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The DOW ~ Richard Russell comments

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    I thought last night in the US was important so here's Russell's take...

    April 25, 2002 -- The bear is a brute, the bear has no conscience, the bear is a sorcerer, the bear has no honor and no pity.

    For seven months, ever since the September lows, the bear has been luring investors and traders back into the stock market. "The recovery is coming," promises the bear, "No, the recovery is here," states the bear. "Stock will go higher, stocks are the place to be, stocks for the long haul -- buy stocks and be a patriot."

    Now we find investors loaded with three items -- houses, stocks and debt. The bear is licking his chops -- he's slowly moving back into the position he's wanted all along. Everybody's hopeful, everybody's bullish, everybody's listening to Wall Street BS -- everybody's sitting and watching as the stock market sinks and the great primary trend of the market asserts itself once again.

    Do you remember the 50% Principle?

    Do you remember Dow 9977?

    That 9977 was the halfway level between the Dow's bull market high of 11722 recorded on January 14, 2000, and the bear market low of 8235 recorded on September 21, 2001.

    The Dow has tried over and over to rally above 9977 and then hold above that level.

    But today the Dow again came down to make contact with that fateful level -- 9977.

    I'm writing this early portion of this report just half an hour after the opening of today's session. As I write the Dow is down 96 points and below the 9977 level. June gold has surged to the 308 level, the June Dollar Index is down 66 and below the critical 116.00 level, and yet I sense no panic, no increase in fear.

    As I've said so many times, the built-in optimism, the ingrained bullishness of US investors is truly amazing. Yet it is also understandable. Year after year since the early '80s the market has risen, and year after year the American public has been bombarded by the song of the bull. Eighteen years of bullish talk and eighteen years of profitable market action is not erased in a week or a month or even a year.

    As Charles Dow wrote a century ago, the one thing investors refuse to recognize is CHANGE. Yet the surest single phenomenon in the market is change.

    As things stand, investors are holding their stocks and waiting for the bubble to return. It promises to be a long wait -- perhaps even a generational wait. Return of the bubble? Get serious -- the bear market is still in its second phase. And very probably early in its second phase.

    Yesterday I wrote about the media's obsession with the obvious. Hour after hour on CNBC we hear about quarterly earnings, earnings expectations, corporate sales, Federal Reserve forecasts, the performance of various and sundry individual stocks, and the release of any number of lagging economic indicators.

    Little if any of this is calculated to help us in our quest for profits, equanimity or even survival in the investing process. In this business it's necessary to understand the language of the stock market. Quarterly expectations are not the language of the stock market. The Fed's grey book is not the language of the stock market. Arguments regarding whether we are or are not in a recession are not the language of the stock market.

    The language of the stock market is the action of the stock market itself.

    If you're sick, the doctor doesn't talk about the incidence of heart attacks in the Caucasian population. He doesn't talk about the cost of medical treatment at his local hospital. Hardly, he speaks the language of disease. He takes out his stethoscope and checks your vital signs, he examines you, he applies all his medical knowledge to you and what is right and what is wrong with you.

    The language of the stock market -- what we know is that the D-J Transports failed to confirm the Industrials in early-March and that marked the start of trouble. Since then my Big Money Breadth Index, my Index of the 15 most active NYSE stocks, my PTI, the daily upside and downside volume figures -- have all been issuing warning signals. And today we find the Dow again flirting with the 50% Principle.

    I'll repeat what I said yesterday. I believe the market is telling us that the best of the widely-advertised "recovery" has been discounted by the stock market.

    I believe that most of the good news that we've received this year is a reflection of a build-up in depleted inventories.

    Yesterday we heard that orders for durable goods in March were disappointing and that home sales actually fell 3.1% on the latest data.

    And sure enough -- yesterday Fed Governor William McDonough did his duty by announcing that rising productivity deserves a lot of credit for pulling the US out of recession. Thanks Willie, we needed that.

    This morning the June long T-bond gapped up 9 ticks to its highest level since March 1. Gold pushed gingerly above 307, and the Nasdaq, after six consecutive days down, struggled valiantly to hold to the plus side.

    I'll stop here and give up on my ravings -- at least until the round-up to be given after the market closes.

    TODAY'S MARKET ACTION -- After being down most of the day, the market came roaring (well, staggering) back to a barely plus condition.

    My PTI was up 2 to 5310 while its declining moving average was at 5328. PTI is in its bearish mode.

