“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: 

• “Rich Man, Poor Man (The Power of Compounding)“
• “The Perfect Business“

Subscribe to Richards Daily Newsletter HERE

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 12^th 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.”

Letters are published and mailed every three weeks. We offer a TRIAL (two consecutive up-to-date issues) for $1.00 (same price that was originally charged in 1958). Trials, please one time only. Mail your $1.00 check to: Dow Theory Letters, PO Box 1759, La Jolla, CA 92038 (annual cost of a subscription is $300, tax deductible if ordered through your business).

IMPORTANT: As an added plus for subscribers, the latest Primary Trend Index (PTI) figure for the day will be posted on our web site — posting will take place a few hours after the close of the market. Also included will be Russell’s comments and observations on the day’s action along with critical market data. Each subscriber will be issued a private user name and password for entrance to the members area of the website.

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)“

“The Perfect Business“

Over the past year my long term trends and outlooks have not changed for gold, oil or the S&P 500. Although there has been a lot of sideways price action to keep everyone one their toes and focused on the short term charts.

We all know that if the market does not shake you out, it will wait you out, and sometimes it will even do both at the same time. So stepping back to review the bigger picture each week is crucial in keeping a level trading/investing strategy in motion.

The key to investing success is to always trade with the long term trend and stick with it until price and volume clearly signals change of trend. Doing this means you truly never catch the market top nor do you catch market bottoms. But the important thing is that you do catch the low-risk trending stage of an investment (stage 2 – Bull Market, Stage 4 Bear Market).

Let’s take a look at the charts and see where prices stand in the grand scheme of things for gold, oil, energy and stocks…

Gold Weekly Futures Trading Chart:

Last week I talked about how precious metals were nearing a major tipping point and to be aware of those levels because the next move is likely to be huge and you do not want to miss it or even worse be on the wrong side of it.

Overall gold and silver remain in a secular bull market and hav gone through many similar pauses to what we are watching unfold with them over the past year. As mentioned above the gold market looks to be trying to not only shake investors out but to wait them out also with this 18 month volatile sideways trend.

A lot of gold bugs, and gold investors of mining stocks are starting to give up which can been seen on the charts when reviewing the price and selling volume for these investments. I am a contrarian in nature so when I see the masses running for the door I start to become interested in what everyone is unloading at bargain prices.

Gold is now entering an oversold panic selling phase which happens to be at major long term support. This bodes well for a strong bounce or start of a new bull market leg higher for this shiny metal. If gold breaks below $1,500–$1,530 levels, it could trigger a bear market for precious metals, but until then I am bullish at the current price.  I do think we could see another spike lower in gold to test the $1,500- $1,530 level this week but after that it could be off to the races to new highs.

Crude Oil Weekly Trading Chart:

Oil had a huge bull market from 2009 until 2011, but since then has been trading sideways in a narrowing bullish range. I expect some big moves this year for oil, and technical analysis puts the odds in favor for a higher price.  If we do get a breakout and rally, then $130 will likely be reached. But if price breaks down then a sharp drop to $50 per barrel looks like the next stop.

Utility & Energy Stocks – XLU – XLE – Weekly Investing Chart

The utility sector has done well and continues to look very bullish for 2013. This high dividend paying sector is liked by many and the price action speaks for its self… If the overall financial market starts to peak then these sectors should hold up well because they are services, dividend and a commodity play wrapped in one.

S&P 500 Trend Daily Chart:

The S&P 500 continues to be in an uptrend which I am trading with until price and volume tell me otherwise. But there are some early warning signs that another correction or a full blown bear market may be just around the corner (Selloff in May??).

Again, sticking with the uptrend is key, but knowing what could happen in the coming months gives you some time to start looking for some great shorting opportunities for when the trend changes. Your transition from long positions to short positions should be a simple measured move in your portfolios and not a panic reaction.

Weekend Trend Conclusion:

In short, I remain bullish on stocks and commodity until I see a trend change in the SP500.

The energy sector is doing well and looks bullish for the next month or so.

