FMX | Connect – www.fmxconnect.com - (Reported 5/26/2010)
From Richard Russell’s Dow Theory Letters – May 26, 2010
DISBELIEF - In all my years dealing with markets, I’ve only once before seen the stock market ignored the way it’s being ignored now. It was in late-1958. The nation was in a deep recession, and investors were black-bearish on business and the economy. Many talked about “a return of the Great Depression.” Others swore they’d “never buy a stock again.” The Dow hit a low in late-October at 419.79 (I’ll never forget that number), but the Rails continued their decline to the end of the year. However, despite the lower Rails, the Dow refused to go any lower than 419.79. This was a fabulous Dow Theory non-confirmation. A bull market had started in 1949, but the bull market had never produced a speculative third phase (much like the gold bull market of today), I was convinced (along with the nonconfirmation) that a third speculative third phase lay somewhere ahead.
I turned very bullish, and I loaded up with stocks, using every single dollar I owned. I also (thanks to Bob Bleiberg, the late great editor of Barron’s), wrote a piece for Barron’on the Dow Theory. In the article I wrote why I believed a third phase boom lay ahead, this despite the current recession.
The stock market turned up in early-1958, and it just kept climbing in the face of the deep recession. People actually got angry at the stock market. Investors were calling Wall Street “out of its bloody mind,” and that “this was the time to put out shorts.” As the year 1958 moved along business started to improve, and by 1959 business was booming.
So I received a valuable lesson. I had never seen investors so disbelieving and angry with the stock market. People were livid as the market marched relentlessly higher in the face of the deep recession.
The lessons of 1957-58 come to my mind as the market acts awful in the face of the rosy news coming out of Washington and the Fed and the Treasury and various government agencies. Nobody, it seems, believes what the market is saying. And, of course, what’s happening in the market today is much more subtle than what was happening during late-1957.
The stock market always finds new ways to fool the majority of amateurs and professionals. Confession — I’ve spent most of my life trying to learn how to “read” the stock market. We’ll see if I’m right this time. And yes, I’ve learned to be alone.
A few days ago I showed (by chart) how mighty Berkshire Hathaway was relentlessly sinking. Berkshire is not alone. If there’s one super-glamor stock on the exchanges today, it’s Google - chart of top of Page 2. Many people believe that Google is taking over the world. The stock is so high-priced that I have to think Goog is owned mostly by wealthy investors or by funds. But look what’s happening to Goog — the stock is crumbling and is now trading below both its 50-day and 200-day MAs. And what’s that telling us about this sick market?
Deflation, anybody? Below we see the Reuters Commodity Index. In February it turned up, giving indications of inflation. But more recently the Index has plunged, making me think that deflation is the better guess. These are mysterious, volatile, and difficult times.
If there is another glamor stock it is Apple. Below is the daily chart of Apple, and I’m thinking it could have topped out. Note the heavy volume on the breakdown, and the collapse in volume as Apple rallied after the break.
On the top of Page 3 we see crude oil breaking down. This looks deflationary to me. Yes, I know that we’ve passed “peak oil,” but we may have also seen peak driving. In tough times, people leave the car in the garage, and ride bicycles or the new motorized bikes. Get used to it, it happens — I’ve seen it before.
It’s been hard, and it’s hard to tell my subscribers that this market is topping out and that you should be OUT of stocks. But that’s what you pay me for — the Russell version of what’s happening. My only worry is that too few subscribers listened to me and believed what I was saying. So if you are still in the market, sell your common stocks (not the golds) and get out. I don’t care how good or how blue-chip your stocks are, when the bear takes over, he sinks his claws into the throats of all the boys and girls. Declining price/earnings in the bear market alone will cost you, and P/E ratios are now dangerously over 20.
So yeah, I worry about my subscribers. Are they acting on my warnings? Am I sleeping well at night? One more thing, please don’t send me e-mails asking for personal advice. I’m not a registered investment advisor, and I’m not allowed to give personal advice. I put everything I know on these sites (and often more). So please, don’t make me work and answer e-mails. I need all the time and energy I have to write these daily sites.
To see more of this excellent letter please refer to the pdf attachment at the start of this page.
David A. Rosenberg
Chief Economist & Strategist Economic Commentary
drosenberg@gluskinsheff.com
+ 1 416 681 8919
Source: http://www.dowtheoryletters.com
-----
About FMX: FMX Connect is an information, data, and analytics portal for Commodities. The portal provides an all-in-one package including essential market data, independent third party research, industry news, and commodity trading tools. FMX Connect provides efficient, effective, and thorough data that bridges all aspects of commodities onto one screen. The Result; A user friendly application for hedge fund traders, OTC brokers, individual investors, and industry participants
-----
Note: The information presented, while from sources generally believed to be reliable, is not guaranteed and may not be complete. FMX | Connect makes no representations or warranties regarding the correctness of any opinions or information. Past results are not necessarily indicative of future results. Nothing in this report should be construed as a representation to buy or sell shares, futures or options, which contain considerable risks. For internal client distribution only. Any reproduction, re-transmission, or distribution of this report without permission is prohibited. Media correspondents or reporters may not quote any one page or section in its entirety and must attribute all quotes, ideas or concepts herein. Copyright FMX | Connect, ©2009-2010. All rights reserved.