold continues its fight to stay above 320.
So the Fed policy is -- inflate the money supply, keep telling the world that there will be "no deflation," keep promising that the economy will improve. And all the while somebody, someone, some group, continues the battle to keep gold below 320 so that nobody will realize that the Fed is going all out on the inflation path.
And the miracle of it all -- in the face of massive current account deficits, in the face of the lowest interest rates in 41 years, in the face of the rapidly expanding money supply -- the US dollar continue to hold together. In fact, the Dollar Index has been rising since its November 8 closing low of 104.98.
Why, what, how -- is the dollar holding up? My only answer, and I've said this before -- the dollar is a rotten currency, but all the others are worse. Besides -- the US has the world's biggest economy and the US has the world's most potent military. This perception could change tomorrow, but today that's the way for FOREX (Foreign Exchange) crowd sees it. And the FOREX bunch are known for their sentimentality.
TODAY'S MARKET ACTION -- A unimpressive day to the downside. My PTI was down 2 to 5250 and the moving average was at 5240. PTI remains bullish by 10 points.
The Dow was down 40.31 to 8804.84. There were no movers in the Dow today (a mover is a stock that moves up or down by 2 points or more.
Jan. crude was up .41 to 26.76.
Transports were down 14.80 to 2313.98.
Utilities today made what I consider an important and significant move for the whole market. They were up 6.31 to 205.61. AEP up 1.11. SO up .73, ED up .45, TE up 1.04, D up 2.00, DTE up 1.49.
There were 1711 advances and 1528 declines. Up volume and down volume were actually equal at 802 million shares each. So very little downside pressure, even though the Dow was down.
There were 30 new highs and 25 new lows. My High/Low Index was up 5 to minus 8360.
Total NYSE volume was a shrinking 1.61 billion shares.
S&P was down 3.21 to 930.55
Nasdaq was up 1.18 to 1468.73 on 1.95 billion shares.
My Big Money Breadth Index was down 6 to 735.
Dec. Dollar Index up again, up .36 to 106.29. Dec. euro down .43 to 99.55. Dec. yen down .13 to 81.41
Dec. Nikkei down .30 to 8720.
Bonds were slightly lower. Dec. 30 year T-bond was down 7 ticks to 109.28 to yield 5.01%. Dec. 10 year T-note was down 6 ticks to 112.21 to yield 4.17%. Dec. muni futures were down 3 ticks to 106.27. Bond trend continues neutral with bonds in a trading range.
Dec. gold up 3.30 (this despite huge commercial shorting) at 320.90. Dec. silver up 7 to 4.54. Jan. platinum up 1.50 to 589.90. Dec. palladium down 7.80 to 272.00.
Gold/Dollar Index ratio was up 2.10 to 301.90.
Gold share A-D line up 11 to 1048.
XAU up .03 to 64.67. HUI up .76 to 116.47.
NEM down .02, PDG down .02, ABX down .16, AU down .51, AEM up .12, MDG up .15, RGLD up .24. GSS up .07.
Gold stocks are gun-shy-- I guess they don't believe that gold can hold. But 200-day MA of gold at 31.50 and is rising. Gold is bullish in that it is also above its 50-day MA, which stands at 319.10.
STOCKS -- My Most Active Stock Index in a V-shape bottom pattern, up 1 today to 232.
The 15 most active stocks on the NYSE were -- AMD up .73, GE down .40, HI down 1.49, HD up .20, PFE down .71, GLW down .35, TYC down .60, L up .24, HPQ up .20, MOT up .05, TXN down .40, AOL up .29, EMC down .25, CPN up .58, F down .05.
Few more -- GM down .92, GS down .84, AIG down 1.41, MER down .18, MSFT up .38, KSS down 1.05, COST down .39, TGT up .20, WMT down .10, MMM down 1.25, CSCO down .35,CAT up .53, FRE down .21, FNM down .25. DELL down .37.
VIX was down .64 to 26.73. Option-writers less and less fearful.
McClellan Oscillator will be posted in about an hour.
CONCLUSION -- Market tried to correct today, but the downside was unimpressive. Volume often tells the story and downside volume was the same as upside volume today -- very unusual. There's not a heck of a lot more that I can say about today's action.
Today's my 17th anniversary with Faye. Any woman who can put up with me for 17 years of marriage deserves a good dinner, and that's what we're going to have tonight -- at Tapenade, La Jolla's answer to a top French bistro.
With son Ryan back safely from his one year of travels, I'm going to celebrate again tomorrow with dinner at George's. Next time you come out here to God's country, try the "tasting dinner" at George's. You'll think you're in a top New York restaurant, and you'll have a view of the Pacific Ocean as a bonus.
By the way, you can spend a whole day in La Jolla and not see a single person smoking. That's another bonus.
I'll be back tomorrow.
Russell |
