http://www.forbesimg.com/2002/03/04/0304watch.html Forbes Newsletter Watch Dow Theory Divide Peter Brimelow, 03.04.02, 3:09 PM ET NEW YORK - "Jumbo, Watusi move to the upside today," said Dow Theory Letters' Richard Russell after March 1's explosive move. "From a Dow Theory standpoint, the Dow broke out above its January 4 peak of 1,0259.73, and the move was confirmed by the Transports breaking above their own January 4 peak of 2,830.27." It looks like the Dow Theory buy signal we were muttering about in March 1's column (see "Nearly Out of the Woods"). But Russell, the old Bull Moose of the Dow Theory, is still stomping his hooves and snorting derisively. He's even speculating about market manipulation, an idea he's flirted with before (see "Methuselah Suspects Market Manipulation" [second article below]) but backed off: "Blow baby, blow. Looks like the pros want to bring back the bubble. Can you blame them? ... Hey, Wall Street isn't a charity affair, it's a business--and the business is distributing securities to the public. That's right, Wall Street's business isn't collecting stocks and bonds, it's getting rid of them. Seriously, this did look like a blow-off, but we'll only know that in retrospect. I keep thinking of 1966 to 1974, those mini-bull and mini-bear markets." He means the Dow's repeated feints at 1,000 from 1966 to 1982, which lured so many investors to their doom that Jim Dines of the Dines Letter named it "The Graveyard in The Sky." Russell's timing over the last 20 years has been excellent, according to the Hulbert Financial Digest. His argument for not accepting this buy signal is that the Dow Theory is also concerned about value--price/earnings ratios, etc.--which by most measures isn't there right now. But there's also his five decades' experience. Chillingly, his recommended exposure to equities now is a nice round 0%. Richard Moroney of Dow Theory Forecasts said Feb. 28 he would go up to 85% invested in stocks if the Dow got through 1,0259.73, and so that's what the Hulbert Financial Digest's ruthless model portfolio system has done, although Moroney won't comment again until today. The value of this system is clear when you look at Moroney's obvious--and obfuscating--worries: "Subscribers should remember that bull market signals are not always the best time to buy. And while a bull market signal would indicate that the majority money opinion is in the bullish camp, it would not imply that the market is headed for a sustained and broad-based advance .... The fierce industry group rotation of recent years seems likely to continue, and subscribers should be opportunistic in deploying cash reserves. Still ..." Still, Schannep Timing Indicator upstart Jack Schannep's claim that there was actually a Dow Theory buy signal in November seems to have been vindicated. Schannep hasn't updated as of March 3. Maybe he's out celebrating.
http://www.forbes.com/2001/12/05/1205watchinl.html Forbes Newsletter Watch Methuselah Suspects Market Manipulation Peter Brimelow, 12.05.01, 3:30 PM ET NEW YORK - Sorry to write about Dow Theory Letters' Richard Russell again, but this 77-year-old market Methuselah is in an astonishingly productive phase. He just made this arresting announcement: "I continue to receive questions as to whether there's manipulation going on in the stock market. I've resisted this idea for a long time, but slowly and surely I've come to the conclusion that yes, the Fed does step in at various times and manipulate the market. "How do they do it? My guess is that the Fed does it through one or more large brokerage houses, and it's done with S&P futures. Too many times I've seen the market turn at critical junctures, and I believe it's beyond coincidence. "One of those 'manipulation junctures,' I believe, is right now. The Enron mess hit the markets, some indices that I follow were right on the edge, and 'normally' I would have expected the markets and the various averages to follow through on the downside [on Dec. 4]. But lo and behold, buying came in at the opening and the market pushed higher." Russell has been watching the stock market for more than fifty years. He started Dow Theory Letters in 1958. He's one of only two timers to have beaten the market over the last 21 years, as certified by The Hulbert Financial Digest. He's a confirmed skeptic; for example, although long-term pro-gold, he has been reluctant to accept the widespread theory that that market, too, is managed (see "Gold: None Dare Call It...Conspiracy"). And he's a technician--he's committed to the view that the market must tell the truth, so the news that its message can be muffled must come hard to him. In fact, Russell does add, morosely, that any manipulation must ultimately fail. Given his general bearishness, that implies a nasty break to the downside is somewhere in the future. Market manipulation may be hard to swallow. But everyone acknowledges it exists in small doses: window dressing by money managers. Coincidentally, another letter editor, Gregory Spears of The Spear Report, has just ingeniously combined both. He argues that window dressing has artificially revived Nasdaq, as managers desperate for year-end performance try to get it by squeezing shorts.
The true father of Dow Theory is in fact William Hamilton who was a friend of Dow. In the original text he said: "The manipulation of the primary trend is not possible. When large amounts of money are at stake, the temptation to manipulate is bound to be present. Speculators, specialists or anyone else involved in the markets could manipulate the prices, but it is not possible to manipulate the primary trend. Intraday, day-to-day and possibly even secondary movements could be prone to manipulation. These short movements, from a few hours to a few weeks, could be subject to manipulation by large institutions, speculators, breaking news or rumors. Individual shares could be manipulated, but manipulation usually end the same way: the security continues the primary trend. But it would be virtually impossible to manipulate the market as a whole. The market is simply too big for this to occur. " William Hamilton, the Dow theory