Richard Russell Review: July 3, 1996

This from Dow Theory Letters on July 3, 1996.

"To conquer the beast, you must first learn to love it (page 1)."

When looking for similar quotes online, we found the following:

• "Keep your friends close and your enemies closer."
• "Know your enemy and know yourself and you will always be victorious."
• "If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle." –Sun Tzu

The last quote from Sun Tzu seems the most fitting and provides the appropriate context.

“The June 27 WSJ headlined an article, ‘Strong Summer Rally, Then a Plunge, Predicted by Four Technical Analysts.’ Maybe, but that sounds too pat to me. A strong summer rally would allow all those sophisticated analysts (and their followers) to exit the market handily. If, and I say IF, a bear market is just around the comer, it’s not going to happen that way (page 2).”

The July 29, 1996 low and subsequent rise proved Russell’s suspicions to be correct.

"Steve Briese, the sophisticated editor of the Bullish Review [(612) 423-4900] in his latest report notes that “turns in both Cotton and Copper have accompanied many important stock market tops -- far more than coincidence alone would explain (except to a bull wearing blinders) (page 3).”

From the charts of cotton and copper below, we can see that copper makes a parabolic move then slowly declines to the low.  It is the low that is most characteristic of a turn higher for the stock market rather than the turn lower which can drag out for a long period of time while the stock market continues to climb.

"The commodity world is still in shock from the incredible losses sustained by Sumitomo, losses stemming from 10 years of trading via their rogue trader, Yasuo Hamanaka. How could 10 years of wacky trading be hidden from authorities? Obviously, some people had suspicions (page 5)."

“Conclusion: The bull market appears to be intact. Time after time the market backs off and turns erratic. But each time the PTI bucks the trend and pushes up to a new high. When this pattern in the PTI reverses (and some day it will), the market will be in trouble. Until then. the bull remains in command.”

This conclusion, based on the PTI, was proven to be accurate as noted in the market performance above.  There will be more to discuss based on Russell’s PTI going forward.