the dow: richard russell comments

May 20, 2008 -- (Bloomberg, May 19) -- "The index of leading U.S. economic indicators rose in April for a second month, the first back-to-back gain since October 2006, signaling that the current slowdown will be short-lived. The Conference Board's gauge increased 0.1 percent, better than forecast and matching the gain in March, the New York-based research group said today. The measure points to the direction of the economy over the next three to six months."
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They never stop talking, and they never get off the national stage. If only they were right more often. Early last month Alan Greenspan (always a lousy economist) warned that we were in for "the most wrenching" downturn since the Great Depression. Then recently the Great One changed his mind and termed this recession "awfully pale."

As for Bill Clinton, he never stops yammering, and personally I think he hurt Hillary's election chances. Who wants a blabber-mouth ex-president in the White House for another four or eight years? Hillary should have put a gag in Bill's big mouth months ago. Now the rumor is that Bill may run for Senate. Please, give us a break.

Ah, the stock market. Really, this has been an unusual advance. Lowry'sSelling Pressure Index has been declining, meaning that the supply of stocks is shrinking. Yet, Lowry's Buying Power Index, which shows demand, has not been advancing. So the stock market has been sort of "floating up," based mostly on a decline in selling pressure, rather than rising on any dramatic increase in buying power. As a rule, that's not good action.

However, as you know, I've been impressed by the pattern of the averages, among other things. I've been further impressed because the new lows have dried up to around 25-35 a day. The short interest on the NYSE is at record highs, and to me, in a market where the Dow has climbed over 1000 points since March, that's a sign that the speculators have been steadily and persistently fighting the trend.

Lets take a cold, unemotional look at the markets. To do this, I want to go over the pattern of some leading averages again, because if this advance from the January lows is a fake-out as many bears insist, then these P&F charts by definition must break down to new lows. OK, let's be pessimists -- let's see what has to happen for the bears to win the game.

Below we see a P&F chart of the Dow. The pattern itself is bullish. A reconfirmation of the bull trend would require the Dow to hit the 13150 box. To turn bearish, the Dow would have to decline to the 12700 box. And if the Dow did decline to the 12700 box, that would still be just a first bearish signal. The full or ultimate bear signal for the Dow would be a decline to the 11600 box. Honestly, I don't think that's going to happen.

Sure we could have a correction. The Dow is overbought now, and the market is correcting as I write. But a total breakdown to 11600? I would be amazed. At any rate, let's see what happens.


And according to Dow Theory, it takes two to tango. So even if the Dow were to collapse to 11600, the Transports would have to confirm. To confirm a Dow collapse to 11600, the Transports would have to totally destroy their current powerful structure. This would mean the Transports first hitting the 5100 box, at which time they would turn short-term bearish. Then the Transports would have to literally crash to the 4350 box. And finally, to confirm a fully bearish Dow the Transports would have to decline to the 4000 box. My opinion, my guess -- it's not going to happen.

Conclusion -- At their lows the D-J Averages discounted the worst that could be seen ahead. And the market never discounts the same thing twice. Therefore, whatever bad news lies ahead has already been discounted.


I haven't talked very much about the Nasdaq, which has grown to be a very important part of the total stock picture. So let's take a look at the P&F chart of the Nasdaq Composite below. This may be the most powerful looking chart of all. What I see here is a perfect head-and-shoulder bottom formation. Then a series of bullish advances, with the latest action being a new high for the move, marked by a green X at the 2550 box.

So is the Nasdaq ready to give it up? Is the Nasdaq ready to collapse below the 2260 box and then to a new low at the 2150 box? In this business anything can happen, but if the Nasdaq is going to collapse to the 2150 box, it would shock the hell out of me. Sure the Nasdaq could be overbought, but there's a vast difference between an overbought-correction and a bear market collapse, believe me there is. And I just don't see the advance in the Nasdaq as a bear market rally. I really don't.



One more P&F chart, please. Below you see a chart of EEB, the BRIC exchange traded fund. This is the ETF that deals with stocks from Brazil, Russia, India, China. These are the "four new horsemen" of the new age of global capitalism. Why new? Because half the population of the world has joined in this bull market.

That's an extended column of X's that we see here. It's at the 57 box. Is EEB ready to correct? Could be, but if so, how many boxes down will EEB go? I just broke my crystal ball, so I don't have the answer to that one. Buy EEB here, wait, hope, pray, I just don't know. If you want to get in on BRIC you have to move, so I can't tell you where or when to buy it. But I can hazard a guess about the BRIC nations -- they're going to be monsters, they're going to be capitalistic tigers. The latest talk is that Brazil has discovered oil, a LOT of it, and Brazil will be supplying oil to the world in about two years. Brazil is where it's happening, and I'm not just talking about the famous dental floss Brazilian bikinis. I'm talking about another world source of oil. Keep your eyes on Brazil, land of sugar ethanol, crops, commodities and soon -- oil.


And this is ironic. We fight a war in Iraq to make sure that we have control of oil in the Mideast. But the Chinese don't fight a war for oil. The Chinese just BUY the oil, and from what I hear that's a lot cheaper than fighting a war for oil. And while we're fighting, the Chinese are at work trying to tie up the natural resources of Africa.

Oil from Africa, oil from the Mideast, oil from South America, oil from anywhere they can buy it. Damn clever these Chinese. The Chinese leaders must be smiling and asking each other, "War, what's it good for? We'll just buy the oil wherever we can, and we'll let you Americans do the fighting."

Technical note -- I've been watching the new 52-week lows on the NYSE. I watch for signs that stocks are breaking support, and if so, how many are breaking down. So far, the numbers have remained remarkably low, meaning that on market declines, individual stocks are simply backing off, rather than breaking down. For instance the new low figures for the five days last week (NYSE) were -- 33, 34, 24. 23, 35, 27. Today looks like 34.

