For a month, I’ve told subscribers that I believe we’re now entering the third phase of the bull market. Strangely, most market analysts – almost all of whom are considerably younger than I am – are not acquainted with the sentiment phases of a bull market.
Normally, following the second phase, we have a deep correction followed by a continuation of the bull market into a third and final speculative phase.
From here on, the character of the third phase trumps everything else. All minor ripples in the market, all dips or pops, all of these are contained within the third psychological phase.
Is it too late to enter the market? Readers should remember that stocks often advance as much in their third phase as they did in the first and second phases combined. Like a giant magnet, the US stock market is in the process of attracting money from all over the world. For this reason, I hesitate to predict a future high number for the Dow.
My old friend John Magee used to say, “Don’t tell me what to buy. Tell me when to buy it.” The time to enter this third phase of the bull market is now.
I realize that there’s a great deal of skepticism regarding my third phase thesis. But the skepticism is healthy and it will be followed by shock and awe as the stock market surges steadily higher. My belief is that the coming of the stock market boom will envelope everything from housing prices to precious metals to all commodities. Perhaps a symbol of the coming third phase was the recent Sotheby’s auction of a seven-karat blue diamond for the mind blowing price of $26 million. This is the highest price per karat of any gemstone in auction history.
As the third phase boom continues, I expect the Fed to gradually raise interest rates. The stock market will ignore rising interest rates up to a point, and continue to push higher. But eventually rising rates will tend to halt the market’s rise. At what level will interest rates restrain the third phase? I don’t have the answer to this; it’s like the question, “How hot is hot?” or, “How greedy and courageous can stock buyers become?”
Sentiment among the retail crowd is negative and sour. Against the skeptical sentiment, stocks on all the US exchanges are climbing relentlessly higher. Once the retail public sees that the market is getting away from them, out of fear, they will plunge into the stock market. Consequently, I expect to see fireworks on all the US exchanges as we head further into the third phase. All historic measures of valuation will be ignored as this mighty third phase heads higher.
What will propel the stock market higher? Never before seen multiples in price-earnings ratios. If we are heading into a market that will break records for excitement and overvaluation, the forthcoming third phase will be driven by the fear of being left behind. The third phase will encompass housing prices, commodities, precious metals, and common stocks. Decades from now, people will talk about having been there in the third phase of the great bull market. As for my subscribers, the question is – should you enter the market, and if so, when? The answer is – yes, you should be in this market, and the time of entry is today – now.
Question: Russell, what makes you so sure that we are entering the third phase of this bull market?
Answer: Sixty years of experience in the markets, plus my intuition.
The above content was an excerpt of Richard Russell's Dow Theory Letters. To receive their daily updates and research, click here to subscribe.