We have been reading the latest copy of the Dow Theory Letters, one of the longest running investment letters in the US written by the highly regarded Richard Russell. Richard Russell has turned quite adamantly bearish, encouraging his 12,000 + subscribers to get out of equities now. Russell has been writing his letter since 1958, and is an elder statesman of the US investment newsletter business, and his views are always heard at turning points echoing around the financial press. He had believed the May 7th lows to be extremely important and that breaking them on the downside could predict a crash. We are now well below that level and the bearish action is continuing.
What is it that he sees is so bad in the US markets and economy? He claims that the markets are at a critical turning point due to many factors including:
- A lack of leadership from previous stars such as Berkshire Hathaway (NYSE:BRK.A), Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) - they are showing collapsing volume, topping action and breakdowns through 200 day Moving Averages
- Correlated downside across supposedly uncorrelated markets simultaneously indicating deflationary forces at work - commodities, equities etc
- Market breadth falling apart - the advance decline line and his own proprietary PTI indicator have turned decidedly negative.
- P/E ratios dangerously over 20.
- The Market ‘acting awful in the face of rosy news coming out of Washington, the Fed and the Treasury’.
- Confirmation of trend changes in both the Dow Jones Industrial Average and Dow Jones Transportation Average (see below)
For the full story and investment perspective you'll have to sign up at his website http://www.dowtheoryletters.com. It's worth noting that Dow Theory is more an art than a science and while Russell's record is extremely good he has been caught on the wrong side of the trade before - which is worth bearing in mind given the regular polarity of his views. But as a pragmatist, he's always quick to admit his mistakes and give credit to the market where it's due. His longevity as a market commentator is practically unrivalled and his writing is always infused with a grasp of history that you rarely hear in the financial press which is one of the reasons his readership is so incredibly loyal.
It’s refreshing to read someone so very forthright and critical of conventional thought, …
