the dow~richard russell comments

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    March 22, 2004 -- First, A Few Perceptions -- The cover of the current Economist magazine shows four playing cards. The cards are labeled George W . Bush, Tony Blair, John Howard (Australia's Prime Minister) and Jose Aznar (Spain's Prime Minister). There's a big red cross slashed over Aznar's face. The cover's headline reads, "One Down, Three To Go?"

    The meaning of the cover -- If you backed the US on Iraq, you may be looking for a new job come next election.

    The Spanish people voted heavily against Spain sending troops to Iraq. Aznar did it anyway. Then came the explosion in Madrid -- 200 dead and 1000 injured. Three days before the election. Result -- Aznar is gone. Quote from Spain's new Prime Minister -- "Mr. Blair and Mr. Bush must to some reflection and self-criticism... You can't organize a war with lies." Last week Poland's President spoke out, "Iraq without Saddam is a truly better Iraq (but) We were misled with the information on the weapons of mass destruction."

    Perception -- The world is turning against the US, the Bush administration and the US takeover of Iraq. The perception is that Bush had personal reasons for attacking Saddam and invading Iraq. Invading Iraq was on Bush's mind from day-one. There were no WMDs in Iraq, and Iraq was not allied with Al Qaeda.

    Perception -- The "job-loss" recovery and the nonsense coming out of the government is beginning to anger the US public. It's becoming almost fashionable to laugh at the government's "revised" statistics and bullish news releases.

    Perception -- The US press, which up to now has been very timid and fearful of attacking the administration on Iraq, is becoming bolder now. I read an increasing amount of material attacking the administration on its spending and on its handling of Iraq.

    Perception -- People seem to have just a hazy idea of who Kerry is. The coming election will be based mainly on -- "Are you for or against Bush?"

    Perception -- Bush is in increasing political trouble. My old friend, Elliot Janeway (former business editor of Time magazine) once told me, "Dick, when the President is in trouble, the economy is in trouble."

    Note -- the "perceptions" above are NOT my opinions, they are my unemotional view of what people are thinking in the US and around the world.

    All right, let's turn to mister market, better known as where people are putting their money -- and, of course, where the "experts" are putting "other people's money."

    Below we see a daily chart of the D-J Industrial Average.The Dow was overbought back in December, as you can see in the shaded portion of RSI at the top of the chart. Despite this, the Dow headed higher, even though MACD bearishly headed lower. On the way, the Dow broke below both its 50-day moving average and its rising trendline.

    Next, we have the Transportation Average, which failed by a wide margin to confirm the new highs in the Dow. With MACD "scraping the bottom," we see that the Transports are now oversold.

    What I'm most interested in today is whether the Dow closes today at a new low for the move, thereby confirming Friday's new low in the Transports. A new low would entail the Dow closing below 10102.89.

    Question -- Russell, I note in your weekend site that you said that a number of items that normally appear prior to a top have been missing. For instance, prior to important tops the advance-decline ratio tends to top out well before the big stock averages. And the same is true of the Utility Average, but both of these have advanced to new highs very recently -- Utilities hit a new high on March 17. Therefore, have we really had any distribution over the last month or so?

    Answer -- The main distribution took place at the 1999-2000 top. It's already happened. Big, sophisticated, value-savvy money exited this market at or near the bull market highs of 1999-2000, and they've been unloading ever since.

    The bear market rally that started in September 2002 was mainly traders and speculators who jumped in as "momentum traders." They weren't buying values, they were buying the Fed's low interest rates and the Fed-created liquidity.

    The great investors, the investors who know and buy values are largely low on stock inventory or entirely OUT of this market. I'm talking about Sir John Templeton, Soros, Buffett, Bill Gross. And I'm talking, I hope, about my own sophisticated subscribers.

    Question -- Shouldn't we be shorting the Diamonds or the Spyders or doing some kind of shorting here?

    Answer -- I've answered this question many times before, but here goes again. My experience tells me that the great majority of nonprofessionals tend to lose money shorting -- even in a bear market. Shorting entails timing and skillful trading. The shorter should be sitting in front of his computer while the market is open. The shorter faces unlimited losses if he's caught, he pays out dividends instead of collecting them, and he does not collect long-term gains as far as taxes are concerned.

    Also, if you're in cash during a market collapse, you are short in a way since the lower the market goes, the more stocks you are able to buy with your cash. I'm not saying that you can't make money on the short side. I'm simply saying that in my experience nonprofessionals tend to lose more than they make if they pursue shorting. I say that from experience. Let me put it this way, if you're out of the market during a bear decline, you're way ahead of the game. Not to lose money in a bear market is a fine accomplishment. That's what I wish for all my subscribers.

    Question -- For the sake of argument, what would it mean if the Dow closes below 10000?

    Answer -- I believe a close below 10000 would have psychological implications. The whole world watches the Dow. If the Dow were to close below 10000 I think that would be like an alarm clock ringing. People would know that there is "something wrong."

    If the US consumer and retail public starts thinking that something is wrong, they are apt to cut back on their buying and their borrowing. In a bear market one negative sets off the next negative. It's the domino effect.

    Question -- You say that Dow 10000 is an important "sentiment" number. Won't the Fed come in and try to hold the Dow above 10000?

    Answer -- I don't think the Fed will interfere with the market. But I do believe one or more of the big outfits like Merrill or Morgan Stanley or Goldman could come in, say near the close, and buy a load of S&P futures in an effort to hold the market and particularly the Dow above 10000. After all, it's to their interest, and a rally above 10000 would allow them and their customers to unload more stocks.

