the dow: richard russell comments

Members' Area - Richard's Latest Remarks


October 31, 2008 -- Where's the Evidence? You may have heard me speak of the "chorus of amateurs" lately who have been in line over the last two weeks attempting to call the exact bottom of the market. In reality while the market swung wildly back and forth they were simply guessing. My interest along with most of the voices I respect has been urging caution and patience. Yesterday I hinted that I was seeing very encouraging actual signals that we are bottoming-- I want to see more signs! We have had gains and some stability, but it is still too soon to take a major position in the market. If it seems contradictory to be skeptical but bullish, well, welcome to Dow Theory, we are looking for the direction of the primary trend.

The Evidence -- On Oct. 8, 2008 we had 2223 new lows on the NYSE with 3202 stock traded, that meant an amazing 67% of all stock on the NYSE hit new lows. I took that as evidence that "the internal bottom was in." The Dow on that day was 8579. The big question I ask myself now is -- "Have we seen the lows for this bear market?" From the Oct. 9, 2007 Dow high of 14164 to the recent closing low of 8143 on the Oct. 27th the Dow suffered a loss of 42%, enough to label it an important bear market. We had a series of 90% down-days on Oct. 9th, 15th, 22nd, and 18th. Then on the 28th, we finally experienced a 90% up-day. Since then, the market action has been fairly good with the Dow closing today at 9322 -- Today's close was an impressive 754 points ABOVE the Dow level of 8579 at the "internal low."

I showed the bond picture yesterday with bonds appearing to have topped out. Either investors are selling bonds and moving into stocks, or the bond market in its wisdom is discounting better times somewhere ahead -- maybe as far as six months to a year ahead.

Often at important bottoms, the averages will retest the previous lows. This does not have to happen, but it would be a huge help if the averages test the lows, and at the same time produce a non-confirmation. My PTI hit a low on Oct. 27st of 5859. Today it closed at 5871 which is hopeful progress. If the bottom is in, my PTI should be making important up-side progress from here. On yesterday's statistics, Lowry's Selling Pressure Index (supply) finally dropped substantially, giving evidence of an important drop in supply. At the same time their Buying Power Index surged, finally showing an increased willingness to buy. So far, so good.

Oct. 30 (Bloomberg) -- Wells Fargo & Co., Bank of America Corp. and Merrill Lynch & Co. agreed to sell a combined $50 billion in preferred and common shares to the U.S. Treasury under the government rescue plan.
Treasury Secretary Henry Paulson said Oct. 14 thousands of firms will have an opportunity to sell preferred shares on the same terms as negotiated with Wells Fargo, Bank of America, Merrill Lynch and six other banking companies. The Treasury's investment is aimed at promoting lending, boosting capital and unlocking credit markets roiled by fears of rising loan losses.

Russell Comment -- The Treasury is liquifying everything by buying preferred shares with high yields. Buffett started this trend. You have a business that needs money? Issue some preferred shares and sell 'em to the Treasury. But that little transaction will cost you maybe 10% a year.

The Baltic Dry Index tells us how bad world commerce has become. If the need for oil is slowing down and nobody is buying Chinese-made washing machines or Swedish robotic lawnmowers, you don't need to rent a ship to move your merchandise. The Baltic Dry Index tells us the cost of renting a ship. Recently, the Baltic Index declined 14 days in a row. I've never seen a series that extended 14 days consecutively by any Index -- or any stock for that matter. Below we see a weekly chart of the Baltic Dry Index. The Index is telling us that the need for shipping and the trend of international commerce has hit a brick wall.

We've gotten used to seeing diving charts but this is just plain nasty. So much for world commerce, it's toast.



At the same time, sluggishness is hitting air freight traffic. Air traffic slumped 7.7% in September, according to the latest figures from the International Air Transport Assoc. That's the steepest decline since the trade group began compiling info in January, 2003.

You don't need official statistics to realize what's going on. Today, when Faye and I go to our favorite restaurant in La Jolla, we can show up at any time and be assured of being seated. A year ago, if we didn't arrive at 5 PM or before, the place would be filled, and we would have to wait for a table. Last night we had dinner at a popular restaurant at 6 PM, and the place was only 20% filled. Now I'm worried that our favorite restaurants may not survive the recession.

