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Richard Russell comments

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    July 16, 2002 -- Do you wonder why President Bush is so secretive? Do you wonder why the New York Times' lead editorial today started out this way -- "With President Bush digging in his heels in defense of accounting tricks that hide the true cost of stock options .."? All you have to do it read Paul Krugman's column today on the Times' editorial page. At least for me, it was a nasty shocker.

    The story is that Bush has been part of the whole smarmy problem. How did Bush make his millions? Cronyism, shenanigans, obfuscations, secretive dealings, accounting tricks, taking advantage of his political and family position. The truth is that Bush makes Bill Clinton look like "Mr. Clean." No wonder our President "digs his heel in" on corporate reform. He's afraid that reforms will show him up and even dramatize his disgusting past shenanigans and those of his Vice President, Dick (yuck) Cheney.

    My bet -- the whole Bush story is going to be major news as reporters dig further into how Bush and Cheney made their millions. On the same New York Times editorial page is another Bush story by Nick Kristof entitled, "Bush and the Texas Land Grab." It's just another stomach-turning story.

    Are you getting tired of hearing about "capitulation?" It seems to be the key word today. Is the market capitulating, when are investors going to capitulate, what is stopping stockholders from capitulating -- hey, what the devil is capitulation?

    Let me put it briefly. There is no firm definition of capitulation. Capitulation is supposed to be the time when the public become so frightened that they throw their stocks in for whatever the market will bring -- while at the same time wiser heads accumulate. Capitulation is supposed to identify a so "bottom" for the market.

    The above is a rather fuzzy description of the capitulation process. A much more scientific method of identifying what at least should be a temporary bottom is the Lowry's method. This consists of one or a series of 90% downside days followed shortly by at least one 90% upside day.

    It stands to reason that capitulation is accompanied by extreme pessimism. In the present case it's well to note that on the entire decline from the March 2002 peak, the Investor's Intelligence tally of bullish to bearish investment advisors has yet to include a single week when bears outnumbered bulls. The latest count is that there are 39.8% bulls to 36.7% bearish.

    And, of course, we have yet to see a 90% downside day this year. The last 90% downside day occurred in April of 2001.

    As I've said a hundred times before, the bear is in no hurry. Capitulation doesn't have to come here in July. It could be many tortuous months before investors "throw in the sponge." When every one is waiting for a certain market phenomenon to occur, their timing may be off -- by a month or by many months. As a rule, the longer the expected action is put off, the greater the action when it finally arrives.

    What is the sentiment of today? A few old-timers have called it "irrational complacency." My own "take" on the situation is that most investors have already taken substantial losses in their portfolios and they feel that it is now "too late to sell." Thus, they are just sitting and watching their wealth slide down the drain.

    On yesterday's site I noted that the Dow spent the latter part of the session "recovering" after a 436 points drop -- but the recovery failed to move the Dow into plus territory. I stated that I never cared for that kind of action, and I likened it to the market "using up its ammunition" or "running up the down-escalator but failing to make it to the next floor."

    With the Dow yesterday declining within 10 points of its September 21 low of 8235.81, the question arises -- "Was there manipulation, did "somebody" come in with heavy futures buying and turn the market at the crucial point?

    The answer is that I don't know. And I don't much care. This is a primary bear market and it's going to run to conclusion, and I don't care if the Treasury, the Fed, the IMF and JP Morgan and Goldman all together try to thwart the bear. The bear is bigger than any group of men or any list of government agencies -- because the bear is made up of EVERYBODY.

    The most basic concept in the whole study of markets has always been the most difficult for the majority to comprehend. The concept I'm referring to is that of the primary trend. The concept of a bull market going to completion or a bear market running to completion seems to baffle and befuddle the great majority of analysts, strategists, Fed Chairmen and investors in general.

    Actually, in a way, the failure or the refusal to understand how the primary trend works is a study in human arrogance.

    "What would it take," I'm repeatedly asked, "to turn you bullish?" When I'm asked that question, I know that the questioner doesn't understand how the primary trend works. So when I'm asked "What will it take to turn you bullish?, I answer, "It will take the bear market coming to completion -- that's what it will take to turn me bullish."

