Friday, September 14, 2012

Dow Theory update for Sept 14. New market highs confirm again primary bull market

 Today is one of this days when there are no news under Dow Theory.


The three stock indices I monitor (Industrials, S&P and Transports) all closed up, thereby making new absolute highs since the primary bull market got started on June 4, 2012 (signaled by the Dow Theory on June 29). For more details as to the Dow Theory signal, please read my posts “Where is the stock market now as per Dow Theory? Bull or bear?”, which you can find here  and here 


Therefore, both the primary and secondary movement in the stock markets remains bullish.


Volume again has been short term constructive. We have reached higher highs under higher volume. The last four days we have had consecutive higher closes in the SPY and volume has been higher each day. This is a positive. Furthermore, volume has been bullish 11 out of the last 13 days. Under Dow Theory volume is bullish when it increases in an “up” day and decreases in a “down” day. This is a magnificent display of bullishness as shown by volume.


Finally, you can see that the trend line of volume is supportive of market action. The trend line of volume is clearly up totally in gear with the SPY action. 


The chart below illustrates clearly all the bullish indications that volume is displaying to us.

Volume is very supportive of bullish movement. Maybe too supportive.

The only short term negative I see is that the SPY didn’t close near its highs. Furthermore, my experience shows that increasing volume, while bullish in the longer term, may imply a brief interruption of the secondary move. In other words, “bullish” volume tends to beget a short term reversal; thereafter the main trend (in this case the secondary trend in alignment with the primary one) is again reasserted. 


 However, as I always say, such volume inferences are more useful for the trader than for the investor. Volume is always very tricky and the only practical inference I can make for the long term investor is that volume confirms the primary trend. 


It looks too nice too be true for those that have been bullish on this market. However, I remind again that the primary trend tends to be corrected on average every three months. This is not carved in stone but an uncorrected move exceeding three months is more prone to a secondary reaction than a “younger” one. 


Furthermore, I’m eagerly waiting for a secondary reaction to occur because I see that the amount of unrealized gains is mounting whereas our Dow Theory trailing stop hasn’t budged a bit. If you look at the table below, you will see that paper profits begin to be sizable for those that recognized in time the various primary bull market signals given across stocks, gold, silver and their miners.  However, we need a secondary reaction in order to mark new higher lows (it is not a typo: higher lows, that is the reaction lows) which by definition would be higher than the current relevant lows under Dow Theory (the lows made in the end of the primary bear market on June 4, 2012 for stocks). If this sounds confusing to you, maybe you should read my post “What should I do if I missed the Dow Theory bull signals for the SPY and GLD? Dow Theory’s second chance: The first secondary reaction” which you can find here


Besides, such secondary correction would be a boon for those that missed the primary bull market signal in all markets. The market tends to be unmerciful to the unprepared (technically and, more importantly, emotionally) majority, and hence, it doesn’t oblige and refuses to offer a second chance. If, again, this statement sounds confusing, you should maybe read “Why Dow Theory matters: Outstanding Risk Reward Ratio thanks to the Dow Theory’s trailing stop” which you can find here 


The precious metals universe closed all up for the day, save for SLV which had a negligible down movement. So again, more of the same. The primary bull market in the precious metals universe seems also solidly entrenched.



Bull market started 06/04/2012 128.1
Bull market signaled 06/29/2012 136.1
Last close
09/14/2012 147.24
Current stop level: Bear mkt low

Unrlzd gain % Tot advance since start bull mkt Max Pot Loss %

8.19% 14.94% 6.25%


Bull market started 05/16/2012 149.46
Bull market signaled 08/22/2012 160.54
Last close
09/14/2012 171.8
Current stop level: Bear mkt low

Unrlzd gain % Tot advance since start bull mkt Max Pot Loss %

7.01% 14.95% 7.41%


Bull market started 06/28/2012 25.63
Bull market signaled 08/22/2012 28.92
Last close
09/14/2012 33.6
Current stop level: Bear mkt low

Unrlzd gain % Tot advance since start bull mkt Max Pot Loss %

16.18% 31.10% 12.84%


Bull market started 07/24/2012 17.08
Bull market signaled 09/04/2012 21.83
Last close
09/14/2012 24.85
Current stop level: Bear mkt low

Unrlzd gain % Tot advance since start bull mkt Max Pot Loss %

13.83% 45.49% 27.81%


Bull market started 05/16/2012 39.56
Bull market signaled 09/04/2012 47.77
Last close
09/14/2012 53.86
Current stop level: Bear mkt low

Unrlzd gain % Tot advance since start bull mkt Max Pot Loss %

12.75% 36.15% 20.75%


Well this closes an intensive and exhausting week. I wish you all a happy weekend. If time allows me to do so, I’ll try to post some investment thoughts this weekend.


The Dow Theorist.

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