RICHARD RUSSELL: “SELL ANYTHING”

Reading Richard Russell’s daily notes are like reading a real-time history book.  Like any investor, he is often wrong, but his knowledge of the history of the market is truly unmatched.  He is one of the few men who is still around to tell us about the Great Depression and how similar today’s economy feels.   Russell has become increasingly bearish since early April.   He says the market is crumbling and believes the internals are so bad that the market is very vulnerable to substantial downside.  He even goes so far as to say the we won’t recognize the country by the end of this year.  “There’s a hard rain coming”.    Yikes:

“The market is crumbling, in the face of rosy news this is the worst kind of action. The market is severely oversold now, and if we don’t get a bounce next week, it’s “Katie, bar the door.” My PTI was down 6 to 6116. MA was 6075, so my PTI remains bullish by a shrinking 41, lowest in weeks. June gold gave up less than two bucks today, which is great relative strength action. GDX closed higher today, which is bullish for gold. This market action is catching investors by complete surprise, and as such it is proving very costly. Billions in paper values are being lost.

Finally, it’s happening. The stock market has “lost its mind.” The poor thing is falling apart, when every sane investor knows that the market “should be” going up as it discounts the almost certain better economy that lies ahead. Then I remember that the stock market reflects what everybody knows about everything and anything that pertains to business and the forthcoming economy. So alas, the stock market has finally gone insane. It’s not telling us what we already know.

I search Saturday’s Wall Street Journal and right on the front page I read, “The recovery is beating expectations as data show consumer and manufacturing strength.”

Then I look at the latest issue of Barron’s and right on the cover I read, “STRONGER THAN EVER – America’s biggest companies are sitting on loads of cash and ready to earn higher profits than ever before. What it means for the economy, dividends and your investments.”

And I ask myself, “Am I seeing things? The April 26 high for the Dow was 11205.03. The Dow is selling as write at 10557 down 648 points from its April high. If business is even better than expected, then why is the Dow down over 600 points? And why, if there were 674 new highs on the NYSE on April 26, were there only 20 new highs on Friday, May 14? And if my PTI was 6133 on April 26, why is it down 17 points since its April high?

The fact is that I’ve been seeing deterioration in the stock market ever since early-April, and this in the face of improving business news. The D-J Industrial Average is composed of 30 internationally known top-quality blue-chip stocks. These are 30 of “America’s biggest companies.” If Barron’s is so bullish on the future of America’s biggest companies, then why isn’t the Dow advancing to new highs?

Clearly something is wrong. But what could it be? Much as I love Barron’s, but I trust the stock market more. If I read the stock market correctly, it’s telling me that there is a surprise ahead. And that surprise will be a reversal to the downside for the economy, plus a collection of other troubles ahead.

Do your friends a favor. Tell them to “batten down the hatches” because there’s a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don’t need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won’t recognize the country. They’ll retort, “How the dickens does Russell know — who told him?” Tell them the stock market told him.”

Source: Dow Theory Letters

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • CN

    So what are your thoughts on Russell’s comments?

  • David

    I can’t see the US looking too much different at the end of the year, but the recent actions in copper, chinese markets, and the AUD have been interesting. The AUD has been a favoriote short of mine for the past few months; b/c of it’s close ties to China it seems to be a fairly decent leading indicator. With all of these markets rolling over pretty hard, it seems as though they are telling us the global economy might be ready to take a turn for the worse. They keep finding a bid at support levels, if these are given we could see a part of Russels scenario play out.

  • Matty

    I feel dumber having read this.

  • http://www.pragcap.com TPC

    Russell is a little dramatic for my taste, but he’s lived thru A LOT more market cycles than I have so he has a better feel for the markets.

    The deterioration we are seeing around the world right now frightens me, however. Markets are very oversold right now and who knows what will happen with the Summer doldrums, but I am having an increasingly difficult time seeing a good way out of this. The deck appears almost perfectly stacked against us now:

    1) Stimulus ending
    2) Sovereign debt fears return
    3) Consumer debt too high til at least 2012
    4) Housing market rolling over again
    5) China rolling over
    6) Copper prices in bear market for first time since 2008
    7) Earnings estimates are VERY high for H2 2010
    8 The small investor has zero confidence
    9) Global fiscal austerity
    10) Leaders don’t understand the problems
    11) “Recovery is here!”
    12) Deflation returning
    13) Market just 7% from its highs
    14) EUR fair value $1.15
    15) EUR problems are totally unresolved

    I could go on and on. I know I am missing some huge macro themes, but aside from the potential for a near-term oversold bounce I am having a hard time seeing how we get thru the back half of this year without a major market dislocation.

