Richard Russell: Very Bearish On The Stock Market Going Forward

Richard Russell, author of The Dow Theory Letters, is very bearish on the stock market going forward. This is an excerpt of his latest stock market comments:

"The sinking market is taking a lot of late-arrivals along with it; These are the poor souls who bought stocks hoping to recoup some of the losses they suffered during 2008-09. The falling stock market, I believe, will turn consumers even more sceptical and bearish than they have been. Today, by the way, the Dow and the Transports both closed below their 50 day moving average, this for the first time since last November.

Despite it all, I continue to believe that since March we have been in a bear market correction, and not a new bull market. For this reason, I take the current rotten market action very seriously. If I’m correct, it this is the beginning or a top-out in a bear market rally, then I can tell you that the “fun’s over,” and the really bad times lie ahead.

What I’m now trying to decide is whether this is just a short-term correction or whether we are seeing a serious top-out of the rise from the March lows. A bearish turn of events would be an initial decline, then a weak rally and a second decline violating the lows of the first decline. In other words, a definitive downward pointing zig-zag.

The Dow has now wiped out all of its 2010 gains and now shows a loss for the year, but more about the meaning of this tomorrow. Subscribers who wondered why I didn’t want to put the bull in the box may now see my hesitation. Bear market rallies turn on a dime, and in a few sessions you can be under water. I want my subscribers to be in the best shape possible if or when this market “has had it.” A few more weeks like this one, and we could see a real old-fashioned panic.

The VIX is 22, which tells us that nobody has been buying puts. Confidence and complacency are the mood of the day. Nobody’s ready for a lousy market ahead."