Russell On An Impending Bear
July 2, 2009 -- Bloomberg -- Payrolls in U.S. Decline More Than Forecast; Unemployment Climbs to 9.5%. Employers in the U.S. cut 467,000 jobs in June, the unemployment rate rose and hourly earnings stagnated, offering little evidence the Obama administration's stimulus package is shoring up the labor market.
Russell comment -- The fantasy "green shoots" are withering. The bear is in the process of digging his claws deeper into the belly of the US economy. And the market, specifically the Transports, knew it all along. Today's shocker was the rotten unemployment report. This bear market won't slow down until housing is stabilized. Housing won't stabilize until unemployment slows down. After all, whose going to buy housing when they're out of a job?
I haven't changed my mind about a thing, and my site yesterday says it all, or at least most of it. Lowry's notes that volume on yesterday's higher market was the lowest of any trading session this year, and that's not good.
Lowry's Buying Power Index as of yesterday was only 6 points above its level of March 9. That puts the market on very thin ice. It means that the desire to buy stocks has been steadily fading. All that's needed now is a rise in selling pressure, and this market will unravel.
Every day I compute the span between Lowry's Buying Power Index and their Selling Pressure Index. The wider the span, the more bearish the situation. Yesterday the span closed at 872, the widest since March 9. This is the weakest reading of the entire rally. Extreme caution is warranted.
Market Thoughts. The stock market is traveling on thin ice. I have four reasons why I have come to that conclusion.
(1) A primary bear market is in force. Nothing has occurred under Dow Theory to indicate that the great primary trend of the stock market and the economy is other than bearish. The direction of the primary trend over-rides all other considerations. The primary trend cannot be manipulated by the government or any other force.
(2) As subscribers must know by now, the Transportation Average has refused to confirm the series of new highs in the D-J Industrial Average. It's been over a month that the Transport non-confirmation has been in effect. I take this as being very serious, since few analysts have taken note of this non-confirmation. I also take it as particularly bearish because the stock market, under Dow Theory, is looking shaky in the face of the widespread optimism ("green shoots") that has enveloped the nation. When the market does not agree with the prevailing sentiment, my instinct for danger flares up, and I start looking for the exits.
(3) The Dow is in a "head-and-shoulders" top formation, as detailed on yesterday's site. The Dow closed yesterday at 8447. This was 147 points above the critical support level of the H&S pattern which comes in at Dow 8300. A decisive close below 8300 would complete the head-and-shoulders top and probably put a "finish" to the current bear market rally.
(4) At yesterday's close, Lowry's Buying Power Index was only 8 points above 96, which was its level at the March 9 low. In other words, Buying Power has faded badly over recent weeks. The fact that as of June 30, the Buying Power Index was only slightly above its March 9 level is almost shocking.
Technically, the stock market is on dangerous ground.
Richard Russell
Editor-in-chief - DOW THEORY LETTERS
www.dowtheoryletters.com
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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