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Richard Russell Comments

  1. Chuck

    12,278 Posts.
    2
    May 28, 2002 -- THE MOST RECENT DOW THEORY LETTER HAS BEEN POSTED TO OUR SITE TODAY.

    I want to again direct subscribers' attentions to our new Bulletin Board. Obviously, I don't begin to have the answers to all the questions that come to me daily. But it's the old story -- "everybody" knows more about a subject than any one person does. Therefore, when questions are posted on the Bulletin Board, you have 7,000 knowledgeable subscribers who can answer your questions. So please, check out our new Bulletin Board.

    On to the markets. When a bull market tops out, it does not mean that stocks have to head south immediately. What it does mean (classic Dow Theory) is that the market has discounted the best that can be seen ahead. This is a concept that few people seem to comprehend.

    A few years ago I listed a number of important indicators that had topped out. I called the list my "Top-Out Parade." I'm going to include that list again. Here it is --

    TOP OUT PARADE --

    Daily new highs on the NYSE topped out at 631 on October 3, 1997.

    The advance-decline ratio for the NYSE topped out on April 3, 1998 at 13.00.

    The Value Line (geometric) Average topped out on April 22, 1998 at 508.39.

    The Morgan Stanley Cyclical Index (index of cyclical stocks) topped out on May 10, 1999 at 619.09.

    The D-J Transportation Average topped out on May 12, 1999, at 3783.50.

    The D-J Industrial Average topped out on Jan. 14, 2000 at 11722.98.

    NYSE Margin accounts (the level) topped out in March at $278.5 billion.

    The Russell 2000 Average (lower priced stocks) topped out on March 9, 2000 at 606.12.

    The Nasdaq Composite topped out on March 10, 2000 at 5048.62

    The Amex Index topped out on March 23, 2000 at 1036.40.

    The Wilshire 5000 topped out on March 24, 2000 at 14751.64.

    The S&P topped out on March 24, 2000 at 1527.46.

    The NYSE Composite Average (all NYSE stocks) may have topped out on Sept 1, 2000, at 677.58.

    The D-J Utility Average topped out on December 26, 2000, at 416.11.

    The NYSE Financial Average (banks, S&Ls, brokers, loan companies) topped out on January 3, 2001 at 657.52.

    I haven't checked lately, but to my knowledge not one of these averages and indicators have been surpassed since the dates I've indicated above.

    Thus, the important indicators have "said" that the best that can be seen ahead has already been discounted.

    When the best has been discounted by the market, there's only one way for the market to go. That way is down. The "down" may not occur in a week or a month or even in a year or two. But down is the overall direction, and as I've often said, "In a bear market values deteriorate through time."

    In today's New York Times, financial columnist Paul Krugman headlines his column, "Where's The Boom? Writes Krugman, "We're no longer hearing the triumphant predictions of roaring recovery that were so prevalent back in March. . . The funny thing is that there hasn't been much negative economic news, mostly an absence of good news that we were told to expect. Above all, business sentiment, whose plunge led us into this slump, has yet to show any serious signs of life."

    And then Krugman hits on a critical factor. "There is, however, one more wild card, which is also a key contrast to the Reagan years -- the attitude of foreign investors. During the Reagan recovery, overseas investors, who had previously been down on America, flocked in. This time we start from a very different position. Foreigner who have been wildly enthusiastic about America for years -- an attitude we have come to count on, because we need $1.2 billion in capital inflows every day to cover our foreign-trade deficit. What happens as they lose their enthusiasm?"

    "On of the largely unreported stories of the last few months -- in the US media anyway -- is the precipitous decline of foreign confidence in American leadership and institutions. . . Foreign purchases of US stocks, foreign acquisitions of US companies, are way off."

    Russell Comment -- You've got that right, Mr. Krugman. And meanwhile, the US dollar sinks lower. At today's opening, the dollar was just slightly above its low of May 22, at which time the June Dollar Index closed at 112.46.

    A few minutes after the opening with June gold up .80 to 321.50, the Gold/Dollar Index ratio climbed 1.43 to 285.51, just a fraction off its high. The higher this ratio, the more bullish it is for gold.

    As for gold, what's happening in the world of gold is both fascinating and most unusual. I believe that gold is in a primary bull market. In view of this, it's extraordinary to see what's happening in the Commitment of Traders area. The commercials (gold banks, mines, brokers) began to short the futures back in December, 2001. Since then the commercials have steadily increased their futures-shorts total -- this even while gold was rising.

    In April 2002 commercials held a total of 112,332 futures short. That was a very large short position. But last week the total had surged to a new high of 133,932 futures sold short. Evidently, the short-sellers believe that gold can't go any higher, and that the way to make money is to fight the rise and increase their huge short totals.

    If I'm correct, if this is a primary bull market in gold (and I believe I am correct) then the most dangerous thing a person can do is to put out shorts AGAINST the primary trend of a market.

    Thus, I believe that there is now a very good chance that the gold shorts are trapped -- they are positioned on the wrong side of the market. I might add that it is very unusual for the commercials to be on the wrong side of the primary trend of any market. But the commercials can make mistakes, they're not infallible.

    After all, it's been so long since we've had a primary bull market in gold that almost nobody, not even the commercials, can believe that it's happening.

