Dow Theory update for Oct 8: Primary and even secondary trend remain bullish

Transports display greater relative strength.

 

Let's get started with our Dow Theory analysis for today.

I will start, as usual with the stocks markets. Today the alleged “moribund” Transports closed up while the Industrials and the SPY closed down for the day. So, again, the Transports are displaying greater relative strength than its index peers. 

Curiously, enough, as the charts begin to speak in favor of the Transports, articles abound on the internet that insist on the Transports weakness. Just as an example, this article "Will Dow theory overcome the rally?” which you can read here seems oblivious to good Dow Theory and the message of the charts.

Furthermore, such articles frequently say that the Transports lead the Industrials which is not true. As I wrote in this post, Dow Theorist Schaefer wrote that the Transports do not usually lead the market in the early stages of a primary bull market. Since the present bull market began on June 4 (signaled by the Dow Theory on June 29), it is not surprising that only now, four months later the Transports seem to be coming to life again.

Furthermore, Mark Hulbert of MarketWatch has had the integrity to recognize that past analysis of the Transports was wrong and that in no way there is a statistically valid correlation proving that weak Transports lead to weak Industrials. Mark is to be thanked for being open minded and honest. There is nothing wrong in being wrong but in staying wrong, all the contrary evidence notwithstanding. Kudos Mark! His article “True meaning of the Transports’ weakness” is a must read and you can find it here.

So now you know, what a good Dow Theorist like Schaefer knew in 1960. Schaefer’s insight has been vindicated 52 years latter. The only issue is that most analysts still insist that the Earth is flat, all the contrary evidence notwithstanding.

Therefore, please be advised that the primary (and even secondary) trend of the stock market is bullish and that the Transports’ weakness is to be seen as a buying opportunity (maybe the last opportunity for those that missed the primary bull signal in SPY and Industrials, as the market refuses to correct) in a sector that may catch up with the SPY as the bull advances. I give credit for this idea to Schannep and his great “The Dow Theory” website which you can find here. Schannep, more than one month ago, recommended to his subscribers a long position in the Transports. His market call near the Transports' bottom is being vindicated by subsequent market action.

 

Enough talk. Look at the charts and you will convince yourself about the strengthening Transports. The 10’ minutes chart of the last 7 days (Transports in blue in the middle of the chart, Industrials in green on top of the chart, and SPY at the bottom in yellow) tell the story which is evident even to the untrained eye.

Seven days of strengthening Transports (10' chart)

Volume today was bullish, since overall the stock markets (save the Transports) went down and volume receded. If we look back at the last 10 days we cannot derive a conclusive picture from volume. And this is OK, as the markets are not supposed to gives us messages all the time.

As to gold, silver and their miners all of them closed down. However, no technical damage, not even of secondary importance has been made.

Well, here you have the figures of the markets I monitor for the day. 

 

Data for October 8, 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		11/05/2012	145.64
Current stop level: Bear mkt low			128.1
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
7.01%	13.69%	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		11/05/2012	172.05
Current stop level: Bear mkt low			149.46
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
7.17%	15.11%	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		11/05/2012	32.97
Current stop level: Bear mkt low			25.63
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
14.00%	28.64%	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		11/05/2012	25.01
Current stop level: Bear mkt low			17.08
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
14.57%	46.43%	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		11/05/2012	53.25
Current stop level: Bear mkt low			39.56
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
11.47%	34.61%	20.75%

Have a nice evening.

Sincerely,

The Dow Theorist.