Thursday, September 20, 2012

Dow Theory update for Sept 20: Bull market continues

Today was another day without changes. Both the primary and secondary trend of the markets we monitor, namely, S&P, Industrials, Transports, Gold, Silver and their respective ETF miners continues unchanged. 

The Industrials closed slightly higher establishing a new record high since the inception of the primary bull market on June 4 (signaled by the Dow Theory on June 29). The SPY also closed slightly higher, albeit without establishing a new record high.

The Transports closed down big time for the day at 4961.69. However, the significant lows to be violated are at 4934.00 which correspond to the lows made on 07/25/2012 (lows of the last primary movement “leg”). Thus, we have to see and wait. Technically, as per Dow Theory, no damage has been made. We still have to wait. 

I know that the weakness of the Transports makes many analysts and investors leery as to the “goodness” of this primary bull market. However, it is good to remember that:

1. On June 29, both the SPY and the Industrial (so we had confirmation of two indices) signaled a primary bull market in stocks. You can find more details as to this bull market here

2. On Sept, 13, the Transports pierced the highs made in the preceding secondary reaction, thus also confirming the bullish signal of the Industrials and SPY.

3. The overall assessment of volume has been bullish.

Furthermore, Dow Theorist Schaefer provided us with a valuable insight concerning the Transports. Schaefer said that in the early stages of a primary bull market the transports tend to show relative weakness because among investors the prevailing mood is still bearish and hence the money flows to less speculative issues like the Industrials. The Transports tend to catch up when the investor’s mood turns bullish and a “risk on” more speculative mentality prevails. Of course, this doesn’t happen in a young bull market (as it is ours, only 3 months and 2 weeks old) because bull markets always start by climbing “a wall of worry”.

Thus, curiously enough, the Transports action might be hinting us what we already know: That most investors are skeptical about this bull market. Schaefer added that when the Transports turn really strong and the Industrials do not confirm, this tends to be a sign of an impending top.

 All these markets are consolidating. Nobody knows whether we will get an upside or downside breakout. 

Volume was higher than yesterday’s and given the prevailing bearish stance taken by stocks today; I’d say that today’s volume was bearish short term. Is the weakness in the Transports together with less bullish volume suggesting that the long-awaited secondary correction might be in the making? Under Dow Theory it is too early to tell. We have to wait.

As to the long term bond (BLV), no news. No breakdown….yet.

The GLD/SPY ratio is also trapped in a consolidation. If the ratio breaks up in favor of gold, then we will have to keep even a closer eye to the US bonds. As I explained in this blog in this post: “Is really Gold glittering? Who benefited most from QE?", which you can find here

The GLD/SPY ratio has to decisively break out of its consolidation in order to further confirm gold strength and real trouble for the US long term treasuries.

Here you have an updated chart of the ratio:

The GLD/SPY ratio must break decisively above prior secondary reaction highs to confirm gold strength

 As I hope you being to see, the beauty of the Dow Theory when properly applied (that is when investing according to the primary trend) lies in its not being stressful. You go with the flow; a slow moving flow which gives you ample time to patiently study the markets and ignore all the noise out there.

Here you have the figures for the day. Nothing new. Still waiting for a secondary reaction.


Bull market started 06/04/2012 128,1
Bull market signaled 06/29/2012 136,1
Last close
09/20/2012 146,71
Current stop level: Bear mkt low

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

7,80% 14,53% 6,25%


Bull market started 05/16/2012 149,46
Bull market signaled 08/22/2012 160,54
Last close
09/20/2012 171,47
Current stop level: Bear mkt low

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

6,81% 14,73% 7,41%


Bull market started 06/28/2012 25,63
Bull market signaled 08/22/2012 28,92
Last close
09/20/2012 33,56
Current stop level: Bear mkt low

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

16,04% 30,94% 12,84%


Bull market started 07/24/2012 17,08
Bull market signaled 09/04/2012 21,83
Last close
09/20/2012 25,08
Current stop level: Bear mkt low

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

14,89% 46,84% 27,81%


Bull market started 05/16/2012 39,56
Bull market signaled 09/04/2012 47,77
Last close
09/20/2012 54,36
Current stop level: Bear mkt low

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

13,80% 37,41% 20,75%


The Dow Theorist.

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