Richard Russell & Dow Theory Agree: “We’re in a Primary Bear Market!”

The Dow Theory on stock price movement is a form of technical analysis that includes some aspects of sector rotation. The theory was derived from 255 Wall Street Journal editorials written by Charles H. Dow (1851–1902), journalist, founder, and first editor of The Wall Street Journal and co-founder of Dow Jones and Company. Following Dow’s death, William Peter Hamilton, Robert Rhea, and E. George Schaefer, organized and collectively represented Dow Theory, based on Dow’s editorials. There are six basic tenets of Dow Theory but the main idea is that the industrials and transports must confirm each other. If, for example, the Dow is rising but transports are declining or not rising along with the Dow, that may be telling us that the underlying economy is not as good as the industrials are indicating, since investors in the transports may have knowledge or at least a sense that items are not being transported in line with expectations of future sales from the industrial companies.
Our economy has been transported more from an industrial economy to a service economy, thus indicating that the transportation of goods is not such an important indicator of real underlying economic strength or lack thereof. There may certainly be some validity to that argument. However, keep in mind that transports now include such companies as those engaged in air and freight transportation, which in fact is a gauge of true economic strength. It also does include domestic freight, so that if trucks and trains are hauling less goods around the U.S., it may still provide some valuable collective information regarding the vitality of the U.S. economy as well as the global economy.
And so, over the years, I have continued to give at least some credence to the work of the most renown contemporary advocate of Dow Theory, that being Richard Russell. Following are some of the points made this past week on King World News by none other than Richard Russell:

The world is deflating. But people don’t want to see their standard of living go down. As a result, they continue to borrow. In turn the politicians continue to spend, and the federal debt continues to rise. On top of all this, Greece is putting its exit plan to a vote. Greece is in depression and will almost surely leave the Eurozone and the euro currency. Now it turns out that Puerto Rico, a US possession, is bankrupt and will need loans.

The Smart Money Is Dumping Stocks – It’s clear that the institutions are selling into this market. The distribution count is 8 for the S&P and 6 for the Nasdaq. Thus we are seeing clear distribution pressure on the stock market. Every market must have its trigger. I think the trigger for this market is if and when the Dow breaks 17,000.

If Transports break below 8,000, I think it will be an ominously bearish move. What are the Transports telling us? The Dow above 17,000 is saying that goods are being manufactured, but the Transports are telling us that these goods are not being sold. They’re not being rolled out of the factories into the arms of the retail public. No, the public is increasing its savings and reducing its debts. I continue to think that we should side with nature and let a bear market clear out the debts and inflation that have built up since World War II.

I have said that in future years, the standard of living of nations throughout the world will decline. But out of the ashes of a deflated world will come a better world than ever. For my subscribers, I continue to advocate holding physical silver and gold, and getting ready for difficult times. There’s been a huge move into the US dollar, in a flight to safety. As I see it, the dollar is now overbought and overloved. I trust my subscribers are out of the market and holding only physical silver and gold.

When The Truth Gets Out The Fed Is Going To Shock The World – Gold is down 8.7 and was at 1171.4. It’s suspicious that near the close each day, selling comes in to knock gold down and keep it from rising above 1200. A Russell prediction: The Fed will institute something like QE 4 and the Fed will not increase interest rates in 2015 or 2016. The US has lapsed into semi-recession and the true facts of the economy will be known before this year is out.

Free markets, like you and I, tend to inhale and exhale. We have seen the inhaling process ever since WWII. The exhaling or corrective part of the cycle will be a bear market. The bear market will clean out decades of inflation, leveraging and financial engineering. In the end we will have a better world, cleaner, more honest, and much finer.

Dow Break Below 17,000 Will Be A Major Danger Signal – We now have 8 distribution days in the S&P and 6 in the Nasdaq. This tells me that the institutions are selling into this market and it calls for caution on the part of my subscribers. It seems that few people are following stock averages anymore. I would take a Dow close below 17,000 as a danger signal.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.