Richard Russell continues: 

“Bear markets tend to last from one-half to one-third as long as the preceding bull market.  On that basis, the bear market that started in 2007 might be expected to continue for at least nine years (one-third of 27) or until 2016.  However, the Central banks, and certainly President Obama, have attempted to halt the bear market and thus continue the prosperity we have enjoyed ever since World War II. 

As proof of the Fed's success, I would expect both the D-J Transportation and Industrial Averages to advance to new highs, thereby signaling that the tide had reversed to bullish (a bull market).  According to classic Dow Theory, the primary trend of the market cannot be manipulated.  Further, according to classic Dow Theory, the movements of one Average, unconfirmed by the other Average, are useless as guides to direction, and are more than likely to prove deceptive.

Sundry Observations -- From what I see, Americans are still spending and partying as if nothing has changed.  Here in Southern California, the restaurants are full, and this is especially true of the breakfast places (in my opinion, the height of free-spending is going to a restaurant for an expensive breakfast when you could have had an inexpensive breakfast at home).

The Fed and the government have bent over backwards in their crude and dishonest program to show the American public that the punch bowl is still full to the brim, and that “all is well” at home.  We might even possess some hidden or inside information regarding what's coming up, but we never know how the markets will react to that news.  Usually, it is the market itself that will provide the only reliable hints as to where the market is going.  Of course, this entails our learning to read the market.

But right now is not one of those times.  For instance, I know that the US is choking on debt -- everybody is aware of that FACT.  Further, I know that every nation's chosen way of addressing its debt problem is to devalue its currency.  Thus, the fate of the dollar is almost assured.  The dollar, as a unit of purchasing power, appears to be doomed.

Really, then why don't you and I follow the lead of China and start getting rid of our dollars -- swap them for another currency or for silver and gold? ... this is one of those times when we have to think, and sit -- and wait.  If you don't know what you are doing, don't do anything -- or at least, don't do anything stupid.

To tell the truth, I am excited and fascinated as I watch the market unfold.  Will the Dow confirm the Transports or won't it?  This is the trillion dollar question that only the market, in its own good time, can answer.  From the bull's standpoint, it is a plus that the Dow tends, on all declines, to find support at the 13,850 level or better.

From the pessimist's standpoint, day after day goes by and the Dow is never able to rise above 14,015.  Further, what we are seeing are too many distribution days.  And lastly, from a contrary opinion standpoint, bullish advisors outnumber bearish advisors 2 to 1.

Below is GLD, my proxy for gold.  A pennant has appeared and GLD has fallen out of the pennant to 159.50.  Thus, we are in what I believe is the ‘clean out’ correction for gold.  This is the correction that will scare out all the in-and-out traders and the newcomers.  It is here that those who hold gold in physical form will do best, since they won't be tempted to sell.

My advice is to hold all gold positions and wait patiently for the correction to end.  Just before the huge 1979-80 surge, we saw a big ‘clean out’ correction in gold.  I believe history is about repeat.”

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Eric King

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