  • http://www.pragcap.com TPC

    That implies a certain level of dumbness prior to reading. How much did Mr. Russell’s commentary contribute to your now elevated levels of dumbness? :-)

  • LZ

    A technician talks without a chart. It is all personal opinion. Russell should know that we may not even get primary trend change signal by the year end.

  • Octopus

    I think the really oversold mkt is Eur against almost everything, US and Europe eqty mkts are not terribly oversold anymore…that said the rebound could last but risk reward is against a lng position

  • http://www.pragcap.com TPC

    What makes it impossible to get long here is that fact that the EUR is broken in my opinion and the market now knows it. How can anyone justify a EUR above $1.15? They can’t.

    I might consider a net long into earnings season, but this environment is changing. As I said a few weeks ago, there is pre-Greek data and post-Greek data.

    I would remain very cautious despite the oversold conditions.

  • http://fridayinvegas.blogspot.com Kid Dynamite

    but TPC – the list of headwinds you mentioned above isn’t what Russell was talking about – he was talking about indicators from the market itself… stocks rally nearly 100% over 15 months, and then decline 5%, and he’s saying it’s a warning sign? it’s LONG overdue! (note: i’m bearish too! but not because the market is 5% off its high in the face of what Russell calls improving economic news)

    it reminds me of the absurdity with which we try to attribute market moves to SOMETHING everyday. the market can be up 1% a day for 6 months straight and no one asks a question, but if it’s down 3% one day, everyone wants to know “why?”

    I always had the same response: “REALITY.”

  • http://www.pragcap.com TPC

    Russell and I view the market thru two very different lenses. I don’t use Dow Theory at all. My work is 70% fundamental, 20% psychological and 10% technical. His work is almost 100% technical.

    Most technical analysis on its own, is coincidental.

  • fletcher

    I subscribe to Richard Russell, and what he wrote yesterday, was backed up with charts and a long long history of looking at and analysing the market internals (advances / declines, up vol / down vol etc) and he has been describing the deteriorating picture on a daily basis for some time.

    Ignore him at your peril.

  • ObaMao

    Don’t discount the Russell and time proven Dow Theory. It’s another screaming indicator that we’re perhaps in the midst of the blow off.

    More importantly stop telling yourself that this time it’s different. Greedy market pundits move in herd and often are wrong especially near market top and bottom.

  • http://www.pragcap.com TPC

    If anyone moves against the pundit “herd” it is me. Not to toot my own horn, but I’ve nailed this market and pinpointed the exact fundamental reasons why it would decline. Okay, I am tooting my own horn. But my dad once said: “Don’t ever be afraid to toot your own horn because no one is going to do it for you”.

  • Matt S.

    End of this year? I don’t recognize it now.

  • LZ

    My question is, did we see a dow theory sell signal yet?

    If the answer is no, Russell should not go too far to advise people take extreme bearish position and predict events in longer term time frame. Because the this deterioration could well be a short term retracement. The statement “by the end of this year they won’t recognize the country” is not backed by any fact. That is all I want to say.

  • http://www.greenworldinvestor.com Abhishek

    Is this a normal technical correction or a trend change? There has been so much “cry wolf” after each 5% decline during this 100% rise that makes every bearish opinion seem wrong.However the fundamentals do make the bearish opinion plausible but that has been true since the rise as well

  • B Ferro

    Funny as hell.

  • Nicholaz

    +1

  • Oscar

    Relax were still above the 200 day moving average. We went up for a long time witout a correction….remember? this is what happens. But to be on the safe side I would lighten up.

  • ChickenLittle

    Head and shoulder pattern resolution would be at $.85

  • Oscar

    PROVERBS 27:2

    Don’t praise yourself let others do it.

  • http://www.pragcap.com TPC

    Noted.

  • Matty

    Agreed LZ, this is specifically what made me feel so much dumber than I already am.

  • Eric

    Have you people not been reading Richard Russell’s letters, in late March/early April he said all his indicators have finally been bullish as we have gone above the 10725 level and that we are in a bull market after being bearish for the ride from 6400 on up. While Mr. Russell is a wealth of interesting knowledge his market calls have been great contrarian indicators.

  • AWF

    Abhishek said:

    “Is this a normal technical correction or a trend change? There has been so much “cry wolf” after each 5% decline during this 100% rise that makes every bearish opinion seem wrong”

    Changes in the Primary Trend are allways High Volume Events–

    October 2008–High Volume–Uptrend to Down

    March 2009–High Volume–DownTrend to UP

    June/July 2009–correction—average volume.

