Thursday, September 6, 2012

Dow Theory update: New Market highs confirm primary bull movement.

In my yesterday’s post “Dow Theory signals a new primary bullmarket in gold and silver miners” I said that the markets seemed to be “smelling” more liquidity coming. Thus, I wrote:

The market is clearly telling us that the tide was turning already by the end of June in favor of more liquidity


In my opinion the market seems to say that liquidity will lift all boats. Definitely, it is not a market to short.

You can find the whole post here 


Today the markets, and more specially, the S&P have confirmed that liquidity is coming and in spades. 


From a Dow Theory perspective, both the Industrials and the S&P have bettered their previous recorded highs:


Industrials:                        13034.35 on 08/17/2012

SPY (proxy for the S&P):    142.18 on 08/17/2012


Here you have an updated chart that explains what has been happening since the inception of the primary bull market movement.


New Highs under Dow Theory suggest continuation of the bull market

 What does this mean? 


Under Dow Theory, new highs always have a bullish implication. But you might ask: Under what time span? The answer is that higher highs imply a movement of secondary nature at least and, occasionally, of primary nature. Since we are already in a primary bull market, such new highs confirm just confirm that, for the time being, the primary trend is in good health and that a secondary correction seems not to be in the horizon. 


 However, I wouldn’t get too excited about these new highs. As I wrote in Where is the stock market now as per Dow Theory? Bull or bear?” which you can find herethe slightly down movement which we have had since 08/17/2012 didn’t qualify as a correction under Dow Theory. The fact that the pullback didn’t even qualify as a secondary correction means that the new highs we have seen on 09/06/2012 are not so important after all. It takes less strength to go up from a small pullback than to jump from the depths of a real correction.


Volume, while always of secondary importance, seems to be bullish. Hence, in the last four days, it has been larger in up days than in down days. Today's volume has been remarkably strong. 


Furthermore, since under Dow Theory we have not had a full correction since the inception of the primary bull market (which started on 06/04/2012 and was signaled by Dow Theory on 06/29/2012), a real correction could be in store for us all.


And what about the Transports? Well, the picture would be even rosier if the Transports would deign to confirm. However, according to leading Dow Theorist Schannep, it is enough when both the Industrials and the S&P confirm. Speaking about Schannep. I think he’s being vindicated by market action and deserves acknowledgement for his brilliant market call made on June 29, 2012. 



The Dow Theorist

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