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Careful, quiet accumulation Richard Russell Dow Theory Letters July 8, 2004 Extracted from the July 7, 2004 edition of Richard's Remarks The chart below is from Bill Gross's always excellent column on the Pimco site. Bill, who lives about 60 miles north of here, goes in for yoga and meditation and other mind-calming exercises. After studying this chart, you can see why Bill wants to stay calm -- since total credit market debt is now higher, as a percentage of US GDP, than it was back in 1929. Consequently, Mr. Gross is afraid that this nation (and I'm referring to the US) is not exactly positioned for any unpleasant surprises. So what do we do? Well, I guess we pray that all upcoming surprises will be pleasant. But wait -- just in case the next surprise is less than pleasant, it might make sense to hold a little (or a lot) of gold. Everybody (naturally) is now jaw-boning about the coming election. So I think this is interesting. Since 1928 there have been 20 elections, and therefore 20 election years. Of those 20 election years, there have only been 5 in which the S&P was down. Which isn't that unusual, since it is well-known that the incumbent administration will do anything and everything possible, economically speaking, to ensure that their party will remain in power. The five negative presidential election years were 1944 (S&P down 0.2%); 1952 (S&P down 2.1%); 1960 (S&P down 3.4%); 1976 (S&P down 0.5%) and the latest 2000 (S&P down 2.6%). In other words, the S&P has never been down more than 3.4% in a presidential election year (statistics courtesy of InvesTech Research). The S&P closed the year 2003 at 1109. This morning the S&P was trading at 1116 -- up less than 1%. So in view of the above statistics, it will be instructive (and even fun) to see how this year ends. And remember, the S&P has never closed down more than 3.4% in an election year. Let's see, what's our "chart of the day." How about the dollar? Today the Dollar Index broke to its lowest level since April 1. I've already written that the Dollar Index is in a "head-and-shoulders" top pattern, and it looks to me as though that bearish pattern is in the process of being completed. The Dollar Index is now trading below its 200-day moving average (red line), and its 50-day MA has now turned down. The blue histograms at the bottom of the chart, after being weakly above the zero line, are now turning down. The renewed weakness in the dollar has not been lost on gold. Today August gold surged over nine dollar to close above 400 -- again. On June 24 August gold closed at 403.50. This was the highest gold since mid-April. Therefore, I would consider any close by August gold above 403.50 as a technical plus. I can't prove it, but after watching gold action since 1960 I have to rely a lot on my "instinct." My instinct (or is it my guts?) tell me that gold is under careful, quiet accumulation. Richard Russell Dow Theory Letters © Copyright 2004 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 $250, tax deductible if ordered through your business). _________________ 321gold Inc ref: 10388