    In the end, manipulation simply buys time. The primary trend can't be manipulated away, it can only be held back. Ultimately the bear will have his way, and ultimately stocks will decline to the point where they once again represent "great values."

    We aren't anywhere near that yet. And the more manipulation that is introduced into this market, the worse the final bear market decline -- and the more extreme the values as stocks sink to the ultimate bear market lows.

    Gold -- The chart below was created over the weekend and therefore does not show today's close for gold. Here we see RSI holding above 50, and we also see gold in a bullish "head-and-shoulders" bottom pattern.

    Note that gold has held above the blue bullish trendline, and more recently gold has risen above a bearish short declining trendline. April gold is also above its 50-day moving average which stands today at 406.60. As I write this morning, April gold is trading just above its preceding peak, which was the February 17 peak of 416.50. I want to see whether gold actually closes above 416.50.

    I've been saying that I believe we've seen the bottom for gold, but gold may need some backing-and-filling before moving higher. I don't get the feeling that gold and the gold shares are in any particular hurry to head north. I do believe that the primary trend of gold is bullish, and I believe it's due to remains bullish for many months, possibly even many years to come. As far as I'm concerned, I believe gold and the gold shares continue to be in the accumulation phase.

    TODAY'S MARKET ACTION -- A weird one -- market still in free-fall but where was the volume? I thought breadth was awful, even though volume was about the same as Friday's total. Anything can happen in the market, of course, but I'd expect people to "throw 'em in" on high volume before this decline had exhausted itself. Ah, these bear markets declines are tricky.

    My PTI was down 6 to 5385 while the moving average was 5399. MA has bearishly turned down. The PTI is now fully in its bear mode.

    The Dow was down 121.85 to 10064.75. The Dow today confirmed the new low in the Transportation Average which was recorded Friday. Today 29 of the 30 Dow stocks were down and only MCD was up -- up .25 to 28.35. Have a hamburger.

    No Dow stock dropped as much as 2 points today. Today's was an equal-opportunity decline, every stock giving up a little.

    May crude was down .57 to 37.05.

    Transports were down 36.03 to 2750.80.

    Utilities were down 3.03 to 276.12.

    There were 752 advances and 2548 declines. Down volume was a monster 91.8% of up + down volume. This hints of panic action and opens the way or at least allows for a further panic decline. It doesn't have to happen, but the door is open.

    There were 71 new highs and 28 new lows. I would be surprised if we didn't see new lows over new highs coming up. My High-Low Index was up 43 to 47965.

    Total NYSE volume was 1.44 billion shares.

    S&P was down 14.30 to 1095.91.

    Nasdaq was down 30.58 to 1909.91 on 1.96 billion shares, a "distribution day" since volume increased over the previous session.

    My Big Money Breadth Index was down 10 to a new low of 720 as the big money says "Adios" to this market.

    June Dollar Index was down .34 to 88.20. June euro was u .56 to 123.07. June yen was up .02 to 93.91.

    German DAX was down 89 to 3729. June Nikkei was down 210 to 11120. When the US get sick, the rest of the world gets "a little sick."

    Bonds were higher as money rushes to safety and the hell with the yield. June long T-bond was up 25 ticks to 115.22 to yield 4.67%. June bellwether 10 year T-note was up 16 ticks to 116.02 to yield 3.72%. By the way, when I say "cash" I mean T-bills or T-notes anywhere up to three years out.

    April gold was u 4.90 to 417.60. May silver was up 6.5 to 7.62. April platinum was up 7.00 to 897.00. June palladium was up 12.90 to 290.90. Why didn't we have all our money in gold and palladium today? Who knew?

    Gold/Dollar Index ratio was up 7.35 to 473.

    One share of the Dow buys 24.10 ounces of gold, lowest since November 18.

    Gold advance-decline line was down a little -- down 5 to 1356,

    XAU gave a little, down .74 to 100.69. HUI was down 1.85 to 226.65.

    ABX was down .29, AEM down .01, Au down .27, GSS up .17, HL up .04, NEM up .21 to 44.59, PDG up .03, RANGY up .01, SSRI down .07.

    So far, so good. Nobody is throwing in their gold shares.

    STOCKS -- My Most Active Stock Index was down 9 to 397.

    The five most active stocks on the NYSE were -- dear old MSFT down .13 to 24.50, INTC down .26, JDS up .02, CSCO don .15, ORCL down .16.

    VIX was up 2.43 to 21.58. It was up more earlier, but settled down to 21.58 at the close. I didn't care for the VIX action -- it's too quick to back down.

    McClellan Oscillator was down 86 to minus 178 -- Oscillator is deep in negative territory and very oversold. It's enough to give a short-seller nightmares. But it still does NOT guarantee a bottom or a rally. I'll tell you something -- cash ain't trash, not in this market.

    CONCLUSION -- As I wouldn't be short, I wouldn't be long either. This is a market to watch and learn from. Although the top has been clear to those of us who follow the language of the market, I believe this decline has come "out of the blue sky" to most people. I hear CNBC blaming the decline on Al Qaeda or the Spanish disaster or Israel's killing of the Hamas chief or what have you. Others say it's just "one of those long-overdue corrections."

    Subscribers know what I think. I think it's the return of the bear, as the upward correction comes to an end. If so, the bear could make up for lost time. So far, that does seem to be what the bear has on his mind.

    This is the time to remember that truest of all Wall Street adages. It runs like this --

    "The market can do anything."
    See you guys and gals tomorrow --

    And a cheery "Welcome" to all you new subscribers.

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