By Rudi Filapek-Vandyck

As far as market indicators are concerned, they usually don't come with a long and colourful history like the Dow Theory which finds its origin in the editorials written by Charles H. Dow (1851?1902), journalist, founder and first editor of the Wall Street Journal as well as co-founder of Dow Jones and Company, nowadays owned by Rupert Murdoch's News Corp. And old and grumpy Richard Russell, of Dow Theory Letters fame, is today probably the most experienced expert alive when it comes to reading and interpreting Dow Theory signals.

Russell has no good news for investors in US equities: he believes price action in the opening days of June has provided a classic non-confirmation signal according to Dow Theory, which, he says, now means a new bear market is starting to establish itself.

Under Dow Theory any move, whether it be up or down, in Industrials stocks must be validated by Transport stocks to be recognised as a valid trend. Throughout the rally in US equities since early December last year the Dow Transports has stoically refused to follow the Dow Industrials into blue sky territory, which put a Big Question mark behind the move in itself, according to Dow Theory.

Earlier this week, this is how Russell put it to the subscribers of his newsletter: "On May 1 the Dow Industrials rose to a high of 13279.32. The Transports failed by a wide margin to confirm. The two Averages then turned down and broke below their April lows. Under Dow Theory, this was confirmation that a primary bear market is in progress."

Should we be afraid? According to Russell we should be very, very afraid. Unless we own a sufficient amount of gold.

The whole idea behind Dow Theory is to establish the most powerful, primary trend. Thus, while equities can go up or down, or sideways, during different timeframes, the theory is that ultimately the underlying trend will prevail. Unlucky, for everyone who's hoping for the next bull market to announce itself in the short to medium term, it is Russell's view that Dow Theory has now established that the new primary trend for US equities is down.

To underline his conviction, Russell spoke with Business Insider this week, explaining his central thesis as follows: "The Primary trend is a law unto itself. It will continue until it dies of exhaustion."

For his subscribers he had the following message: "I want to reiterate that bear markets tend to be deceptive and not usually given to logical analysis. One reason for this is that bear markets operate within a background of naked fear. Two emotions rule the market -- Fear and greed. Of the two, fear is the stronger of the two -- because the specter behind the fear is LOSS. Greed is also a strong emotion, but fear of loss trumps the desire for gain."

At a time when financial media are receiving a lot of criticism for being too keen to report on negative news, who could imagine Russell's surprise that virtually nobody has picked up on this classic Dow Theory signal?

Russell: "I'm still stunned by the fact that I received a definite Dow Theory bear signal, and not one other advisor or "expert" appears to have identified the bear signal. I carefully searched the latest issue of Barron's for a sign that any of their columnists had identified the Dow Theory bear signal. Not a hint of it in Barron's. Thus it appears that Wall Street and the great majority of investors are operating blindly -- by that I mean that they are optimistic and investing, or still holding stocks -- unaware that they are operating in a primary bear market. I've never seen anything like it."

It turns out, Russell was wrong. Whenever there's bad news to highlight one can always count on Elliott Wave's Bob Prechter who had the following to say about this week's signal:

""...the Dow Transports, by failing to get above their 2011 high, have left behind a striking Dow Theory non-confirmation. Under Dow Theory, if both averages were to break their October 2011 lows, it would confirm that a new primary bear market is in force. Richard Russell taught me that 40 years ago."

Any attentive reader would have picked up both Russell and Prechter have a slightly different point of reference and last time we checked the Dow Industrials still has a margin to defend before approaching the October 2011 lows which is one of the criticisms about Dow Theory practitioners: they do not necessarily all preach from the same bible. Another criticism is that history does throw up false signals, which simply confirms that nobody is flawless and certainly not one single market indicator is.

But Dow Theory Letters' Richard Russell has called for a new primary bear market and you have hereby been informed of that fact.

Russell likes gold instead and he has done so for many years now.