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Monday, May 5, 2008

Richard Russell says Secular Bull Market Continues

Richard Russell says Secular Bull Market Continues

This is an excerpt from David Korn’s May 3-4 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.

Richard Russell, one of the most widely followed and perhaps the oldest newsletter writer and proponent of Dow Theory, has just published an article in Barron's magazine that is worth commenting on. In the article, Russell takes the position that the secular bull market that began in the 1980s is still in tact. He basis his reasoning on a few things. First, is the 50% Principle which can be traced back to Charles Dow (the originator of Dow Theory) and George Schaefer (one of the later Dow Theory interpreters) which says that the primary trend of the market remains intact and bullish if the Dow doesn't fall below a 50% retracement during the course of the pull back. Russell points out that the Dow reached a low of 759.13 in 1980, to a high of 11,722.98 in 2000. In its bear market low of October 9, 2002, the Dow managed to stay above the 50% retrenchment level. This positive technical development was confirmed in the most recent correction. Russell also points out that Dow Theory as applied this year (the action of the Dow transports and Dow industrials) further bolsters the view that the primary trend is bullish. And finally, Russell points out that short interest on the NYSE has reached a record 15.2 billion shares which will ultimately need to be covered. Russell concludes with his forecast that the U.S. economy will improve and the bull market will end with a surge of stocks surprising everyone along the way. You can read Richard Russell's article entitled, "A Rally With Serious Muscle" at this url:

One of the reasons for bringing up Russell in today's newsletter, is because I am of the opinion that Russell's view on the secular trend is one of the reasons that Bob Brinker changed his view that we were in a secular bear market. You may recall that last year, Bob abandoned his long held view that we were in a secular bear market and retroactively declared the end of it to 2006.
The implication that we are in a secular bull market is important because if you follow that belief than you should be expecting record all time new highs in the major indices BEFORE ANY BEAR MARKET ARRIVES. That would mean significant gains, even from these levels. Indeed, a record new high in the S&P 500 would mean a close above 1565.15 and a record high in the Dow would mean a close above 14,164.53. Those gains won't come quickly, or easily if history is a guide. The market doesn't move in a straight line as we all well know. But I thought you would find this information interesting as it certainly jives with the outlook of the market timer, Bob Brinker, whom many of you follow.

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