My good friend Ian Gordon will be on my radio show February 9 to talk about his continued view that the Dow is heading for 1,000. You can read his recent paper titled “Dow 1,000 Is Not a Silly Number”. We don’t want to be purveyors of bad news, but we do think that sly old market observer, Richard Russell, who is as objective as anyone I know, should be listened to. (And it’s interesting to note that Richard agrees with Ian Gordon.)

Here are some comments on the market by Richard Russell in his January 29, 2010, daily missive:

“Question -- Russell, over recent months, your instinct or something else told you that the market was in trouble. Your bearishness was in the face of your bullish PTI and in the face of the improving Lowry's figures. So far you appear to be right. But right -- only over the short term. Can you pull your "crystal ball instinct" out of its bag and tell us what you see ahead over the long term?

“Answer -- I hesitate to do this, because I'm afraid it may sound outlandish, but here goes.

“I think this bear market rally is in the process of breaking up. I'm guessing that the Dow is going to run into some panic action early this year, and I think the Dow will violate first its November low and then its March low.

“I believe we're heading into something that nobody, in their wildest dreams, is thinking about. What will it be? It will be a full correction of the entire rise from the 2002 low of 7286 to the bull market high of 14164.53 set on October 9, 2007. Remember, I warned about the 50% Principle which came into play at the halfway level of the Dow 2002 to 2007 advance? That halfway level was 10725. After topping out in late 2007, the Dow turned down and violated the 10725 level. After bearishly breaking the 50% level, the Dow continued its decline and sank to 6547.05 on March 9, 2009.

“Since that March low we've experienced a bear market rally. The rally that advanced the Dow to 10725.43 on January 10, 2010.

“Thus, and it's really incredible, the Dow rallied exactly back to the 50% Principle level. Having risen to 10725.43 on January 10, the Dow then turned down. I consider this extremely bearish action. It's as if the market see-saw swung all the way back to the old 50% level and then turned down.

“Picture a child's see-saw. The heavy end rises to exactly its horizontal level, but it stops there. From the horizontal position, the heavy end of the see-saw sinks down again to the ground. The market can act, physically, like a see-saw.

“Working again with the 50% Principle, I now see the market sinking down, much like the heavy side of a child's see-saw. I see the Dow declining to the low from which the entire rise started. That low was the 2002 low of 7286. If the Dow does not halt its decline at 7286, I see it sinking down to its 1980-82 area, which would be around Dow 1000.

“Older subscribers who were with me over the years probably remember that the Dow pushed time and time again against that resistance ceiling of 1000. On November 20, 1980, the Dow finally broke out above the 1000 level to close at 1000.17. In 1981 the Dow hit a higher high of 1024.05. In 1982 the Dow hit still another high of 1070.55. Thus, the Dow finally left the 1000 resistance level behind. Therefore, I consider the level of Dow 1000 to be first a powerful resistance level and now a powerful support level

“Thus, if the 7286 level recorded in 2002 is violated, I see the Dow declining to the 1000 level. Seems impossible? Seems out of the question? Call it anything you want, but that's where I stand. That's what I believe could happen if the advancing structure from the March low breaks down. And it does appear to be breaking down. The current market action is the worst.”