Gold, Stocks, Bull Markets & “Big Money” -Richard Russell
Turning
to gold, the P&F chart below is extremely interesting. Gold
rallied to the 1340 box and then backed off for three boxes to 1310.
Following gold's rally to the 1340 box, gold formed a little
consolidation pattern. Normally, the consolidation formation will break
out in the direction that existed prior to the consolidation, which
means that gold should break out to the upside.
On the heels of continued volatility in key global markets,
the Godfather of newsletter writers, Richard Russell, asks the
all-important question, “How do we know when a bull market is topping
out?” Russell included a fascinating gold chart and predicted that gold
will break out to the upside. This is a tremendous piece where Russell
also discusses how the “big money” thinks and operates in these
manipulated markets.
Richard Russell: “One
question I am frequently asked is, “How do we know when a bull market
is topping out?” First, we must determine which sentiment phase the
market is in. This is particularly difficult now because this market is
being manipulated by the Federal Reserve. Normally, the stock market
will only top out when it is in the speculative or third sentiment
phase.
However,
the best gauge as to which phase a bull market is in is the matter of
values and sentiment. At this time I judge sentiment to be excited and
optimistic. Nobody I read or hear is talking or writing about a bear
market. On the matter of values, the S&P 500 is now selling at a
rich 19.29 times earnings while the dividend yield is at a micro 2.10%.
These statistics compare closely with values at previous bull market
tops.
So
much for the current sentiment and values for a possible bull market
top. Next we must address the matter of the formation in the stock
averages. The secret of a market top lies in the secondary correction,
and what occurs after the secondary correction.When the Averages turn
down from a high, there is no way of knowing, at the time, what that
downturn means. It is what happens after the initial correction that is
critical.
After
the initial decline, there will be a rebound. If, on the rebound, one
Average or the other (the Dow or the Transports) fails to rally to a new
high, we must watch the progression carefully. The Averages will then
turn down. If the two Averages (Industrials and Transports) both break
below the lows of the secondary reaction, such action will signal that a
primary bear market is in force and that the tide has turned bearish.
So
that's the story. We must remember that when the Averages turn down
from peaks, there is no way of knowing whether we face a mild decline or
a primary bear market. But the fact that this market is on thin ice,
from a standpoint of sentiment and values, makes any downturn in the
Averages a move to be taken seriously and a hint of potential danger.
This
is probably why big money, knowledgeable money, is so careful and
“spooked” by the market at this time. Big money knows that a primary
bear market could materialize at any time, and big money knows that it
often takes considerable time to withdraw one's assets from the market.
In other words, big money does not want to be left out of any decent
rally, but at the same time big money does not trust this manipulated
overvalued market.