Richard Russell has had enough of this bull market
Yesterday Richard Russell, of the “Dow Theory Letters”, wrote he was going to stay on the sidelines. While he acknowledges that according to strict Dow Theory the market is bullish, poor valuations prompted him to say “enough” and kiss good bye to stocks.
A future post in this Dow Theory blog will deal with the issue of valuations. As an appetizer, I’d like to say two things:
a) I am skeptical as to valuations as a market timing device. Even when one is in possession of the right yardstick in order to appraise value (which is not evident). Please mind that I consider most yardsticks of value as flawed.
b) Valuations are not carved in stone. As the economy progresses, yields tend to diminish. Thus, 3% was a meager yield given the capital per capita in 1920s; however, given the current capital per capita, 3% may be a generous yield. Thus, the typical 3% yardstick may not be as useful as many suggest it to be. On the other hand, should massive capital destruction occur, yields would tend to increase. The Austrian school of Economics provides valuable insights as to the relationship between interests rates (time preference) and the total capital stock of one country.
Of course, Russell may be right. However, being right is not the same as being disciplined. And when it comes to investing, I am very leery as to bending the rules based on gut feeling, no matter how good the investor’s gut; especially when our rules are the Dow Theory rules which: (a) have a+115 years track record; (b) make lots of rational and aprioristic sense.
The SPY, Industrials and Transports closed down.
Today’s volume was higher than yesterday’s. Since stocks closed down, expanding volume has a bearish connotation. Volume seems to suggest some degree of short term bearishness.
Gold and Silver
SLV and GLD closed down. The primary trend is bearish, as explained here and reconfirmed bearish here. The secondary trend is bullish (secondary reaction against the primary bearish trend), as explained here.
SIL closed up, and GDX closed down.
The secondary trend for GDX and SIL is bullish, as explained here.
Here you have the figures for the SPY, which represents the only market with a suggested open long position.
|DOW THEORY PRIMARY TREND MONITOR SPY|
|Bull market started||06/24/2013||157.06|
|Bull market signaled||07/18/2013||168.87|
|Current stop level: Bear mkt low||157.06|
|Unrlzd gain %||Tot advance since start bull mkt||Max Pot Loss %|
The Dow Theorist