Don't understand the Richard Russell bashing

April 11, 2008 -- Washington Post (last week) -- Offering the gloomiest assessment of personal economic progress in close to half a century, a survey has found that most Americans think they have not made economic progress in the last five years, as their incomes have stagnated and they have increasingly borrowed money to finance their lifestyles. As many Americans struggle with declining housing values, increasing food and energy prices, and growing unemployment after a long period of flat wages, well more than half of respondents are either losing ground economically or stuck in the same place. The squeeze is particularly tight for those who are low-income and for the 53% of Americans who classify themselves as middle income. Russell Comment -- I've written many times that if there's only one prediction I would make it this -- the US government and its people have lived too long on borrowed money. This will result in a long period of declining living standards. You can not borrow your way to prosperity. The declining status of the dollar attests to the precarious position the US has placed itself in with its overspending and its "empire" aspirations. ....................................................... What does Wall Street know? You and I have no real concept of what Wall Street knows, and when I say "'Wall Street" I'm referring to the stock market. The stock market knows more about politics than George W. Bush, Hillary Clinton, Barack Obama taken together along with the entire US Senate and Congress. Soybeans, wheat, cows and corn? The stock market knows more about commodities than the sum total of all the farmers and dairymen in the US. What about autos? The stock market can tell which models will make it and which won't, far ahead of the best minds in the auto business. What about business trends? The stock market is the world's premier expert on business trends and every other kind of trend. You see, the stock market reflects the sum total of what everybody knows about anything and everything. Furthermore, the stock market doesn't vote on the basis of rumors and guesses, the stock market votes with investors and traders and speculators hard-earned money. As a result, the stock market, imperfect as it is, remains the nearest thing we have to an oracle and a crystal ball. Stubborn? The the stock market is anything but stubborn -- the stock market reserves the right to change its mind at any time. In other words the stock market is a self-correcting mechanism -- no ego here, no excuses, no fudging and squirming to cover up when it changes its mind. What am I getting at? Let's use the current example. The D-J Averages recorded Transportation lows in January and unconfirmed Industrial lows in March. From those lows the Averages rallied to highs recorded in early-April. As of yesterday's close, the Industrials were 610 points above their March low while the Transports were 728 points above their January low. Over the last few months we've been bombarded with information which experts describe as the worst economic news since World War II. And yet, the D-J Averages have held stubbornly above their lows. It's my contention that at the January-March lows the Average had, in their "wisdom," discounted the worst that could be seen ahead. I'll hold to that stance unless or until the two Averages reverse their trends, head lower, and break below their respective lows. Frankly, I don't think that's going to happen. I obviously don't KNOW, but from what I've seen so far, I just don't think the two Averages are going to violate their respective lows. I've held to that opinion for a good many weeks, and for a good many weeks that opinion has seemed ridiculous, impossible and just plain wrong. My critics believe that my stance is dead wrong because they don't believe that the stock market has the ability to look ahead, to discount three months, six months or even at times a year ahead. But they're mistaken. I've seen the stock market discount coming events too