Russell on last nights gold movt

  1. 470 Posts.
    November 7, 2002 -- The market is opening down today, which is fine with me because we haven't yet had a chance to gauge the real strength of this rally. True, we've had a number of "distribution days" -- these are days when the market declines of rising volume (volume higher than the day before). True, we have had NO big internal volume days -- these are days when upside volume runs at 90% of upside + downside volume.

    My "take" on the picture has been that this rally has been mostly a matter of large speculators playing the upside correction plus short covering, plus a bit of retail buying. But basically, very little of the kinds of buying I like -- strong institutional buying.

    At any rate, as I've said previously, every advance ultimately gives way to a decline -- BUT IT'S WHAT HAPPENS AFTER THE DECLINE THAT'S IMPORTANT. If the Dow and the Transports climb to new recovery highs AFTER the decline, then we have a strong "all clear" signal. But, following the decline, if one or both Averages fail to recovery to new highs, then we know that "something is wrong."

    So the aftermath of today's sell-off will provide us with a coming good test of the strength or weakness of this bear market correction.

    I felt that yesterday half-point Fed cut in the rates was almost a desperation move. It was a move which the Fed calculates could shock the market and the economy (mostly the market) into moving higher. So far, the shock has been that the market wasn't the least bit interested. It's often said that the stock market's initial reaction to a surprise is the wrong reaction, and today could be a more measured, considered reaction by the market to yesterday's Fed's action.

    Bonds -- The general opinion is that bonds have topped out, and I really felt the same way when the 30 year T-bond broke badly off its October 8 high. The bond gapped down, then continued lower to an October 23 low closing on the December futures to 107.20.

    But since then, the bonds have recovered and as I write the Dec. long T-bond has actually crossed above its 50-day moving average and turned bullish again. The 200-day MA for this bonds stands at 103.20 and is rising. Far above the 200-day MA is the rising 50-day MA, which stands at 111.10. As I said, the bond as I write is above both MAs and is in its bullish mode.

    Dollar -- After hitting a closing high on Jan. 21 of 120.18, the Dollar Index plunged to a July 19 closing low of 105.03. A rally followed, which I termed a bearish "rising wedge" pattern. On October 29 the Dec. Dollar Index broke below its 50-day MA and over the last few days the Dec. Dollar Index broke below its September low. This leaves only one important level under the Dec. Dollar Index -- that low is the July 19 low of 105.03.

    The 105.03 level is critical.

    If the Dec. Dollar Index breaks below 105.03, I believe we could see another major leg down in the Dollar Index.

    Gold and Silver -- The gold situation is quite interesting here. This morning Dec. gold opened up 2.50 moving to a high of 321.00. But surprise -- a few minutes later in came the sellers, and Dec. gold dropped back just below 320 again. It was almost too cute, too automatic, too predictable.

    It's obvious that someone, some group, somebody, does NOT want gold above 320. Who the hell are they? Is it the Fed that wants to cover up its frantic attempts to reinflate. Is it the gold mining companies that are still hedged and therefore don't want gold to rise until they can get rid of the hedges? Is it the Commercials who are net short? Just who are they?

    And does it matter? Look, I believe gold and gold shares are in the early accumulation phase of a bull market. The public doesn't want gold. The hedge funds aren't interested yet. The mutual funds don't have any gold shares and won't be interested in gold shares until gold hits the headlines.

    So my position is to tell subscribers -- "Use this area to accumulate whatever gold and whatever gold shares you want to hold. Take this obvious gold manipulation as a chance to buy gold at what I consider "dirt cheap" levels.

    What about silver? Punching in the gold/silver ratio chart on my computer, I see that gold outperformed silver from early January 2001 to October 10 of 2002. But since October 10 silver has actually outperformed gold.

    I believe that as the bull market in gold continues and intensifies, silver will tend to go along with gold.

    There are two silver stocks I'm looking at. One is Hecla (HL) which was a high at 5.50 last June. The stock is selling at 4.00 now, and is in its bullish mode in that it is above its 50-day MA (3.78) and the 5-day MA in turn is above its 200-day MA (3.17).

    The other stock I'm looking at is Coer d'Alene Mines (CD), which was as high as 2.50 last July. The stock is above its rising 200-day MA (1.51) but just below its declining 50-day MA (1.62).

    I bought both CDE and HL today. I'll treat them both like "perpetual warrants." In other words, I'll put 'em away for the future and at these prices I won't worry about them.

    Big Picture -- I want to keep reminding my subscribers of the big picture. The big picture is that the primary trend of both the stock market and the economy is bearish. The big picture, in my opinion, is that we are in the early part of what will go down as one of the worst bear markets in US history.

    Despite all the bullish and rosy nonsense you hear from the economists and the strategists and the business reporters, the business picture continue to turn just plain BAD.

    As the business picture deteriorates, we're going to see US corporations cut back drastically on all expenses including employees. As unemployment increases, I expect consumer confidence to plunge. This in turn is going to start a trend towards frugality -- and towards saving.

    When that happens, the public will begin to take this bear market seriously, something I don't think has occurred since the bear market started.
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