“Yesterday history was made when the Dow rose to a new record high and finally confirmed the prior record high put in by the Transports. The question now becomes — what do we have here, a weird kind of bear market or a new bull market?”
“The honest answer is that in all my years of studying and dealing with the markets, I’ve never seen anything like the action since the 2009 bottom. As a practice study, I rethought the whole 1920s series as if I was reconstructing the events of 1929. Suppose, after the September, 1929 record high in the Dow, the Rails had turned up from the crash lows and had also risen to a new record high?
Then suppose the Dow had followed, and the Dow had risen to a new all-time high? Such action would have been puzzling, but what would analysts have called it? My guess is that analysts would have simply called it “confusing and unprecedented.”
And I’m going to do the same thing today. The collapse of 2008-09 was labeled a bear market by everybody. The bull market of 1980 to 2007 was obviously a huge bull market which lasted 27 years. Following a 27-year bull market, we might have expected a bear market lasting one-third to two-thirds as long as the preceding bull market.
A bear market lasting one-third (nine years) in duration as long as the 1980-2007 bull market would be expected to carry into at least 2016. Thus, on a timing basis I have to think that all the stock market action since 2007 was one continuous and erratic bear market.
Question — OK, Russell, then what about the record highs recorded by both the Dow and the Transports?
Answer — My only answer to this is that both D-J Averages produced something never seen before, namely new highs during a post-crash upward correction. My explanation of this unprecedented situation is that the advance to new highs was a direct result of never-before-seen manipulation by the Federal Reserve.
The Fed was able to engineer new post-crash highs in both D-J Averages. But I doubt if the Fed will be able to engineer a coming new era of prosperity in America. Thus, it will be an example of where the stock market will not be predicting the nation’s economic future.
As a matter of fact, I believe this stock market is predicting a very mixed and confusing economic future for the US. As far as I can see, the Fed will be pumping in QE-to infinity for as long as it can get away with it. The only thing that might halt the Fed is rebukes from voting members based on it’s outrageous 3 trillion dollar balance sheet. We’re in uncharted territory in my opinion, and I expect to see a number of events in both the stock market and the economy which will be both surprising and upsetting.
One technical observation — With the breakout and confirmation by the Industrials, this places tremendous psychological pressure on the 13.108 million shorts that are now positioned on the NYSE. As a result, we should see irregular spates of short covering or buying panics, depending on the fears and psyches of the short sellers. This makes shorting stocks in this market a risky game.
My view for the future — erratic market action along with a disappointing US economy. Incidentally, I don’t know if you noticed, but some of the heavily shorted stocks surged yesterday, due, in part, to frantic and fear-filled short covering.
Item — Since the 2007 bull market high, 18 D-J Industrial stocks are now higher than they were in 2007 and 12 are lower.
Gold and particularly gold mining stocks are being bad-mouthed unmercifully. It’s almost as though we’re witnessing a veritable bandwagon of gold nay-sayers. I suspect that some of this is a matter of “sour grapes” on the part of those who missed out on the tremendous 12-year bull market in gold. And so it goes, to the gold pessimists goes a belated, sour grapes sneer.
Could this be the gold bottom? Based on RSI gold is oversold. The histograms on MACD are turning up. And we have a little up-pointing formation in March. Could it be a bottom? It would require gold hitting 1620 for a major reversal. Gold above 1600 would be impressive!
Ed Note: Two very valuable articles from the Godfather of Newsletter writers:
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About Richard Russell
Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business.
Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron’s during the late-’50s through the ’90s. Through Barron’s and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-’66 bull market. And almost to the day he called the bottom of the great 1972-’74 bear market, and the beginning of the great bull market which started in December 1974.
The Letters, published every three weeks, cover the US stock market, foreign markets, bonds, precious metals, commodities, economics –plus Russell’s widely-followed comments and observations and stock market philosophy.
In 1989 Russell took over Julian Snyder’s well-known advisory service, “International Moneyline”, a service which Mr. Synder ran from Switzerland. Then, in 1998 Russell took over the Zweig Forecast from famed market analyst, Martin Zweig. Russell has written articles and been quoted in such publications as Bloomberg magazine, Barron’s, Time, Newsweek, Money Magazine, the Wall Street Journal, the New York Times, Reuters, and others. Subscribers to Dow Theory Letters number over 12,000, hailing from all 50 states and dozens of overseas counties.
A native New Yorker (born in 1924) Russell has lived through depressions and booms, through good times and bad, through war and peace. He was educated at Rutgers and received his BA at NYU. Russell flew as a combat bombardier on B-25 Mitchell Bombers with the 12th Air Force during World War II.
One of the favorite features of the Letter is Russell’s daily Primary Trend Index (PTI), which is a proprietary index which has been included in the Letters since 1971. The PTI has been an amazingly accurate and useful guide to the trend of the market, and it often actually differs with Russell’s opinions. But Russell always defers to his PTI. Says Russell, “The PTI is a lot smarter than I am. It’s a great ego-deflator, as far as I’m concerned, and I’ve learned never to fight it.”
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Investors Intelligence is the organization that monitors almost ALL market letters and then releases their widely-followed “percentage of bullish or bearish advisory services.” This is what Investors Intelligence says about Richard Russell’s Dow Theory Letters: “Richard Russell is by far the most interesting writer of all the services we get.” Feb. 19, 1999.
Below are two of the most widely read articles published by Dow Theory Letters over the past 40 years. Request for these pieces have been received from dozens of organizations. Click on the titles to read the articles.
“Rich Man, Poor Man (The Power of Compounding)“
