Don’t take it from me, take it from the master, Richard Russell:
The question — What are the Transports telling us? And my answer is “who cares?” In the great majority of instances, we don’t know the reason why the stock Averages are doing this or that. We follow the Averages blindly (via Dow Theory) the way a blind man follows his seeing eye dog. And when we mix technical analysis with our own “common sense” and emotions, we are on the path of going wrong.
It’s clear to me that we are in a rally within a secular bear market (some will call it a cyclical bull market). In other words, it’s coming within the confines of a long-term or secular bear market. Old timers saw this same situation during the 1966 to 1974 bear market. At that time we saw a series of cyclical bull markets, all coming within the framework of a long-term or secular bear market.
In the end, that secular bear market ended the way most bear markets end — amid black pessimism and with blue-chip stocks at great values or “below known values.”
What was missing at the March 9 lows? Extreme pessimism was absent as were the great values in blue-chip, dividend-paying stocks sporting yields of 6% to 10%.
One thought continues to haunt me. Can a 27-year bull market (1980 to 2007) be corrected by a two-year bear market? Most bear markets have tended to last from one-third to one-half as long as the preceding bull market. In other words, the bear market that started in 2007 did not last as long as I would have expected, nor did it produce the great values at the bottom that I would have expected.
However, we take what the market gives us, but we also have free choice. We don’t have to swing our bat on every pitch. The market will always be here, and we can chose the pitches we want to swing at.
Personally, I’m willing to sit tight and watch the show. Despite today’s excellent stock action, I have my eyes on my Big Three — the bonds are getting whacked today, the dollar is lower, and as I write August gold is up 3.00 to 956.40.
As always, great stuff from Russell.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.