Major Crash’ Likely If Stocks Break May 7 Lows, Russell Says

Discussion in 'Economics' started by WallStWhizKid, May 19, 2010.

  1. By Elizabeth Stanton

    May 18 (Bloomberg) -- Investors should sell U.S. stocks because the market is at risk of a “major crash,” Richard Russell, editor of the Dow Theory Letters newsletter, said in a note to subscribers today.

    The decline would follow should the Dow Jones Industrial Average and Dow Jones Transportation Average fall below their May 7 levels, he said. They have risen 1.3 percent and 2.8 percent versus their closing levels that day.

    “If I read the stock market correctly, it’s telling me that there is a surprise ahead,” Russell wrote. “And that surprise will be a reversal to the downside for the economy, plus a collection of other troubles ahead.”

    The market started showing signs of deterioration in early April, including a shrinking number of stocks reaching 52-week highs and falling stocks outnumbering rising ones, he said. Russell, 85, has published Dow Theory Letters every three weeks since 1958 and posts daily market commentaries on his website.

    Dow Theory, which stems from observations made by Wall Street Journal founder Charles Dow during the late 1800s, holds that moves by the transportation average must be “confirmed” by the industrial measure, and vice versa, to be sustained.

    The Dow Jones Industrial Average fell 6.9 percent during the four days that ended May 7, sinking to 10,380.43, the lowest level since Feb. 26. The transportation gauge closed at 4,298.12, down 11 percent in four days. Downgrades of Greece, Spain and Portugal helped trigger the decline as the prospect of a sovereign default in Europe undermined investor confidence.

    “If the two averages violate their May 7 lows, I see a major crash as the outcome,” Russell wrote. With the exception of gold companies, Russell advised readers to “get out of stocks now, and I don’t give a damn whether you have paper losses or paper profits.”
  2. He's an old, old man.

    Richard Russell: Granddaddy of the Investment Newsletter Industry

    4/17/09 Russell is still in cash, but not so firmly… “Let’s wait a while to see if this market corrects.”

    5/4/09 “…the primary trend of the market cannot be manipulated.” And, Russell says, it’s bearish.

    6/12/09 …Russell currently rates the stock market’s primary trend as being down.

    7/27/09 “…we are now dealing with an extended bear market rally. … But I’m operating on the thesis that a primary (secular) bear market is still in force (although it has been suspended for a while)….the final and true bottom of the bear market had not been seen.”

    My favorite : He was negative on stocks from 1999 until May 2007, expecting a bear market to drag on for years as penance for the Internet bubble.


    I think Dow 9000 is doable but no crash.
  3. clacy


    If I had a dollar for every time some guy calls for a crash/ end of the world scenario, well..... you know the rest.
  4. I notice Glenn Beck had a segment tonight citing way too many people in the crash camp. Even CNBC had a poll whereby 36% expect the Dow to fall to 5000 this year.

    This is crazy.
  5. TGregg


    If it's telling him what is ahead, then it's not much of a surprise, is it? ;)
  6. S2007S


    Dow could easily break 10,000 today, going to be one volatile day, maybe they will blame it on another "fat finger"....

    :p :p :p :p :p
  7. hayman


    Timber !!!!!!!!

    S&P going below 200-day MA. We are in for some steep declines ahead. Short all the way now !
  8. the market rebounded 100% in the year or so following the '29 crash, the start of the last global financial crises, only to hit new lows. there aren't many global contractions on record to study, but ken rogoff's work is a good start. his research shows most to recoup all losses within 3 years, with a couple exceptions, such as Japan. this is not to be dismissed as your response was almost identical to theirs - refusing to allow banks to fail, and we have other startling similarities (other than a surplus).

    btw, japanese banks are finally flush with cash, and there is no demand for credit, so on any crash, look for them to inject money into US and european banks. a few minority of the hedge fund community are bullish on japanese banks, while others think japanese government dept is the next major crises. whether you can have both a gov crises and strong banks, i'm not sure. seems unlikely, but who knows.
  9. TGregg


    The best part about being short on a big down day is screaming "DIE BITCH!!" at your monitors. :)