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The Red Arrows

Richard Russell snippet
Dow Theory Letters
Jan 26, 2011

January 25, 2011 -- "Imagine telling Charles Dow 100 years ago about the inclusion of Disney, McDonald's, Wal-Mart, Home Depot, Amex, BofA, & JP Morgan Chase representing American industry for his index of 'industrial' giants'. Dow might have asked, 'What do they produce?" Without realizing that he was reacting like the Austrian school of economics that holds that wealth must be produced: It can't be borrowed or printed."
From Ian McAvity's remarkable publication, Deliberations on World Markets."

Gold has risen a fantastic ten years in succession. Gold, of late, has been receiving a lot of interest and publicity and advertising. Gold is probably overdue for a correction in this ongoing bull market. Analysts are talking about "gold correcting down to 1200 or even 1000." However, I believe that the more important picture is that the gold bull market has much further to go on the upside.

I've been reading the McClellan Market report for years. It's one of the better and more intelligent reports that I read. McClellan does a good deal of research on cycles, and I must say some of their cycle studies work out quite well.

McClellan has discovered that there's a cycle low appears for gold roughly every 12.5 months. The cycle lows have run as follows: Jan 6, '06, Jan 8, '07, Jan 7, '08, Jan 5, '09, Jan. 4, '10, Dec. 31, '10. McClellan puts the next cycle bottom for gold at February 8, 2011. Which means that the cycle low for gold should arrive at any time between now and February 8, give or take a few weeks before or after that date.

Interestingly, the McClellan cycle bottom for gold is due to arrive amid a good deal of professional bearishness regarding gold ("gold overdue for a major correction"). Thus, many traders have traded out of their gold positions, just as we near the date for the McClellan cycle bottom.

Below, the red arrows mark the McClellan cycle lows.

The Russell view -- It's virtually impossible to successfully time in-and-out trades during an ongoing primary bull market. Usually what happens is that the trader has moved out of the market just as the bull trend resumes. Thus, the bull market does what it's supposed to do - advance while leaving most traders and Johnny-Come-Latelies behind.


Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters

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