Friday, November 30, 2012

Dow Theory Update for Nov 30: No change in trends




Bearish bias


Today is going to be a short post in this Dow Theory blog.

The Industrials closed up. The Transports and SPY closed down.

The primary trend and secondary remain bearish.

Volume was very high. Since overall it was a down day, it was, again, a bearish volume day. Volume continues bearish and is negating validity to the current rally.

Gold, silver and their ETFs (GDX, SIL) closed down today. Technically, nothing has changed. The primary trend remains bullish and the secondary bearish.

Here you have the figures of the markets I monitor for today:


Data for November 30, 2012





DOW THEORY PRIMARY TREND MONITOR SPY




SPY
Bear market started
09/14/2012 147,24
Bear market signaled
11/16/2012 136,37
Last close
11/30/2012 142,05
Current stop level: Bull market high

147,24




Price chg since bear mkt signaled Tot decline since start bear mkt Max Pot Loss %




4,17% -3,52% -7,38%




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
11/30/2012 166,09
Current stop level: Sec React low
11/02/2012 162,6




Unrlzd gain % Tot advance since start bull mkt Min Pot Gain %




3,46% 11,13% 1,28%




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
11/30/2012 32,35
Current stop level: Sec React low
11/02/2012 29,95




Unrlzd gain % Tot advance since start bull mkt Min Pot Gain %




11,86% 26,22% 3,56%




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
11/30/2012 22,89
Current stop level: Bear mkt low

17,08




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




4,86% 34,02% 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
11/30/2012 47,55
Current stop level: Bear mkt low

39,56




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




-0,46% 20,20% 20,75%



Sincerely,

The Dow Theorist.

Thursday, November 29, 2012

Dow Theory Update for Nov 29: No changes in trends.





Stocks and precious metals up.


 Let’s see what the Dow Theory has in store for us today.

Yesterday I finished my post on this Dow Theory blog by promising information about SIL and GDX. Should we raise our stops? The full answer at the bottom of this post.

Stocks closed up today. There was unanimity.

Volume, however, was muted and being an up day it has, again, a bearish connotation. As you can see in the updated chart below, the red arrows (bearish volume days) are mounting. 

Volume persistently bearish

As to gold and silver both closed up today. SLV made a higher high unconfirmed by GLD. The primary trend remains bullish whereas the secondary trend remains bearish.

The gold and silver miners ETFs closed up today. The primary trend remains bullish while the secondary trend remains bearish.

Yesterday, I told you to stay tuned as to whether we should change the exit points (until now,  the last bear market lows) for SIL and GDX.

The answer is: No. We don’t have to change our Dow Theory trailing stops yet.

Here is the “why”:

Look at the table below:


 

          30 days Volatility        Multiple         3% rally adjusted
SPY 0.006392

SIL 0.014303 2.237640801 6.712922403
GDX 0.015432 2.414267835 7.242803504


As you know, under Dow Theory, once a secondary reaction has been signaled, the rally starting from the lows should at least amount to 3% in one index. Anything less than 3% is meaningless and to be ignored. However, the 3% rule was formulated for stock indices (DOW, SPY) whose volatility is lower than that of SIL or GDX. Hence, we have to make some adjustment. If you look at the table above, SIL's and GDX's volatility more than doubles that of stocks. Hence, a rally for SIL must exceed 6.71% (7.24% for GDX) to be relevant under Dow Theory.

Now look at the table below:

 

Highest High  Date Lowest Low  Date Sec Reac dec  Rally high  Date   Rally advance
SIL 25.58  10/04/2012 21.99  11/15/12 -0.140344019 23.38  11/23/12 0.06321055
GDX 54.81  09/21/2012 45.97  11/15/12 -0.161284437 48.74  11/23/12   0.060256689


This table shows us the percentage corrected by SIL and GDX as well as the percentage gained in the current rally. We can see that -14% and -16% declines for SIL and GDX fully qualify for a secondary reaction, even after we adjust for their higher volatility. Furthermore, we declared the existence of a secondary reaction well before such retracements were made, since both ETFs broke a “line." More about the line and the secondary reaction here and here

We see that SIL rallied 6.3% whereas GDX rallied 6.02%. We also know that the minimum volatility adjusted rally should amount to 6.71 for SIL or 7.24% for GDX. Even though, we are very close to the qualifying thresholds, which should be met at least by one ETF, the cold truth is that neither of them has staged the minimum required rally.

