A secondary correction may happen any time now
On Friday, Sept 28, the stock
market had been trending lower for the last 10 trading days (for the SPY and Transports). This is the
minimum time requirement for a secondary reaction to exist.
However, for a secondary
reaction to exist it is necessary that two of the three indices we monitor
retrace at least 3% from their previous highs. In addition to the 3%
retracement requirement, and while not carved in stone, it is advisable that
1/3 to 2/3 of the previous price advance be retraced.
If we look at last Friday’s
Sep 29 closing prices we can see that only the Transports had experienced a
retracement exceeding 3%, namely -6.19%, whereas the SPY and the transports didn’t
reach the 3% threshold. Thus, under Dow Theory, although the time requirement
for a secondary reaction was fulfilled, the 3% retracement in at least two
indices was not met. Furthermore, the SPY only retraced 17% of the previous up
leg (the upward movement from the bear market lows of June 4 to the highest
high of Sep 14) which doesn’t qualify as a secondary reaction either. Same
story applies to the Industrials. Well, by the Industrials we haven't even had 10 day trading day correction since the last highs were made on Sept 20.
Today’s market action hasn’t changed
the picture we had last Friday at all, since the three stock indices closed up
for the day, thereby making the retracement even smaller.
All in all, the Transports
alone are in “secondary correction” mood. But under Dow Theory such movement
unconfirmed by at least one of the other two indices is meaningless and even deceptive. I marked
the word “deceptive” because the weaker Transports have many analysts confused
and have them proclaim that no bull market exists.
If you still doubt about the
existence of a primary bull market in stocks, you should read my post “5
Reasons why I consider the stock market in a primary bull market” which you
can read here
All in all, the time
requirement for a secondary reaction to exist has been met. However, this is
not enough to proclaim the “advent” of a secondary reaction under Dow Theory. We
have to see in at least two indices a downward movement of at least 3%. Until
this happens we cannot talk of a secondary reaction. However, it is clear that
from now on I’ve to intently observe this market.
Tomorrow I will post an
updated chart of the three indices where you will be able to visualize the yet
to exist secondary reaction. Furthermore, I will provide you with all the relevant figures in order to appraise secondary corrections.
Today we had again a bearish
volume day. The stock market closed up on lower volume. In the last 7 days, we have
had 5 bearish volume days. Is this suggesting the eventually we will get the
awaited secondary reaction? We will see. On the very short term I see in the
charts that we have had 4 consecutive down days. According to legendary trader
Victor Sperandeo this pattern suggests that the short term trend is nearing its
end. I hope this time this pattern fails and that the bearish volume
indications prevail, since, as followers of this blog know, I am eagerly
awaiting a secondary reaction. More on this here and here.
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Volume is bearish short term. |
Gold, silver and their miners
all closed up for the day. Gold and silver briefly broke out their respective
highs but after staging an outside reversal day closed near the day’s lows. Such
outside reversal days tend to denote short term tops. However, again, don’t get
lost with the technical babble which I myself sometimes cannot avoid. Your
focus is the primary trend. And this is solidly bullish for gold, silver and
their miners. This should suffice to make of you a very successful investor.
Here are the figures of the
markets I monitor for today:
Data for October 1, 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 | 10/01/2012 | 144.35 | |
Current stop level: Bear mkt low | 128.1 | ||
Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
6.06% | 12.69% | 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 | 10/01/2012 | 172.29 | |
Current stop level: Bear mkt low | 149.46 | ||
Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
7.32% | 15.27% | 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 | 10/01/2012 | 33.65 | |
Current stop level: Bear mkt low | 25.63 | ||
Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
16.36% | 31.29% | 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 | 10/01/2012 | 25.05 | |
Current stop level: Bear mkt low | 17.08 | ||
Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
14.75% | 46.66% |
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 | 10/01/2012 | 53.92 | |
Current stop level: Bear mkt low | 39.56 | ||
Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
12.87% | 36.30% | 20.75% |
Sincerely,
The Dow Theorist
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