Wednesday, April 9, 2008

What Are They Thinking: Mark Hulbert & Richard Russell Call Bull

Generally speaking I have great respect for Richard Russell, author of the Dow Theory Letters and a little less respect for analyst and financial newsletter critic Mark Hulbert. Both are probably right more than they are wrong, but I'm wondering what they're thinking after reading Hulbert's recent commentary on MarketWatch in which he spells out Russell's case that despite the recent downturn from August of last year to the present, we are still in a primary bull market.

Let's not forget that Russell called the turn from Primary Bull to Bear back in 2007, judging by the various slips and falls of the Dow from August through December, and he certainly looked correct when stocks slumped badly in January.

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But, in his most recent note, he repudiates that call and says that stocks have been in a primary bull market since the early '80s and that this recent pullback and the dotcom fade of 2000-2002 were "important corrections."

Hulbert, who apparently keeps a bull as a pet, seems to agree with him, though he's shady on the subject, which is why I have less respect for him - he seldom takes positions.

Of course, Russell's been wrong before, and he could be now, but betting against a recovery and new record highs on the Dow and other indices between now and 2010 smacks of good, old-fashioned American optimism. I side more with the Elliott Wave theorists, who keep reminding us of 17-year cycles. If we take the early 80s as the starting point of the bullish cycle, 17 years gets us to roughly 2000, the date of the dotcom implosion, and would put us presently near the middle of a bearish cycle.

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Evidence points in that direction, as even the gains from March 2003 to August 2007 can be viewed as merely an upturned pennant movement when measured in Euros rather than US Dollars. In other words, the Bear remained in place all through the last four years of bullishness.

The dueling theories are enough to make one want to give up trading altogether and take on some action at the race track. It's over quickly and the returns (and losses) are immediate and large.

Richard Russell and my respect for him aside, I still believe he was right on his initial call last November when he said a primary bear market had presented itself. The transports confirmed the fact and the January selloff bolstered the opinion. Recent movement suggests we're in a bit of a fix and resolution will not be quick nor complete.

Stocks remain at relatively high values, the dollar at the opposite, and gold's rise gives credence to the bear case. My own primary indicators tell me that the markets are about to roll over again, and, despite late-day tape-painting by the usual suspects (the Fed, PPT, Goldman Sachs, et. al.), they are rolling over to the negative, today marking the second consecutive down day for all four major indices.

Dow 12,527.26 -49.18; NASDAQ 2,322.12 -26.64; S&P 500 1,354.49 -11.05; NYSE Composite 9,074.82 -75.81

Declining issues took the prize over gainers by a much wider margin than the headline numbers indicate, 4497-1709, and the new highs-new lows indicator has rolled right over, as predicted, after just two days of more new highs than lows. On Wednesday, the new lows came out on top, 140-101. Volume was the best it has been in a week.

The Dow was hard hit on the day. Only 9 of the 30 components registered gains.

Two particular stocks grabbed attention on the day. Boeing (BA) announced further delays in the production of their 787 Dreamliner, though the company said it would not negatively affect 2008 earnings. Investors apparently threw caution to the wind, boosting the stock nearly 5%, up 3.58 to 78.60 at the close. A shorting opportunity if I ever saw one.

United Parcel Service (UPS), the world's largest shipping company, took a 3.74% hit after trimming its first quarter outlook, citing higher fuel costs and slack demand as the major culprits. Shares lost 2.74 to close at 70.57 on nearly triple the average volume.

Oil rose to a new all-time high of $112.20 before pulling back a bit, closing at $110.87, up $2.37. The metals continued their strong rebound, with gold up $20.00 to $938.00 and silver adding 48 cents to close at $18.20. Volatility, it appears, is not confined to just stocks. Prices are jumping around in commodities, bonds, and currencies as well. Nobody seems to have a grip on any market currently.

Once again, we're looking at tomorrow's same-store sales figures for insight into the plight of the consumer. The numbers should be telling and a couple of retailers could warn, possibly one highlighted in my Fearless Stocks and Options Advisory Newsletter.

NYSE Volume 3,475,696,500
NASDAQ Volume 1,922,355,500

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