RICHARD RUSSELL ON THE MARKETS
June 27, 2008 -- Bloomberg -- US Stocks Drop, Sending the Dow Average to its Worst June Since the Great Depression. U.S. stocks tumbled, sending shares of General Motors Corp., Citigroup Inc. and CBS Corp. to the lowest levels in more than nine years, as credit-market write-downs and a slowing economy threatened to extend the longest slump in quarterly profits since 2002.
Russell Comment: Don't blame me for the paragraph above, that's the way it came over the Internet from Bloomberg. Pretty dramatic, but then yesterday was a pretty dramatic day. Nevertheless, it's best to remains cool and collected regarding this market or any other market.
You get wild-eyed, you get hysterical and panicky, and you can't think straight. When you can't think straight you're liable to do something stupid. And when you act stupidly in the investing business, you tend to do things that cost you money.
Personally, I just follow my own advice, which means I'm in cash and gold. But that doesn't mean that I'm not fascinated with the market. After yesterday's fiasco on Wall Street, the Dow ended well below its March 10 low for the year. Not so the Transports -- they closed the session 753 points above their own January low. This is about the widest disparity between the two Averages that I can remember. And I continue to wonder whether the Transports will be coming down to confirm the Dow. For that matter, none of the other major stock averages have broken to new 2008 lows. At least not yet.
By the way, the decennial pattern is now in tatters. Going back in history to before 1900, in years ending in "8" (1938, 1948, 1958) the Dow has always recorded its low for the year in the first quarter (there was one exception in 1998 when the Dow closed below its first quarter low for one day). But that record was smashed this year in June, since the Dow is now decisively below its first quarter low recorded on March 10.
The Dow is down 9.4% in June, making this the worst June performance since 1930, a Great Depression year when the Dow's loss in June was 18%. Let me put it this way, if you lost money this month it took all kinds of broken records to do it. This may shock you, but as of yesterday's close the Dow had wiped out all its gains going back to September 2006. That's right -- 2006!
While I'm at it, let's check out some of the other leading stock averages. Here's the Nasdaq. It's below both its 50-day and 200-day moving averages, and it looks kind of sick, but it's still well above its March low.
Here's the NYSE Composite, also looking sick but still hanging on.
Next is our good friend, the Wilshire 5000. Coming down but not at a new low yet.
The S&P is very close to breaking to a new low. Close but not there yet.
Last but certainly not least, the Transports, which are still far from confirming the Dow. So with this dramatic non-confirmation, could we be at or near a bottom? I honestly don't know, but I don't think so. Where the market is concerned, anything is possible. But I want to exercise a bit of patience, and I want to see more. And I want to do some thinking and studying over the weekend.
On yesterday's close Lowry's Buying Power dropped to a new multi-year low. But what's more significant, Lowry's Selling Pressure finally rose to a new multi-year high. This is significant since Selling Pressure usually levels off or declines near major market lows. That's not what's happening now.
On Monday's site I'll have some important, actually critically important, things to say about where we are in terms of the 50 Percent Principle.
In the meantime, keep you powder (assets) dry, meaning be in cash and gold. In case you misunderstood me I said, "Cash and Gold."
Well, what about gold? I showed this weekly chart earlier in the week, and I think it told the story. Gold is putting in a bottom. RSI is trending higher. Gold is holding above its (rising) 40-week moving average. The histograms show that this has been a major correction, but now the histograms appear ready to rise above zero into positive territory.
The full stochastics are pushing off the bottom, and appear ready to head higher. At the bottom of the chart, the 13-week rate of change, although slightly negative, also looks ready to head higher. Gold began a vicious correction in early-March. The chart suggests that the correction is almost over. If August gold can close above 934, that should end the correction. We're not quite there yet.
Richard Russell
Editor-in-chief - DOW THEORY LETTERS
http://ww2.dowtheoryletters.com
June 29, 2008
The inimitable and venerable Mr. 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.
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