Dow Theory Letters
Apr 8, 2009
April 7, 2009 -- The market situation has seldom
been more confusing. Many analysts are convinced that we are
in a new bull market. Others (me included) believe we are in
a bear market correction (rally).
Because of the confusion, I'm going to step out and make a few
guesses (might as well, since nobody really knows what's going
(1) I believe that we're in a secondary (upward) correction of
a bear market. I'm going to guess that this correction could
rise further or at least last longer than most people are expecting.
A bear market rally is supposed to convince the majority that
a new bull market has started. The rally will often continue
until a large number of investors are back on board, and then
the bear will kill them as it fades away, leaving the new optimists
high and dry and with losses.
(2) Gold is in a downward correction of its primary bull market.
Gold may decline or stall until it convinces the majority of
gold-fans that the gold bull market has died. Holders of "paper
gold" and gold futures and options will be frightened out
of their holdings. What we're experiencing now is the big correction
that often occurs prior to the third speculative phase in gold.
Holders of physical gold (coins, bars) will do best, since they
will tend to hold on to their gold positions no matter what.
So what are the markets trying to do? They're doing what they
always do, keep investors in the bear market and keep investors
out of the gold bull market. Why would they do that? Because
that's the very nature of markets. Markets tend to thwart the
majority. And that's logical and self-evident. If markets existed
to make money for the majority, then most market participants
would be millionaires, and we know that sadly, that is not the
Markets can be compared with gambling at Las Vegas. When you
gamble at Vegas, you are bucking the house odds. Which is why
if you play long enough at Vegas, you will always lose your money.
Vegas is stacked that way. Las Vegas is constructed to separate
players from their money. The stock market is a bit classier.
When you buy stocks, you are at least buying something. It feels
good to say, "I bought 500 shares of Johnson & Johnson."
When you put your money down at Las Vegas, you are not buying
anything, but with a slim chance (the odds are against you)
of winning more than you put down. Las Vegas is one of the few
places where you pay your dollars, and are guaranteed to receive
NOTHING of any value. "Gambling is a tax on people who don't
understand money," that's my favorite adage about gambling.
Investing in the stock market is a long-term tax on people who
want something (profits) without doing any real work for those
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