Dow Theory Update for Oct 23: Gold and silver miners enter secondary reaction.

Markets down. Transports up.

Let’s begin with our Dow Theory commentary in this blog.

The SPY and Industrials closed clearly down. However, the Transports defying gravity force managed to close up for the day.

So the secondary reaction follows its course. It is good to remember that the amount hitherto corrected is modest if we are to compare with normal parameters for secondary reactions. Even though in real time, it looks like the end of the world and it is not pleasant to see.

As I said the amount retraced is modest. From its 10/05/2012 high of 13610.15 the Industrials have merely lost 3.73%.  If I get strictly technical under Dow Theory, I should measure the amount corrected from the last joint recorded highs, given that those of the Industrials of 10/05/2012 were not confirmed. On 09/14/2012 the Industrials closed at 13593.27. Measured from the last jointly recorded highs the Industrials have merely lost 3.61%

The SPY has retraced a mere 3.95% from its 09/14/2012 highs of 147.24.

The Transports, better not to talk about them, since they are going up.

In other words, I don’t know what tomorrow will bring but what I do know is that in spite of all the pessimism that surrounds us, this secondary reaction has been muted. A “normal” correction may witness price declines of 6-7% from the top. We are very far from that point.

Even I can get emotional because it is unpleasant to see the market going down. However, cold numbers are telling another story: Until now, we are far from seeing a crash, all the anniversaries notwithstanding. By the way, if you ask yourself how Dow theorists fared on the October 19, 1987 crash, you should read this post “Special Dow Theory issue: Revisiting the 1987 crash” which you can read here.

 The real bearish note for today was volume: It was higher than yesterday’s so it has bearish implications as it was a down day. Furthermore, today close in the SPY was lower than the previous pivot low of 10/12/2012. I’ve circled with ellipses both pivots so that you can see them better. Since volume today was higher than at the previous pivot low, this is a bearish sign. My gut feeling tells me that the market is short-term oversold and so much explosive volume on the downside tends to beget a 1-2-day  opposite movement. However, technically the message of volume short term (2-10 days) is getting unambiguously bearish. Today’s bearish pivot low is not a good omen short term. Here you have an updated chart of the volume patterns. Remember that one red arrows denote bearish volume whilst a blue arrow implies bullish volume. A second arrow denotes bearish or bullish volume at pivot points. 

Last pivot low bearish. Lower low on higher volume

 

What happened to the precious metals' universe?

All of them closed down today.

Gold and silver remain in their secondary reaction.

The big news is that gold and silver miners ETFs joined the bearish parade by also signaling a secondary reaction.

Later today or tomorrow I will write a special issue on this Dow Theory blog concerning the details of this secondary reaction.

However, primary trend for both gold, silver and their miners ETF remains bullish.

And here you have the figures of the markets I monitor for today:

 

Data for October 23, 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		10/23/2012	141.42
Current stop level: Bear mkt low			128.1
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
3.91%	10.40%	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		10/23/2012	165.43
Current stop level: Bear mkt low			149.46
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
3.05%	10.69%	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		10/23/2012	30.68
Current stop level: Bear mkt low			25.63
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
6.09%	19.70%	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		10/23/2012	24.13
Current stop level: Bear mkt low			17.08
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
10.54%	41.28%	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		10/23/2012	50.96
Current stop level: Bear mkt low			39.56
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
6.68%	28.82%	20.75%

Sincerely,

The Dow Theorist.

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