Home   Links   Editorials


Richard Russell
Dow Theory Letters snippet
May 18, 2009

May 15, 2009 - It's early in the year 1955. I'm walking down Broadway. It's snowing, and I'm looking for a warm shelter. I've developed a habit of stopping in at Merrill Lynch on B'way at 46th Street. The Merrill boardroom will do; it's warm and crowded with old guys, a lot of them veterans of the Great Depression and 1929 crash. I'm growing increasingly fascinated with the stock market. Volume creeps lazily by on the tape at around 3-4 million shares a day.

I've become friendly with a few of the old guys. One fellow appears to be their leader, he's always sour and he's a terrible grouch. He will never buy anything; but he will only short individual stocks. His name is Gus Raven, and he watches the tape all day and grumbles. They call him "Raven the Maven." The other boardroom fellows are afraid of the Maven. One day I sum up the nerve to talk to him. I ask him whether Baldwin Lima is "a growth stock." The Maven looks at me as if I'm an annoying insect. "Sonny," he growls, "they're all growth stocks. They either grow or they die."

Daily, I'm becoming more fascinated with this strange world and it's denizens. I want to learn more about this mysterious stock market. I decide to do something about it. One day I head for the giant 42nd Street public library. My uncle Oscar has given his fabulous Walt Whitman collection to the library. They have a special "Oscar Lion" room at the library where my uncle's collection of Whitman is displayed (I don't know whether Uncle Oscar's room is still there).

I go to the huge business and economics room of the library. It contains a massive number of business and market books; I don't think there's another collection like it in the country. I ask the librarian to bring out a list of 10 stock market books. She brings them out, I sit down and go through the books. Nothing -- there's nothing in any of the books that I find interesting.

The next day I return to the library. I ask for any books on the stock market. The librarian brings out another batch of books. I thumb through them. What's this? It's a bound collection of papers labeled "Dow Theory Comment" by a fellow named Robert Rhea. I open the volume and start reading. It's fascinating. This is a collection of Rhea's advisory reports to his subscribers. Rhea had called the exact bottom of the great 1929 to 1932 bear market. The bear market ended on July 8, 1932 with the Dow at 41. In his initial report Rhea stated that he believed the great bear market had ended on July 8. Rhea had sent telegrams to his subscribers telling them that the bottom had been seen and that it was time to buy.

My mouth drops open. How had Rhea known? I check out the Rhea volume from the library, and take it home with me. I spend the night reading Rhea's reports. They are a revelation. I'd never read anything like them. Rhea's writing has the market making sense to me for the first time. I study Rhea's writing for the next two years. I make a file of his wisdom and observations. After two years of intensive study, I think I've learned how to read the movement of the stock Averages. The Dow Theory becomes an absolute obsession with me.

Rhea died in 1939. I think I've learned enough by studying Rhea to carry on with the Dow Theory. I talk my head off about the Dow Theory with everybody until my friends hide from me when they see me coming. I decide to write a Dow Theory report of my own. It will be sent free to five or six friends. It's a hobby, not a business. The stock market is acting strangely, it tops out in July 1957. A nasty recession hits and Wall Street turns black-bearish. But I note other phenomena. It looks to me as though an important bottom is forming. I say so in my reports. At the same time I put every cent I have in the stock market.

Bob Bleiberg, editor of Barron's calls on the phone. He's seen one of my little reports. He wants to know whether I would like to write a Dow Theory piece for Barron's. A new life opens up for me. But that's a whole other story.

Question -- How does gold do in a deflationary environment?

Answer -- The answer is in the chart below. The upper section of the chart is gold; the bottom section is the S&P. Over the last year gold is up 4%. Over the same 12 month period, the S&P is down 5.3%

...gold crept up 2.90 for its fifth successive day of gains. Aftermarket June gold was up 3.70 as the huge reverse head and shoulder pattern in gold creeps ever-closer to a breakout. All options remain open in the stock market and gold. Now it's just a matter of following the daily action. The bullish chorus on CNBC grows steadily louder. The word is that a huge amount of mutual fund money poured into the market this week. Since when do the mutual funds know what's going on?

Have a pleasant weekend and stay open-minded.


May 15, 2009
Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters

© Copyright 1958-2014 Dow Theory Letters, Inc.

Richard Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business.

He offers a TRIAL (two consecutive up-to-date issues) for $1.00 (same price that was originally charged in 1958). Trials, please one time only. Mail your $1.00 check to: Dow Theory Letters, PO Box 1759, La Jolla, CA 92038 (annual cost of a subscription is $300, tax deductible if ordered through your business).

321gold Ltd