    Jan/Feb 2010– correction—average volume.

    April/May2010—High Volume—UpTrend to Down?

    To give the “Abandon Ship Signal” you would need a break below the 40Wk/52Wk-MA
    on High Volume.That particular range would be the 1090-1100 area on the S&P

    Additionally a WKLY close below 1090 on the low of the Week would be another confirmatiom.

    Additionally look at the S&P Mid Cap Index–This Index must support this Downtrend

    While a Dow Theory “Sell Signal” would require both the IND and Tranny’s to print lower low’s —that signal would be late for most folks.

    Remember this information is for educational purpose only–

    You make your own buy and sell decisions.

  • isxcowpoke

    Let me get this straight, not to long ago we were told that the Retail Investor was absent and that the Big Banks were simply playing with Free Fed Money.

    So if this was/is in fact true, then whats the big deal if the mkts Gyrate up and down 10% to 30%?

    It’s only digital currency from one bankers current account to another’s.

  • Edna R. Rider

    TPC, another significant “macro” problem I see is that commodities have finally been exposed as a bit of a fraud, driven higher primarily by traders not by commercials. I’m not saying we don’t need commodities or that some commodities are perhaps too cheap but the fact that they became such a massive part of hedge fund and other institutional portfolios is just wrong — it destroys the users of the commodities (you know, like people who drive to work, eat, or drink coffee). See Maudlin today. If commodities fall over again (in the “echo bubble/bust”) the markets are screwed. Everybody can’t just own AAPL after all.

  • billw

    TPC,

    We were never going to recover from this, we just had the illusion of recovery. Take time to read debtdeflation.com by Steve Keen, and read debtwatch No. 34. I first read it almost a year ago and realized where we are headed. Yes there are a lot of things that we could do and could have done to shorten and lessen the impact. But as you said we do not have currently the type of leadership to enable us to accomplish that. That being said we do have a very good group of strong conservatives taking over the Republican party much as Reagan did back in 1980. Conservativism is never in style unless time are really shi**y; that is why the liberal Republicans pretty much control the party during good economic times. During shi**y economic times we can get enough Democrats to join us to carry the day. As times get better those same people forget what caused all of the problems ( overspending) and go back to voting the liberals into power.

  • mike

    Richard Russell give me a break and retire already. Zero wisdom remains & zero credibility. Sorry but his day has past and his massive errors the past five years prove it.

  • http://www.dobox.com/ Bruce

    TPC,

    We were never going to recover from this, we just had the illusion of recovery. Take time to read debtdeflation.com by Steve Keen, and read debtwatch No. 34. I first read it almost a year ago and realized where we are headed. Yes there are a lot of things that we could do and could have done to shorten and lessen the impact. But as you said we do not have currently the type of leadership to enable us to accomplish that. That being said we do have a very good group of strong conservatives taking over the Republican party much as Reagan did back in 1980. Conservativism is never in style unless time are really shi**y; that is why the liberal Republicans pretty much control the party during good economic times. During shi**y economic times we can get enough Democrats to join us to carry the day. As times get better those same people forget what caused all of the problems ( overspending) and go back to voting the liberals into power.

  • boatman

    i choose to not take your use of your dad’s quote personal

  • boatman

    this morning everything was down….rare.

    double dip risk increasing, no doubt.

    my gut(and increasingly my head) tells me we are living in a house of cards more and more everyday.

  • duc1098

    For every investor small to large…let’s hope to high hell we can sit back a year or two from now and say he was wrong!!!

  • Anonymous

    HIGH HOPES.
    The grass was greener….. it seems long time ago but it’s not as such.
    The Western world since 1991 decided to quit from industrial economy by turning into a big planetary shopping mall and this is a nonsense.
    Now we are all starting to realize that nobody can thrive on debts, bonds, unpaid checks and so forth.
    Sovereign States default is round the corner and a global war it’s a logical consequence.
    Let’s wait for the division bell ring.

  • http://www.thelereport.com Ben Le

    As always, Mr. Russell is very creative in his reports. And you’ve gotta love it. He has been quite bearish in the stock market for quite sometimes now. I think he’s finally right. The S&P 500 is already trading below 150 day moving average which is quite worried. Give it a few more days and see how it acts below this line. If it failed to lift back up, you should follow Mr. Russell advice and get out of stocks before it’s too late. Actually, you should be already scaling out.

  • The Observer

    Just watch. The Dow WILL plunge below the 200 day Moving Average, just like China, Hong Kong and many others did in recent months.

    Its just a matter of time.

  • stargazer

    i’m in love with his daughter and he is right