    To make money, or to extricate themselves from this short squeeze, the commercials now need a substantial drop in the price of gold. It will be interesting to see whether they get it. So watch out for rumors, propaganda, any kind of pressure from the commercials -- all calculated to knock gold down, so tha the commercials can extricate themselves from their precarious and costly situation.

    The battle is to keep June gold from "breaking out" above 325 -- and hopefully (on the part of the commercials) to knock gold down substantially below June 320.

    THE BATTLE BY THE COMMERCIALS TO KNOCK GOLD DOWN IS ON. I DON'T THINK THEY CAN DO IT. THE PRIMARY TREND OF GOLD IS MORE POWERFUL THAN THE COMMERCIALS.

    Bear Market Conditions For The Stock Market -- My PTI broke below its 89-day moving average in April, and it's been below its moving average ever since. This is the longest period that the PTI has been below its moving average in the last few years. Thus, the bear market is beginning to bite.

    Lowry's Buying Power has dropped to a 2 1/2 month low on Friday while Selling Pressure is just off a three month high. The figures won't look any better after today's close.

    The McClellan Oscillator remains negative.

    All three of these considerations are bearish for the market.

    TODAY'S MARKET ACTION -- My PTI was down 7 to 5295 with the moving average at 5316. The PTI remains bearish.

    The Dow was down 122.69 to close at 9981.58, just 5 points above that fateful 9978 or 50% level. How many times does the bear have to take the Dow below 9978 before this market experiences "the kiss of death?"

    The Dow is now well below its 50-day MA and possibly heading for its 200-day MA which stands at 9895.

    There was one Dow mover today, PG down 2.25 to 88.01.

    July crude was down .61 to 25.27. With potential wars everywhere, even crude can't hold up.

    Transports were down 15.54 to 2728.13.

    Utilities were down 1.70 to 297.81.

    There were 1392 advances and 1795 declines.

    There were 82 new highs and 29 new lows.

    NYSE volume was 960 million shares -- as the bear dug his claws in and as volume begins to ebb (meaning that an increasing number of beaten investors are saying "adios" to the stock market).

    S&P was down 9.27 to 1074.55.

    Nasdaq was down 9.34 to 1652.15 on a low 1.29 billion shares, second lowest volume of the year.

    My Big Money Breadth Index was down a full 10 to 798, a new bear market low. This is the big money leaving the market. You want to be right in the stock market? You do? Then FOLLOW THE MONEY, THE BIG MONEY.

    June Dollar Index was down .90 to a new low for the move at 112.20. June euro was up .83 to 92.85. June yen was up .13 to 80.45. June Swissie was up .40 to 63.58.

    June Nikkei was down 115 to 11,930.

    Bonds did little -- the June long T-bond was down 1 tick to 101.16 to yield 5.67%. June 10 year T-note was up 2 ticks to 106.00 to yield 5.13%. June muni futures were down 6 ticks to 103.26.

    June gold, after opening lower (as usual) closed up 3.40 to 324.10. The Gold/Dollar Index closed at a new high, up 4.73 to 288.81 (the higher this ratio, the more bullish for gold).

    July silver was up a penny to 4.88. July platinum was up .75 to 545.00. June palladium was up 4.80 to 355.80.

    XAU closed up 2.81 to a new high of 88.65. NEM was up 1.34, PDG down .03, AEM up .30, AU up 1.63, ABX up .40. Everything I read is saying that gold is overbought and "hold off because gold should be correcting." But I bought more GSRSF today.

    GLG closed at 9.48, GG at 23.21, DROOY at 5.21, HGMCY at 18.87, MDG at 19.17, BGO at 1.74, KGC at 2.70, GFI at 16.10, GSRSF at 2.08, CBJ at 1.61.

    Any subscribers have opinions on TVX? When the public finally comes in for gold, they'll be buying the cheapies.

    McClellan Osc. was still very negative at minus 82.

    STOCKS -- My Most Active Index was down 4 today to 414 (the low was 397 recorded on May 10).

    The 15 most active on the NYSE were HD down 1.88, TYC down 1.50, T down .38, GE down .55, DYN up .39, C down .84, PFE down .70, AOL down .19, EMC up .06, LU up .18, XOM down .39, HPQ up .01, NOK up .04, MOT down .18, AWE unchanged.

    More -- IBM down 1.02, MER down .65, MWD down 1.27, GS down 1.29, AMZN down .41, GM down .99, KBH down .44, MMM down 1.17, MRK down .45, TXU down 1.75, AEP up .12, CSCO down .10, AA down .18, JNJ down .19, DELL down .37, GE down .55, MSFT down .94.

    CONCLUSION -- It's a bear market. I concluded that back in September 1999 based on my interpretation of the Dow Theory.

    It's still my conclusion. It's no longer a question of whether stocks will go down -- the question is HOW they go down, and HOW FAR they go down. The Dow Theory tells us that "Neither the duration nor the extent of a primary movement can be predicted in advance."

    Who back in 1980 thought the Dow would climb to over 11,000?

    Who, here in 2002, would dare to predict where this bear market might end?

    Which of us dares to predict where the bull market in gold will take the yellow metal?

    See you all tomorrow,

    The R man.





















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