    Bear markets don't end on Presidential resolutions or Congressional edicts or Fed manipulations or booming money supplies. Bear markets end in EXHAUSTION, at time when the market has fully discounted that worst that lies ahead.

    There are many signs and indications that can help us to identify the final gasps of the bear. I'll talk about those indications as we go along. Suffice it say that the indication of the end of this bear market are not present at this time. Sure we will have rallies, explosive rallies, sure we will have extended, frustrating periods when the market does little or nothing, but as for an end to this bear market -- it's not in sight.

    Just as your favorite market guru never recognized the signs of the end of the bull market, you can be certain that these same experts will fail to recognize the end of this bear market when it finally expires.

    On another subject, here's a little technical device that I have found useful. Each day I subtract the difference between the 52-week highs and lows on the NYSE. Then I add these differentials to a continuous advance and decline line. You can start with any number.

    This advance-decline line of new highs and new lows continued higher for months -- and on June 3 of this year my line hit a high of 2033 and then turned down.The high-low line has been declining ever since. Day after day we now see more new lows than new highs on the NYSE. The critical turn came on JUNE 3. June 3, an important day in the history of this bear market.

    As an aside, I just received Merrill's publication, "The Merrill Lynch View." The publication offers four "Strong Buys." The first is ConAgra Foods, dividend is 3.6%. The second is Inco Ltds, dividend is nil. The third is Affiliated Computer Services, dividend nil. The fourth is Walgreen, dividend 0.4%.

    Would I buy these four stocks? Maybe with your money (if you insisted) but not with mine. Goofy guy that I am, I like a cash return on my money.

    The following is a phenomenon that has me watching carefully. The D-J Transports are still far from breaking below their September lows. The September low 20 low for the Transports was 2033.93. The Transports are now in the 2455 area, still about 422 points ABOVE their September 20 low.

    Nobody seems to have noticed the strength in the Transports. And I've wondered if we might not see the Dow breaking below its September low with Transports refusing to confirm. That could set off the long-awaited "summer rally."

    Even today with the Industrials down, the Transports were very slightly higher -- and this with negative earnings in the Transportation Average and a pitiful yield of 1.11%.

    The mystery of the Transport strength is as puzzling as is the mystery of the chronic Utility weakness. Ours not to reason why -- ours just to recognize what's actually happening in the markets.

    My own inclination in this very difficult period is to put all new money into 91-day T-bills regardless of their "nothing" yield. This is not a market to "mess with," and at such times I find it best to admit it and step aside. There's nothing wrong with "not making money." In a nasty bear market such as this one being in cash is almost tantamount to being short, since each day as the market sinks cash buys you more in the way of declining stocks.

    TODAY'S MARKET ACTION -- Have you noticed that the violent action in this market is on the upside (short covering) while the grinding action is on the downside (large interests selling). Most of the violent upside action ends abruptly as short sellers cover and as large interests sell into the rallies.

    My PTI was down to another new low, down 6 to 5229 with the moving average at 5288. PTI continues to be decisively bearish.

    After much of the usual whipping around, the Dow ended down another triple-digit 165.66 to close at 8473.53. The Dow is now only 238 points from its September low of 8235.

    There were four movers in the Dow -- CAT down 2.19, GM down 2.02, MMM down 2.98 and a very important break -- WMT down 3.44 to 50.00.

    August crude was up .68 to 27.75.

    Transports were up .29 to 2434.10.

    Utilities were down 7.06 to 234.70.

    There were 1305 advances and 1932 declines (not a hint of a 90% down-day here).

    New highs were 19 while new lows were 123.

    NYSE volume was 1.84 billion shares.

    S&P cracked 900 -- down 17.94 to 899.99.

    Nasdaq was down 7.34 to 1375.28 on a very large 2.35 billion shares.

    My Big Money Breadth Index hit a new bear market low, down 8 to 736.

    Sept. Dollar Index was down .20 to 104.85. Sept. euro was up .23 to 100.52. Sept. yen was up .19 to 86.63.

    Sept. Nikkei, flirting with 10,100 again, was down 205 to 10,195.

    Bonds were sharply lower with the Sept long T-bond down slightly over a point to 103.25 to yield 5.47%. Sept. 10 year T-note down 18 ticks to 108.11 to yield 4.70%. Sept. muni futures down 23 ticks to 104.26 (my guess is that the falling dollar is beginning to hurt bonds).

