Friday, October 5, 2012

Dow Theory update for Oct 5: Mixed day. Stocks up. PMs universe down.

Primary and secondary movement remains bullish

Today was a calm day which did not change the technical picture which remains bullish long and short term for stocks, gold, silver and their miners. This is the way I see things according to the Dow Theory: No changes.

The only thing worth mentioning are long-term bonds whose technical picture looks worse with each passing day. More on this below.

The Industrials, Transports and SPY all closed up for the day. As you know, in Dow Theory we only pay attention to closing prices, so intraday market action is not taken into account.The Industrials broke out above the previous high. However, such action has not been confirmed by the other two indices.

Volume was bearish, since it was an up day on lower volume. Since the highs of 09/14/2012 fifteen trading days have elapsed. Seven days had bearish volume. So volume is mixed.

As to gold, silver and their miners, all of them closed down today. However, no technical damage has been made. This down close was not a surprise to me after all the excitement we had yesterday in the precious metals universe. Hence this morning at 8:45 AM I wrote the following in this blog when answering a comment:

“Furthermore, experience shows that being at highest highs the market shows "discontinuity." It has roughly 80% likelihood of pulling back and 20% of shooting to the upside.

Thus, it was scarcely surprising to see a down day. However, this has no bearing as to the long-term and intermediate trend which remain bullish. So no technical damage has been made.

More interesting is the long-term bond/gold ratio (BLV/GLD). As followers of this “Dow Theory Investment” blog know, I am closely monitoring this ratio, since a violation of the last secondary reaction lows may spell trouble for bonds and make gold really glitter. If this sounds queer, maybe you should read my post “Dow Theory spells trouble for bonds: Clouds on the horizon” which you can find here.

Here you have the chart:

Bonds at a difficult juncture. Epic battle between gold and bonds

 If we take a look at this chart, we see the following bearish signs for the ratio (that is for bonds):

  1. The ratio is again dangerously approaching the green line which represents that last reaction lows.
  2. There was a failed violation of a head and shoulders pattern in BLV. Normally, when such violation fails there should be a significant upside move. However, such move is fizzling out.
  3. Furthermore, BLV (as well as the ratio itself) has had two declining highs. Not a bullish sign, certainly. 
  4. BLV is again approaching the blue trend line joining previous lows. This trend line is an important one.

Really, you are seeing a dramatic chart that epitomizes the fight of the bonds (essentially the USD) against the power of gold. Who will win? My fundamental instincts say that gold; however, you know I attach relative value to my own fundamental forecasts, and such fundamental forecasts may take long to come to fruition (longer than you can stay solvent, as Keynes would say). Thus, I prefer the technical side of the Dow Theory to guide me in a time horizon of 1-2 years. One thing is clear: The chart reflects an epic battle.

Well, that’s all for this evening.

And now the figures of the day:

Data for October 5, 2012


Bull market started 06/04/2012 128.1
Bull market signaled 06/29/2012 136.1
Last close
10/05/2012 146.14
Current stop level: Bear mkt low

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

7.38% 14.08% 6.25%


Bull market started 05/16/2012 149.46
Bull market signaled 08/22/2012 160.54
Last close
10/05/2012 172.62
Current stop level: Bear mkt low

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

7.52% 15.50% 7.41%


Bull market started 06/28/2012 25.63
Bull market signaled 08/22/2012 28.92
Last close
10/05/2012 33.44
Current stop level: Bear mkt low

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

15.63% 30.47% 12.84%


Bull market started 07/24/2012 17.08
Bull market signaled 09/04/2012 21.83
Last close
10/05/2012 25.39
Current stop level: Bear mkt low

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

16.31% 48.65% 27.81%


Bull market started 05/16/2012 39.56
Bull market signaled 09/04/2012 47.77
Last close
10/05/2012 53.68
Current stop level: Bear mkt low

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

12.37% 35.69% 20.75%


The Dow Theorist


  1. First, thanks for insightful work. I've picked up the Russell book to get my feet wet.

    Second, I usually check quotes on Google Finance, and I notice that there's a discrepancy between its SPY quotes and Yahoo's. Not sure if you've noticed that as well. I did a quick search to see if I could reconcile the difference but couldn't. I just noticed today because Google's SPY quote shows a down day. I thought I'd mention it in case anyone else was thrown off by this.

    1. Hi, Desperately,

      My data source comes from TradeStation, which is not a free platform and is supposed to be accurate because it is for actual traders. Maybe the discrepancy has to do with after-hours trading. I always post the close (as per TradeStation) at 4 p.m. Eastern time. I checked again today's figures at the SPY closed at 146.14 whilst yesterday's close was 146.13.

      Russell's book is the best one to begin with (the easiest read). However, if you are serious about it, you should continue with Rhea and to earn your the PhD degree: Schannep.

      thx for your interest