Dow Theory Confirmation – “In the big picture, we now know……

……that the advance from the June lows was simply an extension of the primary bull market.”

Brief Excerpt from Richard Russell’s Dow Theory Letters. One of the best values anywhere in the financial world at only a $300 subscription to get his DAILY report for a year. HERE to subscribe. Amongst his achievements Richard was in cash before the 2008/2009 Crash and he has been Bullish Gold since below $300 Ed Note: Richard Russell is bullish Silver and holds one of the largest single positions he has held since the 1950’s in the precious metals.

July 26, 2010 — Whenever the market becomes a puzzle to me, I invariably depend on my “market bible,” the Dow Theory. I’m now going to quote from the book, The Dow Theory, written by the Dow Theory genius, Robert Rhea.

“The movements of both the Railroad (ed. now the Transport) Average and Industrial Stock Averages should always be considered together. The movement of one price average must be confirmed by the other before reliable inferences may be drawn. Conclusions based on the movement of one average, unaccompanied by the other, are almost certain to prove misleading.”

To refresh your memory, the lines below are from my site of July 9th.

Here’s where things get interesting. Both Averages proceeded to rally to highs — then they turned down again. On June 7, 2010, the Dow closed below its February 2010 low with a 9816.49 close, continuing to move lower over the course of the month. The Transports did not confirm — and still have not confirmed.

When the Dow broke to new lows on the move and the Transports refused to confirm, we experienced a sharp reversal to the upside.

Now let’s bring the whole picture to the present. As of Friday (July 25th) , the Industrial Average sat at 10424.6, a mere 26 points below10450.64. With my PTI bullish and pushing higher with positive momentum behind it, the Dow may shortly rally to close above its June high.

However, the Transports closed Friday (July 25th) at 4369.71, a full 98 points below their June high. Obviously the Transports could put on a sudden surge and confirm a potential new high in the Industrials, but let’s just wait to see the movements of the Averages actually played out.

July 26th Late Notes:

The Dow was up 100.81 to 10525.43. (74.79 above the June high 10450.64)

Transports were up 112.38 at 4482.09 ( 14.38 above the June high of 4,467.71)

The Industrials and Transports closed cleanly and decisively above their June highs, telling us that the advance from the June lows will be extended. In the big picture, we now know that the advance from the June lows was simply an extension of the primary bull market. I don’t have to go into the “internals” of today’s rally, the internals were uniformly good. My PTI was right all along, it never did close and remain decisively negative. PTI was up 7 today, leaving it bullish by 36 points, highest bullish count in months.

“they both close above their June highs, it will be particularly noteworthy, because simultaneous confirmations imply a special power.”

Question — Russell, how can yo be bearish and in a few weeks change your mind?

Answer — I base my opinions on the action of the stock market. When the stock market changes its position, I change mine. When the facts change, I change. That’s a major part of my job, and why I’ve been able to stay in business since 1958.

July 27, 2010 — “The world has been turned upside down. I guess that’s what you might think if you read yesterday’s site. But no, it’s the same old world. The difference is that on Wall Street we received a Dow Theory bull signal yesterday. This occurred when both the Industrial and Transport Averages broke out to close decisively and simultaneously above their June highs.

I’ll admit it — I really didn’t expect it. But the stock market doesn’t arrange itself to live up to Richard Russell’s expectations. The stock market is a law unto its self. The stock market owes me or anyone else nothing. The FACT is that the situation has changed. In breaking out above their June highs, the Averages are saying that the market trend has reversed from down to up. Argue with that at your own risk.”

Ed Note: Richard Russell is bullish Silver and holds one of the largest single positions he has held since the 1950’s in the precious metals.

Richard Russell: Granddaddy of the Investment Newsletter Industry

We evaluate here the stock market forecasts of Richard Russell, mostly since mid-2002. Evaluated predictions/recommendations come indirectly via MarketWatch columns, which have tracked his commentary closely in recent years. Richard Russell has since 1958 been editor-publisher of the Dow Theory Letters, which “cover the U.S. stock market, foreign markets, bonds, precious metals, commodities, economics — plus Russell’s widely-followed comments and observations and stock market philosophy.”

Here are additional notes to augment the tabular summary:

From Peter Brimelow in MarketWatch (8/6/07): “According to the Hulbert Financial Digest, Russell is tied for top place as a market timer on a risk-adjusted basis since 1980.”

From Peter Brimelow in MarketWatch (7/20/06): “Over the period since the Hulbert Financial Digest began, in mid-1980, Russell has been the top-performing market timer on a risk-adjusted basis.”