Gold and gold miners, I feel they are entering a low risk entry point to start building a new long position. Risk is low compared to potential reward so depending on how things unfold this week I may start to get active in this sector.

Keep in mind that when the price of a commodity or index trades near the apex of a narrowing range or long term support/resistance level volatility typically increases as fear and greed become heightened. This creates larger daily price swings so be prepared for some turbulence in the coming weeks while the market shakes things up.

About the Author

Chris Vermeulen

Chris Vermeulen is a gold analyst and trader offering free weekly ETF reports and analysis at www.TheGoldAndOilGuy.com. He is  founder ofTechnical Traders Ltd. and chief market analyst for TradersVideoPlaybook.com. Reach Chris at: Chris[at]TheTechnicalTraders.com .

Are we there yet? Has gold bottomed? Is it about to begin its ascent to $5,000 plus?

After all, Fed Chief Ben Bernanke reiterated his money-printing policy last week, vowing to keep it in place until unemployment falls to at least 6.5 percent and inflation ticks higher.

On top of that, the Bank of Japan is printing money like never before. And the European Central Bank will undoubtedly join the melee soon as Italy falls into political gridlock, the sovereign debt crisis in Europe re-emerges, and the euro remains stubbornly strong, adding to the region’s deflationary forces.

But the simple truth of the matter is NO, we’re not there yet. Gold and other commodities are not yet ready to blast off again. In fact, quite the opposite is true …

More Declines Are Likely

I know that’s not what you want to hear. I myself am anxiously awaiting a bottom in the precious metals. More money than you can dream of will be made in their next leg up.

But right now, gold (and other commodities) have not fulfilled their shorter-term destiny. They have not yet worked off the prior bull leg up … they have not yet shaken out the weak buyers … and perhaps most importantly, the environment is not quite ready for them to blast off again.

Let me explain …

Despite all the money-printing going on around the world today, the overriding force right now is uncertainty.

Uncertainty about what Washington will do on spending cuts.

Uncertainty on taxes, because President Obama wants to raise them again.

Uncertainty in Europe because of Italy’s current political crisis. And uncertainty in Japan on whether the Bank of Japan’s new policies will actually turn around that country’s 23-year depression.

And uncertainty regarding whether China’s economy has bottomed and is turning up again.

In normal times, uncertainty is good for commodities and tangible assets.

But These Aren’t Normal Times

So instead, all the uncertainty that’s running rampant in the world today is having the opposite affect: It’s driving loads of savvy and not-so-savvy money to the sidelines. To cash.

That’s why the dollar is now soaring. You can see the sharp rally in the chart here.

We may not like the dollar, but others do. That’s because — like it or not, right or wrong — the U.S. dollar is still the world’s reserve currency …

And when most of the world is experiencing as much uncertainty as there is today, going to cash means going largely to the dollar. Which is precisely why the dollar is so strong, rallying more than 3 percent during February.

That puts additional downside pressure on gold and other commodities.

Here’s a chart of gold. Quite a downtrend. So much so that now even George Soros has dumped as much as 55 percent of his gold holdings.

Ditto for some other big gold investors, such as Moore Capital Management LP, which has sold its entire stake in the SPDR fund.

It’s why the total assets in the SPDR Gold Trust (GLD), the biggest exchange traded fund backed by the precious metal, dropped in the longest slump on record …

And why total global investments in all gold-backed exchange-traded products tracked by Bloomberg have tumbled 4.7 percent this year.

Thing is, unless gold can rally strongly and close above at least the $1,757 level soon — something I consider very unlikely — gold is headed much lower.

It will take out the most recent low at the $1,560 level and then flirt with the prior major low at the $1,527 level. If that gives way — and I expect it will — then great! We will finally get a washout in gold down to below $1,400 … all the weak longs will be shaken out … and a new bull market can then begin to form.

It’s much the same for silver. And many other commodities. And mining shares too.

No, I am not a long-term bear on the commodity sector. I am a long-term bull.

And if you’re one too, you should be hoping for a washout. Because, very simply put, a washout is what’s needed to clear the path for much higher prices to come in the future.