On January 22 the "internal low" for the market was reached when 1,114 stocks on the NYSE hit new lows. That was one out of every three stocks traded on the NYSE that day.

TODAY'S MARKET ACTION -- My PTI was down 4 to 5950. Moving average was 5942, so my PTI remains bullish by 8 points.

The Dow was down 198.91 up 12829.28. One mover today -- JPM down 2.29.

June crude closed up 2.26 to a new high of 128.98.

Transports were down 40.61 to 5354.79.

Utilities were up 2.37 to 524.29.

There were 1122 advances on the NYSE and 2045 declines. DOWN volume was 72.8% of up + down volume.

There were 82 new highs and 34 new lows. My 5-day high-low differentials declined from plus 590 to today's plus 550.

Total NYSE volume was 3.78 billion shares.

S&P was down 13.10 to 1413.47.

NASDAQ was down 23.83 to 2492.26.

My Big Money Breadth Index was down 4 to 837.

Dollar Index was down .65 to 72.52. Euro was up 1.53 to 156.42. Yen was up .62 to 98.57.

Bonds were higher. Yield on the 10 year T-note was 3.77%. Yield on the long T-bond was 4.53%. Yield on the 91 day T-bill was 1.85%.

CRB Commodity Index was up 3.78 to 548.62.

June gold was up 14.40 to 920.20. May silver was up .69 to 17.71. July platinum down 10.40 to 2147.80.

GDX up 1.16 to 48.72. HUI up 11.18 to 449.08.

One share of the Dow buys 13.94 ounces of gold.

One ounce of gold buys 51.9 ounces of silver.

ABX up 1.43, AEM up 3.80, ASA up 2.08, NEM up .82.

Gold correction may be over. GLD and gold itself have both turned bullish on the P&F charts.

STOCKS -- My Most Active Stocks Index was down 11 to 314.

The five most active stocks on the NYSE were -- C down .88, GE down .58, EMC down .69, PFE down .18 and AIG down .83.

The VIX was up .57 to 17.52, but I was surprised that it remained below 20.

CONCLUSION -- The market was tired of climbing laboriously higher, and now the bears are getting a shot on the downside. One down-day (today) doesn't prove anything -- I want to see how much downside we have coming and how much damage is done. So far, today, we have only 34 new lows.

The Transports were again the strength -- Dow was down 1.53% today, Transports were down only .79%. Utilities were actually up along with the bonds. Utilities were up .42%. As you know, I watch the Dow Composite, which was down .91%.

I'd be surprised if this correction was over in a day. I'm expecting more downside.

See you tomorrow, Wednesday, the day when I write a short site.

Russell

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May 19 (Bloomberg) -- U.S. Senate Banking Committee leaders moved closer to passing housing legislation that would stem foreclosures by insuring as much as $300 billion in mortgages and create a new regulator for Fannie Mae and Freddie Mac.
Senators Christopher Dodd, the panel's chairman, and Richard Shelby, its top Republican, reached a deal to pay for the insurance program with proceeds from an affordable housing fund financed by Fannie Mae and Freddie Mac, Dodd said today in a conference call. The government-sponsored companies are the biggest sources of U.S. mortgage funding.

"The primary goal is to keep people in their homes, but also to help establish a floor and a bottom'' to the housing slump, Dodd, a Connecticut Democrat, told reporters during the call. The proposed legislation would create a Federal Housing Administration program to insure up to $300 billion in refinanced mortgages for struggling borrowers after loan holders reduce principal. The Banking Committee is scheduled to debate and vote on the plan tomorrow.

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From the Tillman Stock and Bond hot-line: "At current levels, the Wilshire 5000 is up by 12.1% since the March correction bottom, and it is now down by only 9.2% from its October 2007 all-time high. We get a chuckle out of all the obstinate skeptics out there that are still insisting that the U.S. stock market is in the midst of a nasty bear market. Maybe their financial stocks and some other names in their portfolios have been so hammered that they “feel” like the broad U.S. stock market is in a bear cycle. However, the only logical way to approach all of this is to take a broad view. Such a view tells us that the broad stock market is currently closer to its recent ALL-TIME high than it is to its recent correction lows. There is a very powerful story in those numbers. A mountain of short positions is still towering above the stock market. The gains to date have not been enough to deter many of the bears. They are sticking by their story of a depression, bear market, financial turmoil and a looming collapse in home values (on top of the weakness to date in home prices)."

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Oprah Winfrey privately advised Jennifer Aniston to stop waiting for the man of her dreams, and get a dog instead. Winfrey recently spoke to the former Friends star at length, says the National Enquirer, telling her that human romance invariably "makes life complicated and full of heartaches," and that her own pets have "fulfilled her in a way that has never made her miss getting married or having children." Aniston was apparently not convinced by Winfrey's argument, and is currently dating singer-guitarist John Mayer.

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Trouble in Greenwich, CT, the Russians are coming -- May 20 (Bloomberg) -- It was the 26 toilets that triggered alarm among residents of Greenwich, Connecticut. "Who needs that many toilets?'' asked Charles Lee, who lives across the street from where Russian millionaire Valery Kogan proposes building a 54,000-square-foot (5,000-square-meter) mansion with that much plumbing.

Kogan, chairman of East Line Group, which operates Moscow's Domodedovo International Airport, plans to raze the 20,000- square-foot home on the site, which he bought in 2005. Kogan and his wife, Olga, seek to erect a house with two wings and extensive subterranean space, including room to park 12 cars.

"It looks like they want to duplicate the Winter Palace here in Greenwich,'' said Leslie McElwreath, 45, who lives one street over. "It'll be an eyesore.''