the dow:richard russell comments

October 2, 2009 -- “Deflation is definitely a threat right now,” Nobel laureate Joseph Stiglitz, 66, a professor at Columbia University in New York, said in a Sept. 22 interview. “The combination of the deflation threat and the sluggish recovery should keep the Fed on hold for quite a while.”
Consumer prices are experiencing deflation, with the consumer price index sliding for six straight months from year-earlier levels, the longest stretch of declines since a 12-month drop from September 1954 to August 1955, according to the Labor Department.

So far, the core consumer-price index, which excludes food and energy, is facing disinflation, a slowing in the pace of increase. The core index rose 1.4 percent in August from a year earlier, down from 2.5 percent in September 2008.

Regional Federal Reserve Bank Presidents Janet Yellen, of San Francisco, James Bullard, of St. Louis, Richard Fisher, of Dallas, and Charles Evans, of Chicago, have expressed concern in past weeks about the possibility of declining prices.

Russell comment -- This is the Fed's worst nightmare. They have got to keep pumping out Federal Reserve Notes. Hold on to your gold.

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A vision of the future by Bob Dylan from his song, "Hard Rain."

And what did you hear, my blue-eyed son ?
And what did you hear, my darling young one ?
I heard the sound of a thunder, it roared out a warnin'
I heard the roar of a wave that could drown the whole world
I heard one hundred drummers whose hands were a-bleedin'
I heard ten thousand whisperin' and nobody listenin'
I heard one person starve, I heard many people laughin'
Heard the song of a poet who died in the gutter
Heard the sound of a clown who cried in the alley
And it's a hard, it's a hard, it's a hard, it's a hard
And it's a hard rain's a-gonna fall.
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The trillion-dollar question -- Is this just a correction in the advance from the March low, or is the whole bear market rally in the process of topping out? If it's just a correction, no problem. But if the whole advance is topping out, then we're going to face immense problems, not just in the market but in the entire US economy.

On yesterday's site, I reviewed the stock market in terms of Elliott Wave patterns. According to that analysis, the first "A down-wave" took place from October 2007 to March 2009. The upward-correcting "B-wave" occurred on the advance from the March low to the recent September 22 high (Dow 9829.87). If the advance from the March low is topping out, we would now be starting the dreaded "C-leg" taking the Dow and the market to new lows.

Subscribers better hope my Elliott analysis is incorrect, because if the market is really on its "C-down leg" to new lows, there's going to be "blood in the streets." At the termination of the "C leg," stocks should be crushed and at their greatest values since the early 1980s.

Enough talk and speculation, let's study the charts below. The first is a daily of the Dow. I've already pointed to the dangerous decline in RSI (red arrows). Even more ominous are the three lower peaks in MACD against the three higher peaks in the Dow. On top of that, volume has been contracting as the Dow pushed higher. Note how volume expanded on yesterday's decline. In all, a poor looking chart.



On to the Transports. Yesterday's decline took the Transports below their 50-day moving average. RSI was overbought at the recent Transport high (first red arrow). And again, MACD showed lower peaks against higher peaks in the Trannies. If anything, this chart is worse than the chart above.




The days and weeks ahead should be fascinating and educational.
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Oct. 1 (Bloomberg) -- General Motors Co., Toyota Motor Corp. and Ford Motor Co. said sales fell in September as waning demand after the “cash for clunkers” rebates cut industry deliveries to the second-slowest rate this year.

GM deliveries tumbled 45 percent, while Toyota dropped 13 percent, both worse than analysts had estimated . Ford slid 5.1 percent, and Chrysler Group LLC, Honda Motor Co. and Nissan Motor Co. also posted declines.

Russell Comment -- Take away the incentives and America's wallets stay shut. Consumers remain frightened.
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The US dollar is the world's reserve currency. The dollar is used by nations all over the world to back up their own currencies. Ask the Russians what's behind their ruble, and they'll tell you it's a hoard of US dollars. Under the current system, it's "insane" for these countries to depend on the US dollar for their safety of their own reserves.

With the Dollar Index weakening, nations are frightened about the 'backing" for their currencies. After all, if the dollar collapses, what are these other currencies, backed by dollars, worth? Thus, there is growing pressure for the US to get its house in order. As the Fed prints trillions of additional dollars in its effort to halt the bear market, the dollar weakens. And dollar holders grow frightened.

But what's the alternative? If the Bernanke-Obama-Geithner trio halt their anti-deflation battle, the US economy will lapse into recession or depression. Fed head Bernanke thought he could print more dollars forever, but he did not count on the "vigilantes" from other nations putting pressure on the Fed to stop their out-of-control printing.

