kingworldnews.com / February 23, 2013
With key global markets at or near breakout levels, and gold turning higher in after-hours trading, the Godfather of newsletter writers, Richard Russell, released 3 key charts covering everything from stocks, to commodities and gold. KWN even included a bonus chart of hedge fund activity in gold. Here is what Russell had to say in a note to subscribers: “From its recent high, the Dow (intraday yesterday) was down almost 200 points. Normally, this would be considered an overdue minor “back-off” from an overbought situation … When one Average advances to a new high, and that new high is unconfirmed by the other Average, trouble may be waiting.”
Richard Russell continues:
“In this kind of situation, the investor who is out of the market has an advantage. He does not care how far the market may drop, because he has no commitment. In the current situation, I am on the sidelines. But what of the investor who is holding a full line of stocks?
His best bet would be to pick a downside percentage, beyond which he will not hold his stocks. The usual procedure is to decide, “I’ll sell any of my stocks that decline 8% or more from their peak price.” In other words, the careful investor always has an exit strategy in mind. The unforgivable mistake occurs when an investor rides his stocks down during a vicious correction or a bear market — all this because the stubborn investor has no pre-planned exit strategy.
Prior to the recent high, I drew attention to the fact that the Transports had advanced to a new record high, unconfirmed by the Industrials. And to make the situation even more distasteful, the market was extremely overbought. Under these conditions, I was pleased that I had suggested that my subscribers stay on the sidelines and simply watch the show.
Judging from what I see on the Bloomberg TV channel, bullishness is rampant and fear is a dirty word. We know that the VIX is at multi-year lows, meaning that at this time there is extraordinary disinterest in buying protection against a possible market fall.
We also know that advisory sentiment is heavily on the bull side of the ledger. Finally, the latest statistic on Distribution days shows that there have been seven distribution days on the NYSE Composite, and four distribution days on the NASDAQ and four on the S&P 500 — which is an unusually large number of distribution days (distribution days denote institutional selling).
Below we see a monthly chart of the Dow. You can see the resistance at the 14,000 level. In the Dow or any other metric, we often encounter resistance at the big even numbers.