RICHARD RUSSELL: DO REALLY BAD TIMES LIE AHEAD?
Richard Russell, author of The Dow Theory Letters, isn’t buying the new bull market talk (read why this isn’t a new bull market here). He’s now wondering if all this money printing hasn’t created a new bubble and whether “really bad times lie ahead”:
Question, has the Fed’s quantitative easing thrust the stock market into another bubble (a bubble that can now be bursting). Consider the following: Enthusiastic investors have pushed the S&P up 70% since last March. That’s a recovery of 52% of the 2008-09 losses.
Could this have been a stock market bubble? Consider the following: Eighty-five stocks in the S&P now have price/earnings ratios over 60, based on the last 12 month’s earnings. Some examples — Healthways (HWAY) P/E 277, Skechers USA (SKX) P/E 225, Bank of America (BAC) P/E 185, Perficient (PRFT) P/E 165, City National Bank (CYN) P/E 186, and so on.
Russell notes one of the most disturbing features of this rally – it has been on nearly non-existent volume. He also cites investing legend Joe Granville, who has nailed this market. Granville is turning bearish for the first time in several years and that has Russell very concerned:
My old buddy, Joey Granville, has been terrific on this market. Joe has ridden the market all the way up since March. Joe uses his on-balance-volume studies to set him right. Writes Joe in his latest fax, “All my technical indicators are based on VOLUME.” Now Joe has turned near-term bearish and is putting out shorts for the first time in two years.
I’m guided by volume too, I’ve been warning subscribers about this market because of the high number of “Distribution Days.” These are days when the market closes down on rising volume. Distribution days are indicative of institutional selling. Here is the latest count on distribution days — 6 for the Dow and the S&P 500; 5 for the NYSE; 3 for the Nasdaq, all occurring over the last two weeks. That’s far too many, the implication being that institutions have been selling this market under the guise of a rising Dow.
In terms of the technicals, there isn’t much to like here either. The Dow Industrials and the Dow Transports have both broken their 50 day moving averages:
The sinking market is taking a lot of late-arrivals along with it; These are the poor souls who bought stocks hoping to recoup some of the losses they suffered during 2008-09. The falling stock market, I believe, will turn consumers even more sceptical and bearish than they have been. Today, by the way, the Dow and the Transports both closed below their 50 day moving average, this for the first time since last November.
Russell has lived through many bull and bear markets and he’s still not convinced this is the making of a new bull:
Despite it all, I continue to believe that since March we have been in a bear market correction, and not a new bull market. For this reason, I take the current rotten market action very seriously. If I’m correct, it this is the beginning or a top-out in a bear market rally, then I can tell you that the “fun’s over,” and the really bad times lie ahead.
What I’m now trying to decide is whether this is just a short-term correction or whether we are seeing a serious top-out of the rise from the March lows. A bearish turn of events would be an initial decline, then a weak rally and a second decline violating the lows of the first decline. In other words, a definitive downward pointing zig-zag.The Dow has now wiped out all of its 2010 gains and now shows a loss for the year, but more about the meaning of this tomorrow. Subscribers who wondered why I didn’t want to put the bull in the box may now see my hesitation. Bear market rallies turn on a dime, and in a few sessions you can be under water. I want my subscribers to be in the best shape possible if or when this market “has had it.” A few more weeks like this one, and we could see a real old-fashioned panic.
The VIX is 22, which tells us that nobody has been buying puts. Confidence and complacency are the mood of the day. Nobody’s ready for a lousy market ahead.
That’s about all I have to spout about today. Golly, tomorrow it’s Friday. Time flies when you’re having fun. After six months of sun, now we’re having a flood. Noah, start building another ark.
God save America,
Russell
Great, great thoughts….
TPC, Thanks for sharing these insights, as always. Just finished reading Russell’s “The Dow Theory Today.” Very relevant to my current pursuits. Thanks.
Someone writes, “Noah, start building another ark,” and you write, ‘Great, great thoughts”?! Gimme a break. This sad man who tries to figure out what’s happening in the world by reading a bunch of charts could be right, but if he is, it’s dumb luck.
Joe I think Russell lives in California. Check out the weather channel.
Joe, CA is quite literally flooding. El nino has been bombarding us for the last week. It was actually quite a humorous comment if you know of the circumstances here.
Thanks for the heads up on this.
TPC, I am skeptical of significant rallies and significant sell offs. I am bearish mid- and long-term but in the short run I think the concerns are overstated. I would be very surprised if we didn’t spend the next year with the S&P at around 1000. One tell for me is usually XOM. Whenever it nears $66 the market feels way too gloomy. The acquisition of XTO is a positive (by far the best US nat gas company). Note the “bottom” in July XOM was at $66 too. I would think by the middle of next week it will be clear that Obama’s announcement was political rhetoric and everybody will have forgotten to read all the pronouncements from the bears and the upgrades will begin again the first of Feb when institutions do all their buying for the month, and Bob Doll can get on CNBC and tell everyone the S&P is undervalued by 20%.
Edna: I’ll give you $100 to email me every time you buy a stock. (Like GS, though, I’m not going to reveal whether I’m going in with you or whether I think you’re a complete idiot againt whom i want to be inversely correlated 100% of the time.)
Brigham Young said: The time would come when a bushel of wheat
will be worth more than a bushel of gold.