There are a few different ways to play what’s happening here.

To take a nice long position in the dollar as it rallies further, consider a stake in thePowerShares DB US Dollar Index Bullish ETF (UUP).

For a play on further downside in gold and silver, consider the inverse ETFs, theProShares UltraShort Gold (GLL) and the ProShares UltraShort Silver (ZSL).

Now, to Stocks …

Lastly, a note on U.S. equity markets. The strength in the equity markets is pretty amazing, isn’t it?

As I’ve long maintained, U.S. equity markets are entering a new bull market, one that could easily take the Dow substantially higher. Despite the potential for rising interest rates.

Why is the Dow so strong considering the problems in Europe and Washington, not to mention Tokyo?

This is where you need to put your thinking cap on. The U.S. equity markets are strong and forming a new long-term bull market precisely because of the problems in Washington, Europe, and Japan.

Europe and Japan’s sovereign debt crises are causing capital to leave those markets and invest in ours. Believe it or not, rightly or wrongly, the U.S. is seen now as the safest bet.

And as far as Washington goes, don’t fall into the trap that spending cuts will destroy the economy and the equity markets. It’s precisely the opposite: The best thing that can happen is for the cuts to go through … for government to downsize … and get the heck out of the private sector.

Yes, there will be sectors that will be hurt, such as defense spending. And yes, there will be loads of government employees laid off, forced to find new work in the private sector.

So there will certainly be some pain. Unemployment will most likely start to rise again.

But again, none of this means stocks are headed back to below 7,000. Or below 10,000. Or even below 11,000. While there is still a much-needed pullback probably coming in the stock market, getting government cut down to size is a long-term bullish factor for the equity markets.

Until next time, your ever-thinking out-of-the-box analyst,

Larry

P.S. A mere $89 a year will get you all, and I mean ALL, of my insights, analysis and recommendations, via my Real Wealth Report. To join, simply click here now.

Mike Campbell asked some of the smartest Investors exactly how they invest in their RRSP’s. Two strategies were common amongst them:

1. Each one follows a disciplined investment approach.

2. They don’t invest in a lump at the March Deadline. 

A good example of a disciplined approach was expressed by Brent Woyat of Ocean Forest Investment. Brent decided that he was going to make regular monthly contributions to his RRSP, a strategy that allows him to build up his savings using a dollar cost averaging approach. It also allows him to buy in both up and down markets. Brent thinks it is a mistake for investors to invest a lump sum once a year at the deadline date, his research numbers shows him that this is not the best approach.    

As for his actual investment strategy, he buys only large cap, good quality, big blue chip companies, specifically because they have the resources to look after themselves during bad times. As well it allows him an overall dividend yield in his portfolio of  4 1/2%, well above what he could gain in the Bond Market. 

His portfolio is comprised of 15 household name stocks, 10 from Canada and 5 from the US, selecting the those that have the highest yield. Specifically, on the US side he owns AT&T, Microsoft, Pfizer, GE and Intel. On the Canadian a few of the companies he invests in are TransAlta, BCE, Sun Life, Bank of Montreal and CIBC. His portfolio is Total Return, which means he has both the potential for capital gains as well as an increase in his dividend yield if companies raise their dividends. Finally he does a covered call writing program (something Michael is a big proponent of) that increases his portfolio return. 

Aaron Dunn of KeyStone Financial looks at his RRSP as his long term account. Aaron puts in stocks that while he is going to monitor them on a regular basis,  they are the type as Warren Buffet said, “that you never have to sell.” He also likes to find companies that are paying a dividend in the range of 3-5%. Companies that are relatively low risk, that are just growing over time and preferably have a dividend re-investment program. 

One company he likes that fits all of his RRSP investment objectives is Alta Gas, symbol ALA, which pays a 4% dividend. They have been growing their dividend consistently, have very robust  capital projects coming online over the next couple of years that they expect are going to accelerate their dividend growth. Some things Aaron really likes about this company is that the CEO actually started this business, has grown it into a multi-billion business, and he still has a significant shareholding himself. 