    The Dow ended up 4.63 to 10035.06. There were no movers in the Dow.

    June crude was up .35 to 26.73.

    Transports were up 51.69 to 2726.93.

    Utilities were down 4.19 to 305.99.

    There were 1655 advances and 1518 declines -- but upside volume was 702 million and downside volume was 800 million

    There were 152 new highs and 56 new lows.

    Total NYSE volume was 1.52 million shares.

    S&P was down 1.68 to 1091.30.

    Nasdaq was up .37 to 1713.71.

    My Big Money Breadth Index was up 1 to 830.

    June Dollar Index was down a big .86 to 115.70. On my weekly dollar chart, I've drawn the classic three fanlines rising from the October low. Today the third fanline was violated. This is a strong indication that the dollar has topped out.

    June euro was up .57 to 89.59. June yen was up .54 to 77.94.

    June Nikkei was down 25 to 11,620.

    Bonds firm with the 30 year T-bond up 2 ticks to 101.26 to yield 5.62%. June 10 year T-note up 4 ticks to 105.13 to yield 5.09%. June muni futures unch. at 103.23.

    For a major upside breakout, the June 30 year T-bond would have to close over 104.00.

    Gold pushed to a new closing high, but is still overbought. In bull markets an item can stay overbought for weeks, even months. June gold was up 3.80 to a new high for the move at 308.60. Next target is for gold to climb above its Feb. 7 high of 311.10.

    May silver up 5 to 4.62. July platinum up 1.50 to 551.60. June palladium down 4.00 to 367.00.

    XAU down .12 to 73.95 and treading water while its 200-day MA climbs. ABX up .31, AU up .02, PDG up .08, NEM down .43, AEM down .70.

    STOCKS -- DIA up .27, SPY up .13, QQQ down .06. SOX up 4.31.

    NYSE 15 most actives -- TYC down 5.15 to 20.75, AOL up .19, CPN down .89, LU up .07, DYN down 8.09 to 19.21, GE down .45, PFE up 1.08, NET down 4.86 to 18.89, EMC up .09, C down .55, HWP up .17, MER (being investigated) down 2.15 to 42.50, BMY down 1.11 to a five year low, TXN down .25.

    My Most Active Index down 3 to a bear market low of 452.

    More --AET up 5.93, GIS down 3.77, MWD down 48.13, DTE down 1.40, TXU down 1.53, AEP down 1.38, CSCO up .16, FNM down .70, GS down 2.26, MMM up 1.45, QCOM down .89, GE down .45, GM down 1.45, MSFT up .71, SRE up .39, WMT down .5, IBM up .21, JPM down .85.

    McClellan Oscillator still negative at minus 34 today.

    CONCLUSION -- Market struggling to keep its head above water -- and the Dow kicking and screaming and not wanting to look down below 10000. Are large interests trying to keep the Dow afloat? Who knows -- the market will do what it's supposed to do, it's always a question of when. I'd be richer than Gates if I could only know that mysterious -- when.

    After being down six days in a row, the Nasdaq could only tack on a fraction today. Not too impressive.

    Well, let's see what the gods of the market can come up with tomorrow.

    I'm tired right now -- today.


    The Saudi royal family wants above all to ensure their favored position as rulers of Saudi Arabia. Yet the royal family is being pressed between two forces.

    .On the one hand, the Saudi rulers want to please the US who have been both their protectors and their customers. On the other hand the Saudi royals are being forced to please their populace which is strongly anti-Israel and on the rampage. The Saudis are now in the position of begging or threatening (probably both) the US to force Israel to get out of the West Bank and the land taken over by Israel during the 1967 war.

    What are the Saudi princes to do? They are going to visit President Bush and plead, threaten, cajole. "Give it up on Israel" is what Bush will hear. And Bush (who's no genius) will wonder how he ever got into this mess.

    I listened to Larry Kudlow ("Lawrence of America") and wild Jimmy Cramer on CNBC last night. This is the best economic show on TV. These two guys are irreverent, interesting and well -- terrific. I really enjoy watching and listening to them. And does Cramer love the markets? He's as bad as I am.

    I've received about a dozen e-mails from people who tell me that a well-known Wall Street economic outfit proposes that we use a new Dow Theory geared to the "new economy."

    Here's the rationale behind the new Dow Theory. You see, information is now driving the manufacturing and service sectors -- and semiconductors (chips) lie at the core of information storage and transmission.

