Veteran analyst Richard Russell points out the significance of today's DOW close below. It is worthwhile to note that we did not experience a bear market rally after the Fall 2008 equity market debacle as we did in 1929/1930. Additionally, the Obama rally either fizzled or was a complete dud. The combination of these two observations strongly indicates a sharp and/or extended leg down could be upon us. Even more important is that gold is showing signs of complete independence lately, which is key if gold and gold shares are to rapidly appreciate as others falter.

Lotsa whining - VHF

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DOW Theory Letters

Richard Russell

February 19, 2009

The verdict, at long last, is in. Today the D-J Industrial Average closed below it November 20 bear market low. In so doing, the Dow confirmed the prior breakdown of the Transportation Average. The two Averages jointly closed at new lows today, thereby signaling that the great bear market remains in force.

According to Dow Theory, neither the duration nor the extent of a bear market can be predicted in advance. However there are some useful hints. Most major bear markets end with stocks at "great values" or as some Dow Theorists put it, "below known values." This has meant in the past that price/earnings ratios for the Dow and the S&P have fallen to single digit numbers. It has also meant that dividend yields have moved into to the 5-6% zone.

According to the latest Barron's, the P/E ratio for the Dow is now 18.62, 17.90 for the S&P. The dividend rate for the Dow is now 3.98%, for the S&P it is 2.78%. These are hardly the kind of figures I'd expect at a great bear market low. With the bear market reconfirmed, I'd advise subscribers to be largely out of common stocks (not gold stocks) and in cash, T-bills or gold, physical gold if possible.

The country is now at economic WAR. My objection to "paper gold" or listed gold items is that the government could halt trading in all gold items if it wishes to. The government is at all-out WAR against deflation and possibly at war with rising gold.

With a great bear market in force, we're forced to think in terms of individual or family survival. My subscribers and I are on our own now, dealing with a government that is attempting to print itself out of a bear market. More inflation on top of a bear market that was created out of debt and inflation will not work, at least I don't see it working (not does the market). Gold will be "the last man standing," as has been the case for thousands of years.