Predictive Technical Analysis is the Same as Fundamental Analysis

From Richard Russell:

April 5, 2011 — It’s time to clear the record and to make my current thoughts clear. Lowry’s was correct, and my PTI was correct all along. We’ve been in a primary bull market and we’re still in one. The costly and brutal decline from the 2007 high to the 2009 low was, in fact, an almost unprecedented correction in an ongoing bull market. The stock market panic-collapse was a direct result of the crash of the housing bubble. I mistakenly took the vicious decline of 2007 to 2009 as a turn in the tide and a bear market. At the March 2009 low, the (bull) market was extremely oversold. The relentless climb since the 2009 low (see chart below) was the result of a compressed bull market that was charging higher as it made up for lost time. It was like a rubber band that has been stretched too far and was snapping back to its original shape. But what of the situation now? The great bull move that started from the 2009 low is, at this point, probably near a state of exhaustion. The entire rise from the March 2009 low to the present has not yet undergone a full correction of the advance. The climb from the March 2009 low to the present added 5853 points to the Dow. The stock market now is heavily over-bought. Lowry’s Buying Power Index is off its high, and Lowry’s Selling Pressure Index is above its low. Thus, a correction should not be surprising. Considering that the Dow has gained 5853 points from its low, a one-third correction could take the Dow back to 10449. A 50% correction could take the Dow down to 9474.

Question — What should we do if the market does correct?
Answer — If the stock market corrects from the current area, I’d suggest buying the DIAs as near to the bottom of a correction as possible.

Question — Russell, why didn’t you advise buying the DIAs at or near the March 2009 decline lows?
Answer — I didn’t advise buying because I mistakenly thought the 2007 to 2009 decline was part of a major bear market. I was wrong. As it turned out, the decline was a deceptive and vicious correction within an ongoing bull market. As of now, the bull market is still in force. Therefore, any forthcoming correction should serve as a buying opportunity.

This is not trend following. I think Russell has many sage points to make, but after watching his comments for the last 2 or 3 years, enough for me. This is fundamental analysis wrapped in a so-called trend following wrapper. If I have seemed like a Russell follower over the last few years, I deserve criticism. I don’t read his stuff every day, but when this came across my desk, it was time to set the record straight.

The Author