Cyclical Bull and Bear Markets

Posted by Comments by Richard Russell and David Rosenberg

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One sentence from the lengthy daily internet comment by Richard Russell of Dow theory Letters. One of the best values anywhere in the financial world at only a $300 subscription to get his report daily for a year. HERE to subscribe (top right corner)

Ed Note: David Rosenberg Below

August 26, 2009 — Correction. I was wrong. Yesterday the Transports closed at 3772.73. This was 2 points below the level needed (3774.12) to confirm the Dow. On that basis, I should not have put the Bull back on the site. The new Dow highs have not been confirmed.


August 25th, 2009 — “With the Dow and the Transports at new highs, the secondary trend is clearly bullish, and the bull has returned to the box.”


August 26, 2009 –Strange, I can’t remember the last time I was this lukewarm about a market advance. What’s the matter with me, why can’t I get into it? The answer — I’m still worried about this being a rally in a bear market, a rally of the kind I went through during 1966 to 1980.

To refresh your memory, the chart below (borrowed from John Mauldin’s great column) traces the “cyclical bull and bear markets” that took place within the 1966 to 1980 secular bear market. That 14-year bear market ended with the disaster of 1973-74. I guess having lived through those days has caused me to be very careful, although my subscribers and I did escape the 1966 to 1980 period without being killed.


So how do we navigate around the current market without taking undue risks? My own inclination is to play it carefully and conservatively. If I’m not sure where I’m at, I just take it easy, and do what I need to in order to sleep peacefully.


David Rosenberg of Gluskin Sheff

Boy, with all that good news — Case-Shiller, housing sales, durable orders, consumer confidence, Bernanke (!) — one would have thought that we could do better than 2.6 points on the S&P 500 in the last two days. It could well be that the buying momentum is subsiding. Indeed, over 50% later, it would make perfect sense for the market, which investors were buying on rumours five months ago, to begin to sell on facts; nothing wrong with taking profits in a market trading at 130x trailing reported earnings. Moreover, sentiment is a clear obstacle here with Investors Intelligence flagging a 51.6% bullish chorus with just 19.8% of respondents in the bear camp — like Tuesday’s bull-bear ratio in the August consumer confidence report, we haven’t seen market sentiment this smug since the autumn of 2007 (right before the fall).

The real enemy for the equity market is Mr. Bond — that pesky Treasury market that just won’t sell off and validate the great reflation trade. Indeed, if we were seeing a real asset allocation move on the part of investors, as opposed to massive and ongoing short covering, then the 10-year Treasury note yield would be trading close to 5.0% — especially with these freshly minted Obama debt forecasts. But instead, the 10-year note is now getting perilously close to the July 10 low of 3.32%. Keep in mind that July 10 was the day when Meredith Whitney gave the green light to Goldman, and Roubini declared the recession to be ending, and what a spark that provided to this last leg of the bear market rally. Now what if Doug Kass’ declaration yesterday that the major averages have hit their highs for the year proves as prescient in the other direction? Come on, not only is the market trading at a nutty 130x multiple, but September-October is right around the corner (as is H1N1! ).

The one thing we will say on a positive note is that spending on tech is firming and this spells good news for sustained productivity growth ahead — though likely at the expense of new hirings. Out of that durable goods report yesterday, we saw that new orders for technology inputs surged 1.6% MoM in July, led by gains in telecom equipment — this was the third increase in a row during which tech orders have risen at a solid 23% annual rate.

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The 84 yr. old writes a market comment daily since the internet age began.  In recent years, he began strongly advocated buying gold coins in the late 1990’s below $300. His position before the recent crash was cash and gold.

There is little in markets he has not seen.  Mr. Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron’s during the late-’50s through the ’90s. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-’66 bull market. And almost to the day he called the bottom of the great 1972-’74 bear market, and the beginning of the great bull market which started in December 1974. He loaded up on bonds in the early 80’s when US Treasuries where yielding 18%.