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Richard Russell: Expect Severe Downside Action in Stocks if This Happens

by Brett on May 22, 2010

Richard Russell’s not in the mainstream news that often – so when he is, my interest is certainly piqued.

To my knowledge, Russell has been short term bullish throughout much of this reflation/retracement rally.  It looks like he’s close to donning his bear cap, though.

Bloomberg reports:

“If the May 7 lows are violated by the industrials and the transports, I expect some severe downside action by the stock market,” Richard Russell, the La Jolla, California-based editor of the Dow Theory Forecasts newsletter, wrote to subscribers yesterday.

If you’re scoring at home, here’s where we currently stand with respect to the May 7 intra-day lows:

Dow Industrials:

Dow Jones Industrials Price Chart



Dow Transports:

Dow Jones Transportation Price Chart


With markets WAY oversold in the short term, there’s a decent chance the industrials could rally next week and hold the line for now.  BUT – it’s important to remember that markets can stay quite oversold for quite some time.

So it’s probably wise to prepare for the worse, and not get too cute in playing bounces to the upside.  The trend is now DOWN – trade accordingly!

More recent commentary from Richard Russell:


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