Richard Russell: Fair chance that most of bear market is behind us

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I do not always agree with 86-year old Richard Russell, author of the Dow Theory Letters, but there is no disputing that his commentary provides food for thought. The views on the stock market below are an excerpt from his latest newsletter.

“We’ve seen some extreme downside action. But Jim Stack of InvesTech Research reports that on the August 8th panic the ratio of declining stocks to advancing stocks was 77 to 1, a ratio never seen before in the past 80 years. The closest incidents were the May 1940 ratio when France fell to Germany; that ratio was 60 to 1. The second incident was on Black Monday during October 1987 when the ratio was 49 to 1. In both cases, those hugely high ratios marked a near-bottom, and within one month of those ratios the market was 10% higher.

“A few days ago we saw down volume equal to 98% of up + down volume, an incredible extreme. After all the negative action, if the S&P still chooses the bearish path and breaks to new lows, then we’re in for another spate of down-markets. In other words, after all the negative action, the market should be rally — we need at least a “dead-cat” bounce to above 1208. If the market can’t rally from here, then we know that something is really wrong!

“My feeling now is that this bear market will probably not be a monster, but I believe that there is a fair chance that most of it is behind us. This will be a long and arduous recovery, and stocks bought here (even blue chips) will not prove to be winners over the next five years. I would not buy stocks for income.

“It all reminds me of the great Zen Koan, “One fool can ask more questions than a dozen wise men can answer.” And who’s the fool? Why it’s none other than you editor.”

Source: Richard Russell, Dow Theory Letters, August 19, 2011.

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6 comments to Richard Russell: Fair chance that most of bear market is behind us

  • boatman

    about 18 months ago he said ‘run for the hills!!!”

    i believe he was early.

    big baddabust on horizon.

  • Sheldon Hellin

    Confusing comments if I do say so myself.

  • Stevie b.

    Hooray! Someone of experience prepared to go against the crowd. Let’s hope there aren’t too many more of his ilk or that elusive bottom will remain elusive. After over 12 years of being bearish, personally think it’d be time to start buying if we get to around DJI 10,000.

  • cak145

    I agree with comment that his statements are confusing. Good chance most of bear market is over vs. stocks bought here will not be winners for next 5 years.

  • @cak145: Although Mr Russell sees that most of the declines for the moment are over, he does not see much upside either as he is bearish on the U.S. over the longer term.

  • Steve wenstrup

    Did any of you ever consider the August effect? August before school starts is normally low volume as many traders are out. Why such huge volumes this year. No traders, just computers rapidly exchanging and tripping as the markets fell. The absence of fundamental buyers in an algorithmic frenzy. Any thoughts?

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