many times to doubt the market's fabulous "see ahead" ability. Barton Biggs has just written a book about the stock market's amazing ability to discount, to look ahead. The name of the book is "Wealth, War and Wisdom." I strongly recommend this book. The next question is this -- supposing I turn out to be right about the position of the stock market. Suppose the January-March lows turn out to have been THE lows, then what? Ah, here the situation becomes a bit cloudy. But this is the way I see it. If the lows have been put in, then the market will either fluctuate above those lows, as it's been doing, for weeks or even months, as it builds the technical strength to move higher. Or -- the market will start moving higher as soon as it rids itself of the current overbought condition. Below we see a daily chart of the D-J 65 Composite, and it is clearly overbought. I've placed two red arrows on the chart. The first shows MACD rolling over with the histograms heading down towards zero. This tells us that the D-J 65 is moving into a corrective mode. The lower red arrow is positioned over the full stochastics, and here too we see that the D-J Composite is overbought and starting to correct. How big a correction? How far down might the correction take the D-J 65? That's what I want to see. Below is a daily chart of a stock that I've recommended many times. It's BHP Billiton, an Australian company, and the largest mining company in the world. BHP is a leader in the mining of aluminum, copper, uranium, gold, silver, you name it. If there's one company that China and India lust to own, it would be BHP. The stock acts well. I see it as a long-term holding. TODAY'S MARKET ACTION -- My PTI was down 4 to 5932. Moving average was 5939, so my PTI remains bearish by 7 points. The Dow was down a whopping 256.56 (2.04%) to 12324.42. Three movers in the Dow today, IBM down 2.78, UTX down 2.32 and GE down a huge 4.70 or 13%, and this upset the whole market. May crude was up .03 to 110.14. Transports were down only 54.26 (1.1%) to 4813.86%. Utilities were up .140 to 500.14. There were 717 advances on the NYSE and 3599 declines. DOWN volume was 90.3% of up + down volume, which makes today almost surely a 90% down day. There were 29 new highs and 72 new lows, which reversed the ratio to the downside. My 5-day high-low differentials declined from plus 67 to a minus 27. Total NYSE volume was 3.66 billion shares. S&P was down 27.72 to 1332.83. NASDAQ was down 33.49 to 2290.24. My Big Money Breadth Index was down 8 to 824. Dollar Index was down .30 to 72.12. Euro was up .83 to 157.80. Yen was up 1.02 to 99.51. Bonds were higher. Yield on the 10 year T-note was 3.47%. Yield on the long T-bond was 4.30%. Yield on the 91 day T-bill was a micro 1.16% as investors opt for the safety of T-bills. CRB Commodity Index was down 2.70 to 537.81. June gold was down 4.80 to 927.00. May silver down 35 to 17.69. July platinum down 16.90 to 2028.10. GDX was down .81 to 48.22. HUI down 11.07 to 443.31. ABX down 1.33, AEM down 1.04, NEM down 1.03, SSRI down .18. A bum day all around, but gold didn't do that badly, and it's still in its corrective phase. STOCKS --My Most Active Stocks Index was down a full 15 to 309. The five most active stocks on the NYSE were -- GE down 4.70, C down .35, WM down .47, F down .05, and JPM down 1.33. The VIX rose 1.49 to 23.47. CONCLUSION -- Today was a baaad day, and almost surely a 90% down-day. It was obvious that mighty GE (earnings were surprisingly disappointing) upset the entire market. "Gosh, if GE can't come up with good earnings, who can?") But keep in mind that despite today's really ugly performance, the Dow closed 353 points above its March low while the Transports closed 673 points above their own January low. Best to keep a very open mind here -- we'll watch the market action for direction (and directions), and we'll just ignore the talk. And above all, remember the new Chinese (government approved) concept -- "It's glorious to be rich." I'll see you Monday -- and have a glorious weekend. Russell