    August gold was down 2.40 to 277.50. Sept. silver was down 8 to 5.03. October platinum was down 4.50 to 522.40. Sept. palladium was up 4.00 to 322.50.

    The Gold/Dollar Index ratio was down .17 to 302.80.

    XAU was down .87 to 71.88. HUI was down 2.80 to 129.71.

    NEM was down .52, PDG was down .23, ABX was unchanged, AU was down .25, HL was down .12.

    Gold and the shares still consolidating, going nowhere or sliding for the moment.

    STOCKS -- My Most Active Stock Index hit a new bear market low -- down 3 to 267.

    The 15 most active stocks on the NYSE were PFE down .23, LU up .01, GE down .70, TYC down 1.67, C down .74, Q up .15, PHA up .15, AOL down .46 to 12.61, HD up .54, EMC down .10, XOM down .55, WYE down 3.15, MOT up .66, FBF down 2.90, TXN up .46.

    A few more -- LOW down 3.40, MRK down 1.63, JNJ up 1.10, DUK down 1.44, GM down 2.08 (important), AIG down 2.08, PG down 1.05, DIS down .33, FD down .59, COST down 2.39, KSS down 2.21 (retail fading), MAY down .95, TIF down .62, TXU down .35, AEP down .95, IBM down 1.99.

    McClellan Osc. a minus 173 and this market is almost as oversold as it was at the September low. Damnedest thing I've ever seen, and still no panic 90% down days. Again I warn you -- this market is a spring that's wound up tightly and it could do anything -- in a big way. Best to be sitting with a lot of cash or at least to be neutral.

    CONCLUSION -- I thought the most significant action today was the big 3.44 point drop in WMT. WMT is a KEY stock -- WMT IS the retail business.

    The second significant item was the across-the-board drop in the home-building stocks from KBH down 3.14 to PHM down 2.19 to LEN down 2.84 to CTX down 2.27. Is the home-building boom over? The stocks seems to say it is, and I never argue with Wall Street.

    Greenie spoke again today, and the way the Senators bowed and scraped in front of the Maestro, I thought, was disgusting. I mean what has the Maestro ever done for you and me. Oh, yeah, I remember, he's whittled away the purchasing power of our Federal Reserve Notes (some call them "dollars").

    For some strange reason, the market rallied while Greenie was speaking, but towards the close of the session all remembrances of the Maestro's words were forgotten and the market resumed its downward trend.

    The Green man complained (and rightfully so) about the non-expensing of options. He also said encouraging words about the economy and his pet-love -- productivity. With the world over-producing almost everything, I wondered whether productivity was such a great thing. Yeah, I remember, productivity allows us to produce more while costing the manufacturers less.

    In bad times, as I remember, governments want its workers to produce less while working more hours. Or else, as in Europe, they want their workers to work fewer hours and just spread the work around. Aw economics, it's very mysterious. And damn it, it never seems to correlate with what the stock market is doing -- which may be Greenspan's undoing.

    FLASH --After the market closed, mighty INTEL announced that it had missed earnings est., was going to have job cuts and will reduce its capital expenditures. I just don't think the market tomorrow will take kindly to this announcement, which in essence means that Intel sees no improvement at all coming up. Repeat after me, "The second half will be better." Yeah, right.

    Well, tomorrow is another day (isn't that one of the world's dumbest expressions?).

    Your friend struggling (as always) with the trend,


    This is really mean. They turned the debt clock back on in New York. This is the clock situated right off Times Square (so everyone can see it) that shows second to second,minute to minute, what the US national debt is. OK, so what's the clock saying -- it's so horrible that I'm not even going to tell you, so there..

    But I can tell you this. The Bushies have done a sort of about-face on the surplus story. Seems there ain't going to be any surplus. Instead, we're going to have a $165 billion deficit. Ah well, c'est la vie. I never believed in that surplus baloney anyway.

    The article below appeared on CBS MarketWatch, and a few of my subscribers were kind enough to send it to me. Anyway, blushingly I put it on this site for my subscribers to see. But don't you dare refer to me as the current guru. You know what I've always said about gurus -- here today and gone tomorrow. And I wanna be here tomorrow. So don't guru me.

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