Darin Wagner of Balmoral Resources has a completely different approach. Since he lives in the high risk end of the pool as President of Balmoral Resources, a Gold exploration company that creates shareholder value through exploration and acquisition. He has decided that his objectives in his RRSP will be more within his area of expertise, in other words more growth and capital gains oriented. His mix  within both is 70% growth stocks that pay dividends and have good capital gains potential, and 30% aggressive growth stocks. One aspect he searches for in any given year is to try and make investments in sectors that are at least a little bit out of favor. His thinking there is that he can win the growth the company is getting, as well as get some growth out of the sector as it turns.

One sector Darin mentions that is out of favour at the moment is Gold stocks. In that area he likes GoldCorp, symbol G.TO. Another in that sector is Virginia Mines, symbol VGQ.TO. Virginia Mines is a company that is just about to receive a revenue stream and Darin thinks that there is a good possibility that it will soon begin to pay a dividend. In the aggressive risk area he investing in Falco Pacific Resource Group Inc., symbol FPC.V,  a company he is not only involved with, but that recently announced a 6 3/4 million ounce Gold resource.

Andrew Ruhland of Integrated Wealth Mgmt. has a diversified by risk strategy that fits both his 45 year old age and that he has kids who are about to go to University. At the moment Andrew thinks markets are stretched to the upside so he has a maximum defensive position with preferred stocks, covered call strategies and corporate bonds. Currently for the short term he also has a 30% short position in the Russell 2000, has bought some long term bonds because he thinks they have just hit a short term bottom, and on the recent sell-off he has picked up some Gold and some Gold stocks. 

Steve Deschesnes is the strategist for Disnat’s GPS, a portfolio that has beaten the market every year since its implementation 5 years ago. The first thing Steve makes very clear is that although we are at the RRSP deadline there is NO reason to invest now. The season for investing as far as Steve is concerned is the beginning of the Hockey Season. For those who aren’t Canadian, the beginning of that period is August or September. Steve’s wants to buy at the beginning of that period because in his opinion the market stops being good by April or May, thus he does’t buy at the RRSP Deadline in March is because in that period he is more likely to be taking profits. That said, if he had to invest right now in March he mentioned Gold which has sold off substantially from its high of $1,913.50 on August 23, 2011. Though he wouldn’t call it an investment, he does think that anyone who doesn’t have gold right here should buy some here as insurance.

Nor does he like bonds at all. He can’t imagine investing in Government Bonds at a 2% yield for 10 years, when inflation is higher than that and he will lose money. If you had to invest in Bonds, a product that he does like is a Real Return Bond  ETF symbol XRB, which is designed to give you protection against inflation.

Bottom line, Steve thinks that although you have to put your money in your RRSP now in March, you don’t have to invest that money until the market is favorable. While you are waiting or an opportunity to invest you can park yourself in something defensive, Steve mentioned the BMO Covered Call ETF symbol ZWB as a place you can consider parking your money to earn a good return until it is time to cash out and invest later in the year. 

Ozzie Jurock of Jurock’s Real Estate Insider does have an RRSP. Ozzie is with Oscar Wilder who once said “When I was young I thought that money was the most important thing in life, now that I am old I know that it is.” Thus Ozzie has always had an RRSP, just to have the discipline of putting money away and saving taxes. 

That said, Ozzie doesn’t buy stocks and bonds as his main goal is to preserve capital. So he only invests in safe instruments, seeking to earn only 3% a year. One interesting thing he has done in the past is to take money out of his RRSP in the form of a mortgage. Taking money out in the form of a 1st or 2nd mortgage is the only way you can take money out of your RRSP tax free. Because there are some setup fees, annual fees, appraisals as well as  insurance in taking a mortgage from your RRSP, Ozzie doesn’t think that it would be worth doing for only 20K. Rather he thinks you should have a larger sum of 100K or more before it is worth taking out a mortgage from your RRSP 

The comments above are from a February 16th Money Talks show – Ed