Violent Correction or Primary Bull Market? – Gold

Posted by Richard Russell via Rob Zurrer

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Richard Russell has made his subscribers fortunes. One of the best values anywhere in the financial world at only a $300 subscription to get his DAILY report for a year. HERE to subscribe. The 87 year old Russell got his subscribers heavily invested in Gold below $300 and has urged his subscibers to stay long and keep buying all the way up to yesterday’s close of spot at 1,713.20

I get Richard Russell’s daily letter and have been his grateful subscriber for 31 years. Certainly the best return on a $300 a year investment I have had the good fortune to earn.

Yesterday Richard wrote that “This Time its Different” is one of the most costly and deceptive remarks anyone can make about the Stock Market. Then as he always does, especially when the market is out of control he interpreted the current market through the Dow Theory (his explanation of the Dow Theory HERE)

After yesterday’s close Richard made the comment that according to his proprietary indicators and the Dow Theory the market is either a violent correction in an ongoing Bull Market or its the beginning of a primary Bear Market.

“I follow the D-J Averages, and most of the time this procedure places you on the right side of the market” – Richard Russell 08/08/11

The Dow Industrial Average has now broken both its 50-day and 200-day moving averages. It has also broken below both its March and August lows.


He reaffirms that in the Dow Theory “a movement of one Average, unconfirmed by the other, is often deceptive and should not be taken seriously.” As it happens the  D-J Transportation Average, “is almost carbon copy of the Industrials.” The Transports have also clearly broken below both its 50 day and 200 day moving averages as well as both its March and August lows. According to the Dow Theory, that’s about as bad as it can look.


On the postitive side, if this is a violent correction in an ongoing Bull Market instead of the beginning of a Primary Bull Market, the percentage of stocks holding above their 200 day moving average has plunged to the point where only 20.79%. An area where “the market is either drastically oversold and ready to rally, or an area that characterizes bear market action. Note that RSI and MACD are deep in bear territory.”


Take note: Richards proprietary indicator, the PTI, is bearish. The PTI is an indicator Richard regularly says is smarter than he is. (How he constructs the PTI is a secret known only to him.)

All that said, Richard says the market is in the territory where it should rally, and the quality of the rally will tell him what the future holds for this market. A powerful rally with high volume and this collapse was just a wicked correction in a Bull Market. The opposite, a weak rally on low volume and its the beginning of a dreaded Primary Bear Market with a corresponding case economic heart attack.

Another interesting note: Richard also said “Today’s decline came on news. Remember, the market never discounts the same thing twice. But, but — this news is not over yet. And the problems have not been resolved.” the comment that the problems have not been resolved is also what Greg Weldon told Michael Campbell in an interview at 1pm PST yesterday which you can read in this article Denial Disaster Destiny & The Man Behind the Curtain.

Last note: Richard was not thrilled with the gold action. Probably for the same reason that Peter Grandich points out ” It would not surprise me if the next $50 move in gold is down and there’s a couple of reasons for that. A) it’s had a big move, B) people tend to sell winning things to average down on losing things.  So I can see some people taking some money and profits in gold, putting it into other areas now. You can read the transcript of Peter’s interview that took place early yesterday morning or listen to it in ful here: Grandich on Stocks & Gold – Mark Leibovit sells all Mining Stocks

This might be the time to read or re-read Richards great article on Hope:

HOPE: It’s human nature to be optimistic. It’s human nature to hope. Furthermore, hope is a component of a healthy state of mind. Hope is the opposite of negativity. Negativity in life can lead to anger, disappointment and depression. After all, if the world is a negative place, what’s the point of living in it? To be negative is to be anti-life.

Ironically, it doesn’t work that way in the stock market. In the stock market hope is a hindrence, not a help. Once you take a position in a stock, you obviously want that stock to advance. But if the stock that you bought is a real value, and you bought it right — you should be content to sit with that stock in the knowledge that over time its value will out without your help, without your hoping.

So in the case of this stock, you have value on your side — and all you need is patience. In the end, your patience will pay off with a higher price for your stock. Hope shouldn’t play any part in this process. You don’t need hope, because you bought the stock when it was a great value, and you bought it at the right time.

Any time you find yourself hoping in this business, the odds are that you are on the wrong path — or that you did something stupid that should be corrected.

Unfortuneately hope is a money-loser in the investment business. This is counter-intuitive but true. Hope will keep you riding a stock that is headed down. Hope will keep you from taking a small loss and instead, allowing that small loss to develop into a large loss.

In the stock market hope get in the way of reality, hope gets in the way of common sense. One of the first rules in investing is “Don’t take the big loss.” In order to do that, you’ve got to be willing to take a small loss.

If the stock market turns bearish, and you’re staying put with your whole position. and you’re HOPING that what you see is not really happening – then welcome to poverty city. In this situation, all your hoping isn’t going to save you or make you a penny. In fact, in this situation hoping is the devil that bids you to sit — while your portfolio of stocks goes down the drain.

In the investing business my suggestion is that you avoid hope. Forget the siren, hope — instead embrace cold, clear reality.