Dow will fall to 3,000, says Russell

Dow Theory: Dow will fall to 3000 says Russell - at Moneyweek.co.uk - the best of the week's international financial media.

There's nothing like a month-long rally to calm equity investors' nerves," says Lex in the FT. US markets have rebounded from their 2004 nadirs of mid-August, with the S&P 500 having climbed from the bottom to the top of its trading range. But does this mean that US stocks could finally make a decisive break upwards?

Not according to Dow Theory, one of the most respected approaches to technical analysis, says Jaqueline Doherty in Barron's. This says that the Dow Jones Transportation Average and the Dow Jones Industrial Average both need to be hitting new highs for a real bull run to begin: "the transports haul what the industrials make, so a robust transportation sector should indicate a healthy industrial sector". But while the Transports have been hitting new 52-week highs, the Industrials are still off by almost 2% this year. The Industrials' failure to "confirm" the Transports' move shows that "there's a problem", says Richard Russell, Dow Theory's most renowned exponent. What's more, the longer the Industrials take to confirm the Transports' move by eclipsing their June highs, the worse it will get. This is hardly encouraging, but Russell's longer-term outlook is positively terrifying: he expects the Dow to slide to 3,000 before the post-bubble bear has finished its work.

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