Russell stayed cautiously bullish during the late 1990s

1966 was a very speculative period, indeed.The period during late 1974 was a world full of contrasts to that of early 1966. Pessimism was prevalent. The Dow Jones Industrials was selling at a P/E ratio of 6 and at below book value. Some subscribers canceled their subscriptions of Dow Theory Letters after Russell's special report on December 20, 1974 - thinking that Russell had clearly gone out of his mind. Part of that newsletter is reproduced below:Now this is how I view it. I think the odds are probably better than 50/ 50 that the Dow and most shares hit a bottom in December 1974. I put this thesis together with a number of other facts. As you will see in a later section, the unweighted NYSE average is now down around 77% from the high. In 1929-32 the unweighted NYSE average went 12% further on the downside - to an 89% loss. I feel that most shares have now discounted all the forthcoming bad news, and I am including recession-depression conditions in 1975.

We have been in the third phase of a great primary bear market. We are finally in the zone of "great values". In many cases, stocks are selling "below known values". Here's an interesting statistic: The price/ eaings ratio for the 30-Dow Industrials is now around 6.0 while the yield on the Dow is 6.36. This means that the Dow P/E is below the yield on the Dow. This happened only once before in the last forty years, and that was during 1948-50.Second item: The Dow is now selling below its book (or break-up) value. This has not occurred since 1942. Are these two above Dow "tests" infallible indications of the final bottom? Not at all, but they do indicate that the Dow is sure getting down there.

There is no doubt that the 1974 bottom call was one of the greatest stock market calls in mode history, right up there with Hamilton's 1929, Rhea's 1932, and Schaefer's 1949 calls. Based on the Dow Theory and his own observations, he told his subscribers the market was a "sell" in August 1987, even though no Dow Theory sell signal has been triggered at the time (Hamilton and Rhea has always emphasized that one does not usually need to wait for a Dow Theory buy or sell signal to tell one to buy or sell). That signal, however, was triggered just days before Black Monday, October 19, 1987, as the Dow Transports confirmed the Dow Industrials on the downside by breaking through its preceding secondary lows on October 15 (such a signal in the third phase of a primary bull market is taken to be a primary bear market signal).

Russell stayed cautiously bullish during the late 1990s. In September 1999, the Dow Theory generated a primary bear sell signal. Today, Russell still maintains that we are in a primary bear market, and that the market will not bottom until stocks have reached the point of "great values" with P/E ratios below 10 and with dividend yields of greater than 5%. At the age of 79, Russell is still going strong, publishing a market commentary every Monday to Saturday.The Dow Theory TodayThe Dow Theory has withstood the test of time - the latest "proof" being Russell's primary bear market call based on the Dow Theory in September 1999.