Start your gardens!
Thank goodness America is a loving, compassionet society.
Money and Pride is the root of many problems.
People like you should crawl into a hole and stay there, and keep your mouth shut.
What a bunch of nonsense — if the world could be so easily predicted with stupid charts, where on earth were you before all this happened. You so-called gurus have to prove so badly that you are right, so much so that you make these doom and gloom forecasts knowing full well that most people are lemmings. It then becomes a self-fulfilling prophecy because fear will drive people to sell. And then I suppose you’ll pounce and buy your favourites back real cheap. The market could use less people like you who are intent on maniupulation, pure and simple.
Hmmm,
I didn’t write this. And if you don’t like forecasts then why do you read them?
Fits with what I’ve been looking at.
Seems few look inside, but just buy the bag.
Accordingly, looking back at the levels after the crash was completed, one might see that thing called real value.
In application, using whatever as a standard, more than one indicator is looking towards correction.
Any rise without base is as obvious as a falsie. More than one is intentional.
The froth on the beer is on the order of 10 – 20 %, minimum.
At today’s close, the real value is nearer to 7800 – 8300.
Only a very few heard the exclamation that we had fallen to the real value point during the last fall.
Fasten your seat belt Dorathy, Kansas is goin by, by…
Unemployment increase, business downturn, and few safe places to invest, all calls for an intense ‘correction’. Remember, that foreclosures are still going strong, setting new records in a lot of places.
This will be an interesting ride.
Roller coasters use momentum to keep going, but the hills get shorter as they go. The stimulus ain’t there to push, so now what?
Dear Sir
I agree what a Brillant man like Richard Russell is saying and Think were headed for Very Hard Times and being ready for the next big down turn and Not beleiving our goverment BS Anymore and Printing their way and spending their way out isn’t going to help this time I feel.John
thanks tpc. russell is great.
Mr Russell mention stocks with a high P/E-ratio. That stocks are expensive but there are reasons for it. In general the Dow is extremely oversold resulting in stocks with low E/P’s. Therefore we are awaiting a strong bounce back of the Dow all the more the financial results of the most companies are above expectations. My observations show a Corporate America that rises again out of the recession slow and sure and stronger as never before. That are the facts I trust on.
Furthermore president Obama is taken measures to stop wash out of bank- and other financial products which are not in conformity with the interest of the consument. That means ‘normal’ bank profits in the future with possible bonusus as a limited part of annual salaries. President Obam is right: greed is the consequence of the casual relationship: a lack of adequate regulations by banks and supervisors.
It is the same as a pharmaceutical industry could bring new products on the market without any restrictions. Fortunately we have de FDA as supervisor which sharply controls the new product in several phases. The same system should be usefully for bank- and other financial organizations.
I will completely agree with what Mr. Russell is saying. The VIX I believe has recently touched 18 a historical reading.Where It might become quite possible for the markets to react lower.Confidence and complacency are ruling in the mind of the small investors. There is absence of panic at lower levels. People are buying in the declines averaging their losses. And the larger players may feel it quite safe to distribute their stuff bought(warehoused for the five months i.e.from 27 OCT. 2008 to 6th of March 2009.) at panicky lows. As shown by the last quarter profits of Goldman Sachs these big sharks has made lots of money due to quantitative easing. Now We should take a bold decision to Sell at whatever levels we can ignoring our buying prices. I mean I would take a small loss rather waiting for the miracles.
Bad times and poor economy are a no brainer until the middle class get more jobs!!
“The Jewish people as a whole will become its own Messiah. It will attain world dominion by the dissolution of other races, by the abolition of frontiers, the annihilation of monarchy and by the establishment of a world republic in which the Jews will everywhere exercise the privilege of citizenship.
In this New World Order the children of Israel will furnish all the leaders without encountering opposition. The Governments of the different peoples forming the world republic will fall without difficulty into the hands of the Jews. It will then be possible for the Jewish rulers to abolish private property and everywhere to make use of the resources of the state. Thus will the promise of the Talmud be fulfilled, in which is said that when the Messianic time is come, the Jews will have all the property of the whole world in their hands.”
— Baruch Levy, Letter to Karl Marx, ‘La Revue de Paris’, p.574, June 1, 1928
Rajiv,
Well said. I had done the same thing for the speculative stocks that I had bought, which had increased in value. Though the market swings down last week, there were still some profits left for me to take. Come tomorrow or Wednesday, we do not know what awaits us. Wish I had done it last Wednesday.
The markets will fall big this year, below the 6600 level of last March before this year (2010) is out. By 2012 the DOW will be under 3000. We shall see one and maybe 2 major earthquakes, higher than a 7, in the United States this year but no later than the middle of 2011. Millions of American’s will be displaced. A major World War will break out in 2015. In 2022 we will have a nuke type event. Then in 2029 the world will end. You see 9/11 was the ridding of the 1st horse of Revelation. With each pasting of 7 years another major world event happens. So in 2008 we have the world melt down of credit. In 2015 we will have War. In 2022 something else happens, maybe the yellowstone volcano blows it’s top or the big nuke is dropped. Then the last 7 years and in 2029 the world ends. Along the way we will have other events such floods, earthquakes, etc. These are the end times of No Mercy. Choose…believe or not, it’s up to you, free will