Market Comments

By: Richard Russell | Wed, Apr 16, 2003
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Can you make consistent profits in the markets during a primary bear market? Every day I get flooded with ideas and offers and promotions for making money in the stock market. And the option market. And the bond market. And every other kind of market.

And I sit on my fanny and I think -- the primary trend of the market is down. Ultimately stocks will sell at bargain prices. It may take a year three years, five years or even more. So is it possible while we're waiting for the bottom to "beat the bear" and come out ahead? Maybe, but few people can do it. The dismal fact is that few people make money in a bull market, so how are they going to come out ahead in a bear market? The answer is that they won't come out ahead.

I note, however, that the financial services industry is still going "great guns" just as though we were still in a bull market. Of course, the chart services are finished, since you can get all the charts you want on the Internet. And, as a matter of fact, you can get an incredible mass of information on the Internet.

Still, the financial services businesses continues, and every day, every week and every month followers of various market techniques and methods and promotions try, and try again -- to beat the bear.

"So Russell, what are you saying? You're in the financial services business, and now you're talking against your own industry?"

"I guess I am, but I'll tell you something. I'll be 79 in three months, and I think I'm getting too old to be a good tout. I think I feel better about myself when I just stick to the truth as I see it. I trade my stuff with many other services, and some of the smartest people on the planet subscribe to my output (where all can they get all this talk six days a week?). I like to hear from very smart people, which is another "gift" that comes from what I'm doing.

I don't have any secrets in this business, and the best part of my business is that I don't have to deal with any office politics. The only entity I struggle with is the market, and I'd rather fight the market than a stubborn CEO and sixteen vice-presidents who don't want me to succeed.

I say what believe, and maybe that's a novelty in the BS financial services business, because subscriptions here are now just 200 short of 10,000. That's the best it's been in the 45 years I've been writing Dow Theory Letters. People ask me, "Russell, why don't you take a vacation, you crazy workaholic. Go to Hawaii, fly to Barcelona, take a cruise to Morocco, have some fun, you dumb Dodo, live it up a little."

I tell them that I have fun writing about the markets, and actually writing about any other thing that comes to my mind. They say that if you love what you do, you'll never work a day in your life.

I've done real, honest work. I loaded trucks for $18.75 a week (and that was a union job) back in 1940. And I delivered telegrams for Postal Telegraph for a dollar a day (in 1939) so I know what it is to work at jobs you aren't crazy about.

I thank God that I'm doing what I love to do now, so why do I have to stop doing it and trot off to Hawaii? I went to Maui once and was bored to death, so now I just stay in La Jolla and do what I like to do. It's called writing, and oh yes, what I write about mostly these day is the markets.

I've been saying that the most important "trend" right now is the collapse in the urge to sell stocks. Those who hold stocks today are holding onto their stocks. This has resulted in Lowry's Selling Pressure dropping to a ten-month low. The desire to buy stocks is on the weak side as well, and you can see it in the low volume on days when the market is higher. Yeah, but that can change as the market creeps higher.

So at this point I'd call the most of the markets in a state of "hopeful limbo." Investors don't want to sell, and they're not wild about buying, at least not yet.

I've talked until I'm blue in the face about those March 21 peaks of Dow 8521.97 and Transports 2263.49. If BOTH Averages can better those two peaks the secondary trend of the market will have turned bullish, and that would be very good news for holders of stocks.

Interestingly, as I write the D-J Transportation Average is at 2271, above its March 21 closing high. But at the same time the D-J Industrial Average is at 8330, around 185 points below its own March 21 closing high. If the market were to close here we'd have a non-confirmation, in that the Dow has not confirmed the better action of the Transports.

So it should be particularly interesting to see who the market closes today.

The bonds are also interesting. The Commercials are taking a bullish position on bonds, which seems counter-intuitive, since on the face of it the bonds appear to have every reasons to head south in the face of the huge and growing US deficits. But looking at a chart of the long T-bond, this bond has had many opportunities to break down -- but that hasn't happened. And I'd have to call that "impressive."

What else is going on? How about commodities. The Goldman-Sachs Spot Commodity Index and the Reuters/CRB Index rallied to highs in late-February and then dived down to touch their 200-day moving average in late-March. Since then they've done nothing -- just crept sideway right up to today.

How about gold? I continue to believe that gold is going through basing action, and it's been very laborious action so far. June gold (the active contract is June) hit a closing low of 322.20 on April 7. Since then it's been trying climb out of that low area. I note that gold closed higher than its opening on seven of the last eight days, and that's a mild plus suggesting quiet accumulation.

On my MACD chart gold is in an oversold area, and the MACD studies are beginning to turn bullish. The stochastics are also turning positive.

The 200-day moving average for June gold stands at 331.18, and that would be the first upside target for the yellow metal.

HUI, the unhedged gold average, is looking quite strong, and has formed an ascending triangle just under its 200-day MA. The 200-day MA for HUI stands at 126.10, while HUI as I write is trading at 124.33. A close by HUI above 126.10 would be very constructive for gold. Let's see if it happens.

So there are an unusual number of "ifs" in this market, including "if the Dow can better its March 21 high, and if gold can better 331 and if bonds can hold above their recent lows. And let's not forget the Dollar Index, which has dropped below its 200-day moving average, so if the Dollar can hold --- ?"

As far as the US economy is concerned, there are a carload of stories, but one that came out today was that industrial production was down .5 percent in March. Furthermore, plant use in the US is down to 74.8%. Inventories are rising, and more stuff is being piled up than is being sold. But that doesn't seem to be worrying the market. After all, the stores can offer the excess stuff at half-price with nothing down and no interest to be paid for the next three years.

Or at worst, the Fed could pay you to take the stuff, no charge, and cart it away to pile it up in your garage for maybe future use.

Now, let's go back to the question of whether anyone but a professional can make real money during a primary bear market. I say that nine out of ten can't. So what does the poor devil who has deal with this bear market do?

What are the seven wonders of the modern world? Here's a list -- The Channel Tunnel, Big Ben Clock in London, The CN Tower in Toronto, the Eiffel Tower, The Empire State Building, The Gateway Arch in St. Louis, The Golden Gate Bridge.

Wait, there's an eighth wonder. It's called Compounding.

Compound with the safest investment vehicles you can find.

See what you're broker can come up with. He's charging you commission, damn it, so let him work for his money. Preferred stocks? Maybe. Utility stocks? Maybe. German bonds? Check 'em out. Ten year T-notes. Why not? AAA munis? See what he offers.

Warren Buffett uses compounding, and he's the second richest man in the US. Buffett compounds profitable companies.

You can't do that, but you can compound. So use it. Look at it this way, it's a lot better compounding boring vehicles at 4.5% than it is to lose your money in some fool-growth stocks selling at 30 times earnings.


Richard Russell

Author: Richard Russell

Richard Russell
Dow Theory Letters Inc.

Richrd Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business.

Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron's during the late-'50s through the '90s. Through Barron's and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-'66 bull market. And almost to the day he called the bottom of the great 1972-'74 bear market, and the beginning of the great bull market which started in December 1974.

The Letters, published every three weeks, cover the US stock market, foreign markets, bonds, precious metals, commodities, economics --plus Russell's widely-followed comments and observations and stock market philosophy.

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