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Richard Russell continues: 

“In this kind of situation, the investor who is out of the market has an advantage.  He does not care how far the market may drop, because he has no commitment.  In the current situation, I am on the sidelines.  But what of the investor who is holding a full line of stocks? 

His best bet would be to pick a downside percentage, beyond which he will not hold his stocks.  The usual procedure is to decide, “I'll sell any of my stocks that decline 8% or more from their peak price.”  In other words, the careful investor always has an exit strategy in mind.  The unforgivable mistake occurs when an investor rides his stocks down during a vicious correction or a bear market -- all this because the stubborn investor has no pre-planned exit strategy.

Prior to the recent high, I drew attention to the fact that the Transports had advanced to a new record high, unconfirmed by the Industrials. And to make the situation even more distasteful, the market was extremely overbought.  Under these conditions, I was pleased that I had suggested that my subscribers stay on the sidelines and simply watch the show.

Judging from what I see on the Bloomberg TV channel, bullishness is rampant and fear is a dirty word.  We know that the VIX is at multi-year lows, meaning that at this time there is extraordinary disinterest in buying protection against a possible market fall. 

We also know that advisory sentiment is heavily on the bull side of the ledger.  Finally, the latest statistic on Distribution days shows that there have been seven distribution days on the NYSE Composite, and four distribution days on the NASDAQ and four on the S&P 500 -- which is an unusually large number of distribution days (distribution days denote institutional selling).

Below we see a monthly chart of the Dow. You can see the resistance at the 14,000 level.  In the Dow or any other metric, we often encounter resistance at the big even numbers.

The firming dollar has put pressure on commodities and gold.  You can see this clearly on the chart below.

The daily chart below shows gold falling out of a descending triangle.  The bright spot -- RSI is signaling oversold.  The negative items - volume expanded as gold fell, also the moving averages are about to cross negatively.

King World News note:  Also look at the following chart below which shows hedge fund interest in gold had dipped to very low levels at the end of 2012.  You can bet it has plummeted even further by now.

To subscribe to Richard Russell’s Dow Theory Letters CLICK HERE.

KWN has now released the audio and all three parts of the Maguire writtens interviews.  You can read the written interviews by CLICKING HERE.  You can listen to the eagerly anticipated audio interview by CLICKING HERE.

© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The interviews with Andrew Maguire, Marc Faber, James Turk, Bill Fleckenstein, Egon von Greyerz, Felix Zulauf, John Hathaway, Gerald Celente and Eric Sprott are available now.  Also, be sure to listen to the other recent KWN interviews which included Art Cashin, MEP Nigel Farage, Michael Belkin and James Dines by CLICKING HERE.

Eric King

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