Trends remain unchanged
Recently,
Richard Russell, of the Dow Theory Letters, considered by some as the dean of
the Dow Theorists has written:
“A primary bear market in the stock market and the US
economy began in 2007. The bear market in the US economy is continuing to this
day. But the Federal Reserve stepped in and manipulated the stock and bond
markets, eliminating the discounting functions of these markets. The recession
which started in 2007 continues to this day…The government and the Fed have
lied to us about inflation and the economy and employment. We've been living
under an unending stream of lies and propaganda. I think the cork is finally
bursting out of the bottle. The surging precious metals market is telling the
story. The next step will be the bottom falling out of the dollar. There is a
huge short position in silver on the COMEX. I expect these shorts will soon be
under pressure to cover. Investors holding large portfolios of stocks must now
be in a quandary.”
It really saddens me to see a man whose newsletter
includes the name “Dow Theory” to stray from what should be the core of his
analysis: The Dow Theory. It pains me even more to see that he used not to be
like this in the past (now becoming distant
past). He rightfully earned prestige within the Dow Theory fraternity because
he made very successful market calls in the past. All of them were based on the
strict application of the Dow Theory (either the “secular” or Schaefer’s flavor
or the “primary trend” or Rhea’s flavor). He had the ability to successfully apply
the Dow Theory and the courage of opinion (which is different of pride of
opinion) to stick to his judgment call in spite of the prevailing market mood.
I have read most of his newsletters published since the nineties' fifties, and
I can see a saddening evolution: From being a strict technician (and a very
good one), he has little by little succumbed to rants, politics and
fundamentally based market calls. While this kind of stuff will certainly
attract readership, as most investors (subconsciously) crave for excitement and
not profits, it certainly puts me off. There is a distinct correlation between
the amount of pure Dow Theory and performance. And the more Richard Russell has
strayed from the Dow Theory, the more his performance (difficult to monitor, as
he change of opinion every now and then) has suffered.
Maybe Russell is right (we can technically never know)
and we have been in a primary bear market since 2007 which has been manipulated
by the Fed. However, one thing is certain: the market has gone relentlessly up
since 2009 and the Dow Theory (any flavor whatsoever) clearly has shown the
existence of a primary bull market all of the time. What’s the point of
fighting the trend with a myriad of fundamental opinions? Eventually his dire
predictions (and I agree with them, as fundamentally I am pessimist, but I have
eyes to read the charts which, at least for the time being, prove my
fundamental instincts wrong) will be on target. However, in the meantime, his
bearish stance is costing money to his subscribers, whereas other Dow Theorists
like Schannep have contributed to their wellbeing with impressive performance.
As to Russell’s assertion concerning “soaring precious
metals," I am still rubbing my eyes in astonishment. “Soaring precious
metals”? If he is talking about palladium, then Russell is right. However, I do
know Russell well, and he is meaning gold and silver. Anyone who has two eyes can
see on the charts that gold and silver are far from soaring. Granted: There has
been a rally (which has been particularly strong in GDXJ, as explained here), but such a rally has occurred within a primary bear market,
and after the bearish violation of a tight range, and hitherto it hasn’t even
managed to break up the secondary bullish reaction highs. Not a very bullish
picture, though.
Concerning precious metals, Russell has a clear bias:
When they go up (and don’t forget: even during bear markets, there are
rallies), he always touts the move as “explosive”, “soaring”, “the birth of a
new bull market”, etc. When they go down, then he reaffirms the bullish
fundamental case and ignores the declines, while losses mount.
As far as this skeptical blogger is concerned: I stick
to the Dow Theory free of “funny-mentals”.
US Stocks
and precious metals.
It has been an indistinct
day. All trends (primary and secondary remain unchanged).
Sincerely,
The Dow Theorist
I absolutely agree with you 100%. The Dow Theory statistical message is clear. Those who desire to read tea leaves in an attempt to find some other message behind it are wasting their time. Keep up the good work!
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