I just heard the news that one out of every five houses in the nation is now valued at less than the price of its mortgage. This causes home owners in these under-water homes to decide whether to keep up their mortgage payment or just mail the key to their bank and move out.

Consumers appear to be on a buying strike. Here, Bloomberg tells the story -- Oct. 31 (Bloomberg) -- Spending by U.S. consumers dropped more than forecast in September, capping the weakest quarter in three decades and indicating the economic slump is deepening. The 0.3 percent decrease in purchases was the biggest in four years and followed no change in August and July, the Commerce Department said today in Washington. The report also showed that the Federal Reserve's preferred measure of inflation cooled last month.

Remember, I wrote that following the crash of 1929, it was a full year later before the Great Depression started. I'm afraid that following the crash of 2008, the full brunt of the economic mess will hit next year in 2009. At that point, the Fed and the Treasury will pull out all the stops and resort to every trick and gimmick in the book to try to stem the recessionary tide. My advice to subscribers, hang on to your day job, try to get rid of debt, and save where ever you can. Cash will be king.

As for gold, we don't hold gold in the hope of making a killing. We hold gold because gold is our safety net. The economic world is composed of debt and leverage. Even the US dollar is a product of debt. Only gold is pure wealth with no debt against it. Gold can't go bankrupt since it represents pure wealth. By the same token, diamonds represent wealth and Picassos represent wealth. The difference is that if you want to sell a diamond or a Picasso painting, there is no posted price for either. To sell a diamond or a Picasso, there's no bid or ask price -- you have to find an interested buyer.

Scoreboard Thurs. close % change 2008

S&P 500 954.09 -35.0%

S&P Midcap 552.71 -35.6%

Dow Transports 3727.01 -18.5%

Dow Utilities 384.62 -27.8%

NYSE Composite 5975.03 -38.7%

Nasdaq 100 1333.94 -36.0%

Russell 2000 514.18 -32.9%

Amex Composite 1457.41 -39.5%

DJ Wilshire 5000 9584.95 -35.3%



TODAY'S MARKET ACTION -- My PTI was up 4 to 5871. The moving average was 5907. The PTI is bearish by 36 points.

The Dow was up 141.50 to 9322.20.

Nov. crude was up 1.85 to 67.81.

Transports were up 158.80 to 3885.80.

Utilities were down 6.20 to 378.40.

There were 2313 advances on the NYSE and 1127 declines.

There were 11 new highs and 98 new lows.

Total NYSE volume was 6.32 billion shares.

S&P was up 14.57 to 968.66.

NASDAQ was up 22.40 to 1720.90.

My Big Money Breadth Index was up 2 to 726.

Dollar Index was up 1.25 to 86.52. Euro was down 2.22 to 127.29. Yen was down 0.13 to 101.61. Currency prices as of 1 PM Pacific Time.

Bonds: Yield on the 10 year T-note was 3.97%. Yield on the long T-bond was 4.369%. Yield of the 91 day T-bill was 0.435%.

CRB Commodity Index was down 0.45 to 369.56.

Dec. gold was down 13.70 to 724.80. Dec. silver was up 0.10 to 9.79. Jan. platinum was up 10 to 831.60. Metal prices as of 1 PM Pacific Time.

GDX was up 0.03 to 21.73. HUI was down 8.80 to 193.87.

ABX was down 1.60, AEM down 0.92, ASA down 0.32 and NEM down 1.70.

My Most Active Stocks Index was up 5 to 123.

The VIX was down 3.18 to 59.72.

Late Notes -- First the good news, the VIX may have topped out. Today was down 3.18 to 59.72. This is an early hint that this erratic market may be calming down, and the lust for "puts" (insurance against the downside) is easing. Transports rose today proportionally more than industrials which suggest that if we do test the lows it will be the transports that refuse to confirm. Bonds were down again which is a plus in the economic picture since the bonds may be protecting themselves against forthcoming better times. My PTI was up again today, up 4 points to be exact to 5871-- 12 points above its low of 5859 struck on Oct. 27st.

I continue to expect the bad times this bear market is projecting to hit in full next year in 2009.
Have a great weekend if possible,

Richard and Ryan Russell.