Richard Russell: “Be prepared!”

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With stock markets tanking around the globe, one would be remiss not to take note of Richard Russell’s view of the selloff. The 85-year-old dean of newsletter writers and author of the Dow Theory Letters, said:

“… something dramatic lies ahead. I believe we’ve been experiencing a rally within a continuing primary bear market. Over recent months, I’ve warned that the rally shows signs of topping out. If or when a bear market rally tops out, the losses can be horrific. At this time, because of the profusion of ‘rosy’ news stories about the economy, many amateurs and ignorant fund managers have loaded up again with stocks, thinking that they can recoup some of their 2008–09 losses.

“If this entire bear market rally is fated to fall apart, the losses and troubles will be fearful and traumatic. This is true because I’ve never seen a time when so many people were unprepared to withstand a crumbling market or a sinking economy.

“From what I gather, most players believe that yesterday’s [Thursday’s] ‘sell-off’ was a direct result of the mess in Greece. Maybe so, but that seems too simple and obvious to me. The far more important question is whether the entire advance from the March, 2009 low is fated to be wiped out. At this time there’s no way of knowing, but I suggest that we play it safe. My suspicion is that the stock market is back in the grip of the bear. If so, we could be entering the Elliott C or the second major wave down. I hope I’m wrong on this, but if I’m right I don’t want to find out while holding even a few stocks.

“Hope for the best, but be prepared for the worst. If this is the bear market’s final wave down, we’re going to see one of the worst markets any of us has ever seen. Just as bad, it will be a forecast of hard times ahead, and a nasty resumption of the recession (or depression).

“The boy scouts motto – ‘Be prepared.’ Better believe it.”

Although stock markets now appear oversold as far as short-term indicators are concerned, weak markets can stay oversold for a while. Looking at longer-term (monthly) data, it is premature to argue that the U.S. cyclical bull market has ended, but a worrying picture emerges when considering the Shanghai Composite Index. Not only has the Index broken below its key 10-month (200-day) moving average, but the momentum oscillator (ROC) in the bottom section of the chart below has fallen below the zero line which indicates a primary bear signal.  The Chinese stock market was the first to turn the corner after the credit crisis sell-off – a full five months before the majority of indices bottomed in March 2009 – and could also now be leading global markets lower. Be careful out there.

Source: StockCharts.com

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12 comments to Richard Russell: “Be prepared!”

  • Chuck

    I hear a lot of explanations. Many sound reasonable. Few give action steps other than be out of the market or go short. It is difficult in light of alternative investments, especially when CDs are paying practically nothing.

  • Mr. Russell is right on the mark: A seachange has occurred in investor’s confidence in stocks going past the moon on this reflex rally off the March, 2009 low which was at the devilish 666 level on the S&P 500. There is nothing fundamentally sound about the global economy or the global financial system. PRINTING MORE MONEY TO WALLPAPER OVER SPIRALLING DEBT PROBLEMS IS A RECIPE FOR DISASTER, CENTRAL BANKERS IF YOU ARE LISTENING!!! The EU is basically doomed, all the bailout Euros printed this Monday morning will not stop the bond markets from requiring higher yields to take more Billions of Sovereign Junk, no matter who the drunken issuer is. We are at the Loss of Confidence Phase, Act II right now, and all of the King’s Men can’t put Humpty Dumpty back together again. THE NEXT DECLINE IS GOING TO BE A DUZZIE. Fasten your seat belts. Debt got everyone into trouble, NOW IT IS GOING TO GET THEM OUT???????????????

  • This fall watch out… there is going to be severe drop that will last for months.

  • innertrader

    AS A TRADER for over 40 years, I have a problem with scaled charts of any type. While percentages are important, the scaled charts do NOT represent the dollar movement that is the basis of a trader. When trading on margin, dollars is what counts and the only percentage one looks at is the percentage of profit or loss to ones account, not the percentage of movement of the base object or investment vehicle. So, I’d love to see what the above market looks like in the REAL world. These types of charts also misrepresent the REAL volatility involved.

  • Yes, I do believe that the stock market is going to go down.

  • Richard Hutchinsonrhut

    Mr Russell is 100% correct… Hang on to your
    seat,er your money !!!

  • Van

    No doubt Mr. Russell writes well and authoritavely; and give him his due for having discovered many decades ago his statistical ratio analysis of the market. That said, he is essentially a dooms sayer and has missed most up-markets since the late 1980s; just like he has missed the equities move since March, 2009. He has never really admitted to his being wrong about such misses and continues to rely upon the move of a single investment type-gold– to back-stop his investment prowess. In that arena, he has mostly been correct as least in the longer term- but has missed many shorter term downward corrections and many flat trending or stalled interim movements in gold as well. Given how few really negative commentators there are out there, Mr. Russell has been able to charge a lot for his well composed negative verse while living a life of leisure and luxury in his La Jolla downtown office. If he were all that correct in his pronouncements, he would be investing his own money and have long ago forgotten about his letter writing missives. However, I must state my admiration for his making $2-3 million year in and year out writing a contrarian perspective– certainly a noteworthy accomplishment for any octogenarian.

  • MM

    Mr Van , You should try to get out your short term trading cubicle, and look at the big picture. This doom sayer (Russell) has a very strong long term record , and that’s why his newsletter is so popular. He is on a lookout for a long term trend signals and stays with the trend. He started recommending to buy gold in Y 2000, and did not change his mind since. Gold is up 400% since then. Stocks on the other hand are down in last 10Y. To say that he had missed larges artificial stock market rally in the history of the world is laughable.
    Anyone who was listening to his advice did not loose his money in 2008 collapse , and did not have to gamble in trying to salvage some of it betting heavily on a fabricated artificial so called “green shoot” recovery.

  • Richard Hutchinsonrhut

    Sell now or be sorry later, your choice…
    You know the money you get now when you
    sell will buy you a lot more shares at a
    greatly reduced price… Just do it !!!

  • Mr. Van

    Dear MM:

    You said that anyone listening to Mr. Russell in 2008 “did not lose his money in the 2008 collapse.” You probably are buy and hold type investor. You may have not have noticed that gold reached a peak in the middle of March, 2008 of around 1,000 and over the next 12-15 months or so declined in price to a low of $680. If you had sold during that decline you would have certainly lost money in 2008.
    While I agree that the market since March, 2009 has had risen steadily without a signficant correction and one is either in store for us or will likely occur because, among other thngs, of the expanding uncertainties surrounding the continued viability of the EU and the very substantial debt of Greece, Spain and Portugal relative to those countries abilities to grow their GNP, I dare say you will have difficulty pinpointing Mr. Russell’s statements in the March through September, 2009 timeframe of how he thinks the US econonmy is rebounding and his readers should invest in stocks to take advantage of that stock market surge. The same could be said of his predictions in 2002-03. If I am wrong, please call me out on it.
    Enjoy your stock market correction. You will likely find that gold will also correct in the next 60 days.
    Cheers to you.

  • cristino

    I agree with Mr. Russell. I believe the
    dreaded global economic collapse is about
    to happen. We are seeing signs of a coming
    meltdown that could be worse than the 1930’s
    Great Depression. I am a bible believer in
    Christ and in the bible it says in James 5:1
    that there is misery coming upon rich people,
    their gold will be useless. Which I believe
    is the stock market crash that will bring all
    big businesses down to its knees.

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