Trader’s Narrative

This was the best April Fool’s prank the bulls could have played on the bears!

Almost all the major indices finished up 3% or more. The semiconductors closed up more than 4%. The only thing to fall was gold, losing its 900 handle.

Just a few weeks ago I wrote about the hidden power of back to back 90-90 days and here we are with the market giving us the third one within less than a month’s time:

I also cited 90-90 days when I stuck my neck out on March 12th, 2008 and in the face of all the doom and gloom being plied elsewhere, argued that we were seeing an intermediate bottom form.

To read the original and award winning research paper from Lowry’s that established 90-90 days, go to my free trading resource section and look in the folder: Charles H. Dow Awards. While there, try not to bump into too many other interesting articles and books

Breadth
Today’s market breadth in both the Nasdaq and the NYSE was lopsided enough that +90% of the volume of stocks traded was up. And only about 9% in declining stocks (the rest were unchanged).

And point-wise, the Dow Industrial was up 391.47 - its 8th largest point move in history. Nasdaq was up 83.65 - kind of takes me back to the heyday when these kind of moves were the norm.

Such volatility was normal during the bubble but during normal market conditions it is a signal that we are carving out a bottom - or attempting to.

But if you’ve been reading this blog, that message isn’t really new to you.

After Richard Russell’s recent bullish pronouncement that “an unprecedented world boom lies ahead” many - especially the permabears - have interpreted this as the last great bear throwing in the towel.

They go on to claim that this capitulation by the formerly bearish Dow Theory guru means that we are at the top and about to crash. I find this sort of thinking to be nonsense. First, the idea that the market tops when everyone is a bull is true. That’s because with everyone on one side, there’s no one to provide buying pressure to drive the market higher.

But is that the situation we have? According to sentiment the retail investor is keeping as far away from the stock market as they possibly can. Presumably they are otherwise occupied in real estate, flipping condos. And what about all the other gurus out there that are still preaching doom and gloom? that a crash is just around the next new high?

Most importantly though, those that interpret Russell’s new bullish stance as capitulation simply do not understand what he has been writing about for the past 50 years: Dow Theory.

Dow Theory is a mechanical system that, although far from perfect, leaves little room for interpretation. Simply put, when the indices are in synch and reaching new highs, Russell could not do anything but follow the clear signal and write what he did. He wasn’t capitulating to anything. He was simply following the playbook he’s been following since he became involved with the markets.

No one knows the future. Are we truly at the foot of an unprecedented global boom or are we just days away from a devastating crash? What we do know is that sentiment is decisively bearish out there and there are still plenty of naysayers that criticise and disbelieve in the performance of the markets.

Richard Russell with B-25 Mitchell Bomber in Italy (1944):