RUSSELL THE FINANCIAL BULL
July 23, 3008 -- Great balls of fire, what's going on? It's those Transports, they're getting in the way of the whole bearish scenario. It's the rotten housing situation and the crumbling financial picture that have been scaring everyone half to death. So just for the fun of it, let's check out the respective sectors via the exchange traded funds.
First, BKX, the Bank Index. That's a huge surge off last week's low. BKX ended yesterday actually just above its 50-day moving average. And yes, it does look like a bear market bounce, aided by violent short covering. But then again, we could have seen the low. The bank stocks, almost all of them, after having been decimated, have been bouncing up like bed springs.
Below we see mighty Bank of America, recently acting like "trouble itself." But wow, what a rally. Can you envision BAC coming down and breaking to new lows? Sure, anything can happen, but I think if that happened I'd be surprised.
And look at what's left of poor old battered Citigroup. We even got a rally out of it. You just have to be impressed by the across-the-board surge in the banks. And here's a thought -- is what's good for the banks good for America?
Are you ready for something happy? Below we see a daily chart of the D-J Transportation Average. The Transports have moved steadily higher in the face of the declining Dow and in the face of the worst kind of economic news. Why argue with the Transport action (as many people are doing) -- it's a fact, it's happening. This is money talking. You might as well argue with gravity or the waves of the ocean.
Note that the Transports have not only refused to confirm the Industrials, they have build a rising three-level structure, which I show with the help of the three blue horizontal lines. It's difficult for me to see a big bear market developing while the Transports are diverging so strongly.
So what are we dealing with here? I'm just going to call it a mixed and confusing market. But it's a market that I would still treat with caution. When the Averages disagree, it's best to be cautious. Robert Rhea, the great Dow Theorist of the 1930s, wrote that "when the Averages disagree, it's usually a sign of distribution." That's a warning I've never forgotten. I pass it on to you for your consideration.
But hey, you've got to be impressed by those Transports. If it's a bear market, the Trannies aren't listening!
Richard Russell
Editor-in-chief - DOW THEORY LETTERS
http://ww2.dowtheoryletters.com
July 23, 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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