...from Richard Russell - A Dramatic Juncture for the US Economy

7/13/2011

Up to now it's been obvious that the "safe haven" money has gone into the Dow, gold, Treasuries and the dollar. But Monday the Dow was the "odd man out". Why? I wonder, was the Dow left out in the cold? Could it be that the economy is starting to deteriorate even further? Could it be that the stock market is following in the footsteps of the great stock market rally of 1929-1930 -- at a time when the economy declined all during the great advance?

As matters stand, I'm concentrating on RISK. The US dollar and Treasuries have been doing quite well, but I see risk in both of them (as does Bill Gross of giant PIMCO). Today there's risk in everything from commodities to T-bills, but I sense that the least risk lies in gold.

If, for the sake of argument, we're on the edge of the second Great Depression, then Ben Bernanke will sense it, and he'll open wide the monetary spigots. We know one thing about the studious Professor Bernanke. He will not tolerate deflation or a failing economy. I don't care what the good professor says about the end of quantitative easing he'll keep short rates at anywhere from zero to minus-zero while he thinks of some way to secretly introduce more monetary juice and stimuli into the economy. Remember his famous helicopter warning?

Make no mistake about it. We are at a dramatic juncture in the US economy. The action of the Dow and the Transports tell me that. If after five 90% down days, the markets can't rally, then Wall Street is marching to a different drum than anything I am used to. Five 90% days should have cleaned out much of the stock (supply) that was up for sale.

Now, NOW, the market "should" be ready to rally -- or else.

Below we see the Dow with RSI rolling over to the downside. The blue histograms are turning down, and the slow stochastics at the bottom of the chart are also rolling over and heading down. Safe haven money continues to pour into the Dow, but the upside force is becoming weaker.