Primary and secondary trend
bullish in the precious metals universe.
Richard Russell, of the „Dow
Theory Letters“, seems to little by little join the bullish camp, albeit in a
hedged manner. In his yesterday’s letter, he acknowledged that the bull seems
to be winning the battle. As I wrote in the past in this Dow Theory blog, the
great thing of Russell is his flexibility. He doesn’t last too long on the
wrong side when market action proves him wrong. He’s got the humility and
flexibility that distinguish long-term survivors. There is nothing wrong in
being wrong, but in staying wrong.
We have to take into account
that the Dow Theory is not an exact science. I liken the Dow Theory to the
practicing of laws. While the laws are the same for every practitioner, their
application differs substantially depending on the lawyer applying them. Thus,
our main task is not to be always right but to minimize losses when being
wrong. Furthermore, there are market junctures when, even with the most
accurate interpretation, market action produces market losses for the investor.
This is why only 70% of the Dow Theory signals result in gains for the
investor. But 70% is fully OK. Furthermore, the average percentage gain when
winning is much higher than the percentage loss when losing. In trading parlance,
we would say that the Dow Theory has a very high profit factor which is always a very good thing.
More on this in a future post.
The three indices we monitor,
the Industrials, Transports and the SPY closed up for the day. However,
technically we cannot say that the secondary correction is finished. I quote
what I wrote yesterday in this Dow Theory blog, which remains fully applicable:
“Even though
I feel that it is likely that the secondary reaction may have finished, as with
primary trends, it is impossible to know in real time when the secondary
reaction has finished. We just can make guesses, as I have just done right now
based on volume, non confirmations, etc. We will only know for sure that it is
finished when the last recorded highs of 10/05/2012 (DIA) and 09/14/2012 (SPY
and Transports) are penetrated. However, there is nothing wrong with that,
since we don’t trade them.”
Attention Transports and
latecomers
I wrote in this Dow Theory
blog that for those latecomers waiting for a good opportunity to enter the
market the Transports might be a good (and maybe last) opportunity to do it
with a good risk reward ratio.
The Transports are very close
to penetrate their 09/14/2012 high. If we get a close above this level this is
the last chance to get aboard.
So latecomers should intently
monitor the Transports in the next few days.
Please do your due diligence
and re-read this vital post: “What should I do if I missed the Dow Theory
bull signals for the SPY? Dow Theory’s second chance: The Transports” which
you can find here:
Volume was again, for the
fifth day in a row bullish. We had a clearly up day on stronger volume.
Curiously, such display of volume bullishness tends to beget a one or two days
reversal to be further continued by more ascending prices. What it is clear is
that the Dow Theory is not interested in forecasting 1 or 2 days movements.
Hence, what it is more important is to realize that volume is becoming bullish
short term.
Related to volume or its
underlying quality is a stock’s short interest. Today Bespoke Investment Group
posted an interesting study in Seeking Alpha that demonstrated that the recent
rally is not caused by short covering but by genuine buying. You can read the
whole article called What's Driving This Bounce? here
As to the precious metals' universe,
no changes. GLD, SLV, GDX and SIL all closed mildly up for the day.
Conclusions:
1.
Stocks: It is still premature to declare the
secondary reaction finished. The primary trend remains solidly bullish. The
Transports are very close to offer the last chance to join the primary bull
market for those latecomers.
2.
Precious metals: No changes in the trenches.
Primary and secondary trend remains bullish.
Here you have the latest
numbers of the crucial markets I monitor:
Data for October 17, 2012 | |||
DOW THEORY PRIMARY TREND MONITOR SPY | |||
SPY | |||
Bull market started | 06/04/2012 | 128.1 | |
Bull market signaled | 06/29/2012 | 136.1 | |
Last close | 10/17/2012 | 146.2 | |
Current stop level: Bear mkt low | 128.1 | ||
Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
7.42% | 14.13% | 6.25% | |
DOW THEORY PRIMARY TREND MONITOR GOLD (GLD) | |||
GLD | |||
Bull market started | 05/16/2012 | 149.46 | |
Bull market signaled | 08/22/2012 | 160.54 | |
Last close | 10/17/2012 | 169.54 | |
Current stop level: Bear mkt low | 149.46 | ||
Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
5.61% | 13.44% | 7.41% | |
DOW THEORY PRIMARY TREND MONITOR SILVER (SLV) | |||
SLV | |||
Bull market started | 06/28/2012 | 25.63 | |
Bull market signaled | 08/22/2012 | 28.92 | |
Last close | 10/17/2012 | 32.11 | |
Current stop level: Bear mkt low | 25.63 | ||
Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
11.03% | 25.28% | 12.84% | |
DOW THEORY PRIMARY TREND MONITOR ETF SIL | |||
SIL | |||
Bull market started | 07/24/2012 | 17.08 | |
Bull market signaled | 09/04/2012 | 21.83 | |
Last close | 10/17/2012 | 25 | |
Current stop level: Bear mkt low | 17.08 | ||
Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
14.52% | 46.37% | 27.81% | |
DOW THEORY PRIMARY TREND MONITOR ETF GDX | |||
GDX | |||
Bull market started | 05/16/2012 | 39.56 | |
Bull market signaled | 09/04/2012 | 47.77 | |
Last close | 10/17/2012 | 53.11 | |
Current stop level: Bear mkt low | 39.56 | ||
Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
11.18% | 34.25% | 20.75% |
Sincerely,
The Dow Theorist.
Disclaimer: Dow
Theory Investment and its author is not a financial adviser. Dow Theory
Investment and its author does not offer recommendations or personal investment
advice to any specific person for any particular purpose. Please consult your
own investment adviser and do your own due diligence before making any
investment decisions. Please read the full disclaimer at the bottom of the
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