I've subscribed for over 1 year and enjoy reading his take. Hell he's been doing this for over 50 years, can't be that bad. JDJ

I'm not a subscriber, but I have read Richard Russell's comments for years. I think he is an astute market observer. Those bashing him say alot more about themselves than about him. Thanks for the article. IT

It sounds like he bases all his conclusions on closing prices, that's not of interest to me. But, if it works for him, great.

I've been reading him for a few years now, on and off. I'll grant him alot, but he's not giving his subs consistent guidance when it comes to being in or out. He's best at painting a big picture and making buy and hold rec's. But those opportunities don't come very often and he's not good at the in between phases. As far as interpreting the markets in the short term, his biggest problem is that he deduces major trends off daily charts. Seldom brings up weeklies or monthlies. He also claims his PTI indicator is smarter than he is, then goes against it. Recently, his Dow Theory nonconfirmation with the strong Transports convinced him that we are STILL in a bull market from 82 that never quit. Even while his PTI was bearish (which granted, isn't entirely inconsistent, but he got too firm in his bullish posture). Its at least his second, if not third flip flop in the last few months.

Its at least his second, if not third flip flop in the last few months.

And in addition, he was BEARISH THE WHOLE WAY UP from 2002/2003 to 2007. I distinctly remember him saying in 2002 that he was looking for a bottom in the Dow at 2500. I guess that's partly why people have a hard time with him. Is it because he's an octgenarian that he seems to get a free pass?

i have read his stuff for 35 years and this is the first time that i can recall when he has fought his own indicators. he is now advocating against his own dow theory work and into the face of all of his technical friends (especially lowry's). seems like it happens to everyone. i don't know whether other people have noticed but his pti is no longer as reliable as in the past. he has failed to adapt this indicator to a market that includes both nyse and nasdaq stocks. in his heyday, there was only the nyse. the pti is the primary reason most people subscribe. frankly, his thinking hasn't kept up with the times.

I will take this one paragraph to explain why he is wrong on the current situation and is more reactive than proactive.

Over the last few months we've been bombarded with information which experts describe as the worst economic news since World War II. And yet, the D-J Averages have held stubbornly above their lows.

I don't think Russell comprehends the "information" he has been "bombarded" with. I think the confluence of {bleeeep} ups and the breadth of it in ours and the rest of the world's economies, is such that knowing about it will not end it or control it. All our government has so far done is save investment banks from going under even though in reality their assets are dwarfed by their debts due to all of their debt obligations collapsing. The way the government has dealt with this so far, if Bear Stearns is the template, is to buy crap that will never amount to anything with taxpayer money and lower rates to further tax the already stressed out budgets of the citizens through inflation to pay for all of this. The higher prices go, the less the citizens can buy, the less revenue a company brings in...capitalism.

There has been a "crash" of sorts. It is a debt crash. To assume that because it hasn't caused the type of drama a stock market crash causes or that it won't eventually drop stock prices over time in the same way through less spending is short sighted and foolish. General Electric's stock action today is an excellent example. That it was General Electric gives you a clue to how serious this is.

No, I don't think Russell comprehends what's at happening at all.

It's my contention that at the January-March lows the Average had, in their "wisdom," discounted the worst that could be seen ahead. I'll hold to that stance unless or until the two Averages reverse their trends, head lower, and break below their respective lows.

I prefer to stay ahead of the curve and go for capital preservation with my long-term monies. He seems to prefer to be at the affect of the curve and wait until the point at which the averages have already broken their lows. It might be too late to get out by that point without taking a big hit.

I always considered him more of a "columnist" type than a serious "technical analyst". I've enjoyed reading his material from time to time but nothing he's ever written had any impact on me. So much of his material is anecdotal regarding his family, children etc. and about his "life"... I would put his material in the same class as Kass, Kudlow, Dear Abby etc. Fluff.

I think you have to read Richard daily to get all his thoughts on things as he does address many of the issues that have been mentioned here. Pedro has the best take in that he doesn't seem to post weekly & monthly charts very often, although that doesn't mean he doesn't use them. Also, he most definately uses compounding as his method of investing by buying the most secure dividend paying stocks such as MCD, JNJ, etc. and holding. However, compounding has been proven to be onr of the surest way of investing for the mass majority of investors. In fairness other than his recommending a few quality (buy & hold) stocks in the past 6 months he has recommended buying DIA, then sold that position in early December, and has recently recommended buying the DIA once again, all at good times. If you had followed his advice you would be ahead over the last 6 months (better than most). I think his Dow Theory has merit but I wouldn't trade strictly off of it, but if DJI & DJT break his levels I sure wouldn't be holding anything either. All in all if you read him over the course of 1 month or so I think most would find him interesting, and his stories about his early years in New York and time serving in WW2 are good reading. Maybe I'll post a weeks worth of letters to see what people think. Just remember he's no day trader and buy & hold isn't 48 hours. JDJ