The more dollars they print, the weaker the dollar. It's a huge dilemma. And the stock market doesn't like it.

The unfunded debts of the US are unbelievable. The total outstanding debt of the US is now $11.8 trillion.

Unfunded Social Security Trust fund debt is $17.5 trillion. Unfunded Medicare Trust fund debt it $89 trillion. Total unfunded US obligations are $118 trillion.

The US is currently paying 3.36% interest on its national debt.

But if the US has to pay interest on coming trillion of debt, it can't be done.

What's the answer? Social Security and Medicare will have to be cut (can you hear the screaming from the old voters?).

The US will default on its debt (a nightmare that will never happen).

Let Congress face the coming disaster and try to balance the budget (are you serious?).

Go for inflation, which will render the US debt more manageable. Hey, got gold?

Much of the above is explained in detail in the great column by Sprott which you can read on 321-gold. Don't miss this column entitled, "Safe Harbor No More." And he's talking about the dollar.

TODAY'S MARKET ACTION:

My PTI was down 7 to 5954. The moving average at 5938, so my PTI is bullish by 16.

The Dow was down 21.61 to 9487.67.

Transports were down 18.97 to 3692.73.

Utilities were down 2.93 to 367.25.

Nov. crude was down 0.87 at 69.95.

Total Volume on the NYSE and associated exchanges was 6.34 bn.

There were 986 advances and 2018 declines on the NYSE.

There were 100 new highs and 10 new lows.

S&P was down 4.64 to 1025.21.

NASDAQ was down 9.37 to 2048.11.

My Big Money Breadth Index was unchanged at 697.

Dollar Index was down 0.14 to 77.27. Euro was up 0.53 to 145.87. Yen was up 0.17 to 111.47. Currency prices as of 1 PM Pacific Time.

December gold was up 3.60 to 1004.30. October silver was down 0.210 to 16.208.

GDX was down 0.30 to 42.76.

HUI was down 2.76 to 394.74.

Bonds: Yield on the 10 year T-note was 3.221. Yield on the long T-bond was 4.011. Yield of the 91 day T-bill was 0.09%.

My Most Active Stocks Index was down 1 to 181.

CRB Commodity Index was down 2.68 to 252.87.

The VIX was up 0.38 to 28.65.

Late Notes -- Yesterday was a definite 90% down-day with down volume a huge 95% of up + down volume. Remember, after a 90% down-day it is normal to have a 2-7 day "recovery rally."

No rally today after yesterday's big 90% down-day - bearish. My PTI was down 7 to 5954. MA was 5938 so my PTI remains bullish by 16 points. On the NYSE 986 issues closed higher, 2018 closed lower. Down volume was 68% of up + down volume, no heavy downside pressure.

On my BIG THREE, bonds were down slightly, Dollar Index was down, and Dec. gold closed up 3.60 to 1004.30, and still above 1000. Try as they can, the anti-gold interests can't seem to knock gold down below 1,000. Bullish for gold.

Advice -- I sold half my BYD. Also, keep your gold mining stocks.

And that's the story for Friday, October 2. Have a fabulous but safe weekend. I'll be thinking about ya.

Russell
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Starbuck's new ads for their powdered instant coffee appear in every newspaper. We decided to try it. We were given a few packets of their new powdered product to sample. The powdered stuff will cost a dollar a packet, and after all of us tasted it, we concluded that it's no better than any other powdered instant coffee which costs far less. Regular black coffee at Starbucks costs a ridiculous $1.65 a cup. To the girls at our office who tried the new Starbucks "wonder" powdered coffee it was an over-priced joke at a dollar a shot. If SBUX can get away with selling this stuff at a dollar a dose, I'll be amazed. You like instant powdered coffee? Buy it by the jar at your local supermarket. Starbucks is in la-la land.
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An e-mail from a subscriber:
You have yet to mention this non-confirmation from 9/22.....Since then the trannies have been pretty weak and are one of the first sectors to break their rising trendline (i.e. the trendline since March).
Steve D.

Russell Response. -- Sorry and, you're absolutely correct, and I'm ashamed to say that it was my over-sight. On Sept. 22 the Dow hit a recovery high of 9829.87. On the same day Transports closed at 3977.88. That Transport close was a full 15 points below the previous Transport high, struck on September 16 at 4014.44. Following this flagrant non-confirmation, the market started down. After drawing attention to non-confirmations all the way up in the advance, I neglected to talk about the one on Sept. 22 -- probably the most important non-confirmation of all.
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