March 10, 2004                 Dow Theory Confirms Bear Market

According to Richard Russell ( www.dowtheoryletters.com )  the dow theory had a confirmation of bear market today. both Dow Jones Industrials  of 10470.74 and Dow Jones Transports  of 2822.11 were violated.

Here are some excerpts of what Richard Russell wrote today

" A month ago I drew attention to the fact that the Transports had failed to confirm the new recovery high in the Dow, and at around the same time I said that I thought the bear market correction that began in October 2002 had about run its course. I stated that I believed "the top was in place" and that the bear market upward correction had ended. With today's action, I believe that the bear's hibernation period is about over. "

"Yesterday I noted that although the Dow closed below its critical February 4 low of 10470.74, but the Transports had failed to confirm. The critical comparable level for the Transports was 2822.11. Today the Transports confirmed the breakdown of the Dow by closing below 2822.11. The die is cast.

The question now is what does the breakdown of the averages mean? If I had to guess, I'd guess that it means that the Fed is failing to halt the forces of deflation. If true, this would be a deadly serious situation, the more so since the nation over the past few years has built up a veritable mountain of debt."

" The US consumer may be in the process of cutting back. Remember, consumer buying constitutes two-thirds of the entire US Gross Domestic Product.The Fed has been urging, begging, almost forcing consumers via low interest rates to "keep on spending." But at some point consumers may say "Enough." Have they reached that point?"

" Americans have more money invested in their homes than they have in the stock market. In my view, housing today is selling at three times what it's worth. I base this on what you pay for a house, what it cost to carry a house -- and what you can rent that same house for. I'll repeat it, housing today is priced at three times what it's worth. If deflation enters the picture and if deflation gets out of hand, the losses in housing will be greater than the losses in the stock market. "