    Voila, we have a new Dow Theory for our "new economy." We'll let the SOX (semiconductors) stand for transportation and we'll let the Nasdaq replace the Dow Industrials.

    Do I think the new Dow Theory will work?

    Nah, first of all, what "new economy?" The last time I heard anyone talk seriously about "a new economy" -- it was Alan Greenspan, and you know where that landed him. It landed him babbling in bubble-land.

    I'm afraid it's still the same economy it's always been. New ideas, new inventions, new theories, but you still have to make the stuff and you still have to ship it out. Which is why the Dow Theory continues to work.

    Actually, I've seen a lot of so-called new economies in my lifetime. I saw the new radio economy prior to World War II, I saw the new auto economy of the '20s, I saw the new television economy after World War II, I saw the new youth economy of the '60s, I saw the new airline economy, I saw the new tech economy of the '80s and '90s, -- the fact is I've seen a lot of new economies, but if it's all the same to the new gurus, I'll stick with the D-J Industrials and the D-J Transports and the dusty old Dow Theory.

    Why do I stick with Dow Theory? Only one reason -- it works..

    I thought the article below from yesterday's Daily Reckoning was rather edifying (you can get the excellent Daily Reckoning on the Internet).

    - If Wall Street analysts' careers were traded like stocks, Merrill Lynch analyst Henry Blodget's career would have to be downgraded immediately to a "Sell." At best, it is a "Market Underperform."

    - That's because the New York Attorney General Eliot Spitzer has discovered incriminating internal e-mails from the superstar Internet analyst in which he trashed the very same stocks he was recommending in his "research" reports.

    - In one email, written on October 10, 2000, Blodget described the Internet company 24/7 Media as "a piece of shit," even though he was publicly recommending the stock as a "short-term accumulate and long-term accumulate."

    - In effect, Blodget seemed to have established a dual rating system - one for the gullible public and one for his buddies.

    - Back in the go-go days of October 2000, Blodget probably thought himself quite clever for encouraging investors to buy stock in a company that he privately knew to be a piece of you-know-what. But in the post-Enron days of April 2002, Blodget's behavior appears to some folks to have been more criminal than clever.

    - The news of Henry Blodget's scandalous emails broke a few days ago. But it came to light for the first time yesterday that the Justice Department has taken an interest in the troubling disparity between the public Henry and the private Henry.

    - Michael Chertoff, the head of the Department's criminal division, told Bloomberg News that criminal
    charges are possible if investigators find that research analysts tilted their "buy" and "hold" recommendations to help their firms win investment-banking business. Do we really need an investigation to answer that question?

    - Traditionally, the SEC would be the government agency responsible for investigating alleged wrongdoings by Wall Street analysts - not the New York Attorney General and certainly not the Justice Department.

    - But now that the government's big guns have strolled into the Corruption Corral, Henry Blodget's largest
    concern might no longer be whether his annual bonus will be $2 million or $5 million. Instead, he might find himself worrying about things like conjugal visits and getting enough clean pairs of socks.

    Check this e-mail below --


    I was amazed by the pain I read into Daniel's email on the lost of tech jobs in the U.S. Even so I believed it important to give you and your subscribers a first hand account of the dynamics involved.

    I have a web based application in development. A part owner in our company is "the leading provided of business information in the U.S." Basically I couldn't get the funding required to develop the software for our specialized application, so I had to attack costs.

    The biggest cost was the software development. I was in a corner and started looking hard at development WORLDWIDE. I ended up with a firm based in Utah headed by a very talented software pioneer/developer with a partner that has lived in the Ukraine for the past six years. On my behalf, they went and interviewed five software firms in an area of the Ukraine to develop a portion of our application. One of the company's had to back out of the bidding as the entire company was hired by Nestle.

    The price we secured was 20% of the best price we could get in the States and this price was 100% higher then the next best price from the second place Ukraine company. The company we selected has 125 programmers that are all Microsoft certified. All the contact people speak English and their emails to us all in acceptable English. We talked to a number of their prior U.S. clients which all said they came in on time and on budget. They have been under contract for a month and are doing an excellent job. The firm in Utah believes that if this developer was located in the U.S. they would be ranked among the top software developers stateside.

    I have been a subscriber on and off since 1972. Thank you, thank you, and thank you.
    (We are at $200,000 with the Ukraine company and still negotiating lower.)
    (name withheld)

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