Thus, we cannot say that the secondary reaction lows have been made and that its violation would entail a primary bear market and hence our exit point. In order to establish a secondary reaction low (in this case the 11/15/2012 lows) as the final lows of the correction, we need a rally exceeding 6.71% for SIL or 7.24 for GDX. After such rally, a violation of the 11/15/2012 would signal a primary bear market and, thereby, our exit point (and new trailing Dow Theory stop, as it happened with gold and silver, as you can read here).
  
However, given that we have not had a relevant rally under Dow Theory, the violation of the 11/15/2012 would not be a primary bear market signal, but merely a lower low in the ongoing secondary reaction.

Of course, we are not dealing with certainties. The 6.32% rally is quite a rally and it is quite close to the volatility adjusted 6.71% qualifying threshold. Maybe I should bend my own rules and declare the last rally as relevant and thus, establish our exit level at the 11/15/2012 lows. However, I am quite adamant. Our goal is not to be right all the time but merely to have a defined framework of analysis in order to distil order out of the apparent chaos of the markets. And I know that if I follow the time-tested  rules of the Dow Theory, I will come out ahead of the game irrespective of the outcome of one individual trade.

All in all: It is too soon to change the exit point for SIL and GDX. Since I cannot say with confidence that the final secondary reaction lows have been established,  our exit point remains at the last primary bear market lows of 07/24/2012 (SIL) and 05/16/2012 (GDX).

Here you have the figures of the markets I monitor for today.

 
Data for November 29, 2012





DOW THEORY PRIMARY TREND MONITOR SPY




SPY
Bear market started
09/14/2012 147.24
Bear market signaled
11/16/2012 136.37
Last close
11/29/2012 142.14
Current stop level: Bull market high

147.24




Price chg since bear mkt signaled Tot decline since start bear mkt Max Pot Loss %




4.23% -3.46% -7.38%




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
11/29/2012 167.18
Current stop level: Sec React low
11/02/2012 162.6




Unrlzd gain % Tot advance since start bull mkt Min Pot Gain %




4.14% 11.86% 1.28%




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
11/29/2012 33.13
Current stop level: Sec React low
11/02/2012 29.95




Unrlzd gain % Tot advance since start bull mkt Min Pot Gain %




14.56% 29.26% 3.56%




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
11/29/2012 23.02
Current stop level: Bear mkt low

17.08




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




5.45% 34.78% 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
11/29/2012 48.04
Current stop level: Bear mkt low

39.56




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




0.57% 21.44% 20.75%



Sincerely,
The Dow Theorist.



Wednesday, November 28, 2012

Dow Theory Update for Nov 28: Exit points changed for GLD and SLV. Profits likely to be locked in




 No change in trends.


Today, there are important changes that affect both GLD and SLV. Read intently the end of this post on this Dow Theory blog.

Stocks closed up today. Technically, under Dow Theory, both the primary trend and secondary trend remain bearish.

Volume was mildly bullish, as it was higher than yesterday’s in an “up” day. Overall, the pattern of volume continues bearish. Please go to my yesterday's post to find more ample information about volume patterns.

Gold and silver closed down today. Technically, there are no changes. The primary trend remains bullish and the secondary trend bearish.

SIL closed down, and GDX closed up. Technically, there are no changes. The primary trend remains bullish and the secondary trend bearish.

Today you better pay attention to the figures of the markets I monitor. There are changes.

As you can see I changed the stop level for GLD and SLV. Why?

As I wrote on this blog on November 12, gold and silver made on Nov 2 secondary reaction lows followed by a rally. Under Dow Theory, a set up for a primary bear market signal was made. Please bear in mind that I am not saying that a primary bear market signal was flashed, merely that technically the setup was completed. If the gold and silver better the 10/04/2012 highs, then the primary bull market will be reconfirmed. However, if the current rally off the 11/02/2012 secondary reaction lows peters out and such lows are jointly violated a new primary bear market signal will be flashed. To know more about such setup and the calculations I made to determine it, please go read my post “Dow Theory Update for Nov 12: Gold and silver setting up for primary bear market signal” which you can read here.
 
So I am not jumping the gun, and I will let market action tells us whether a new bear market has been born or if such lows are not violated, the primary bull market continues in good health.

However, the setup in itself is important to us followers of the Dow Theory. As I wrote in my post “Why Dow Theory matters: Outstanding Risk Reward Ratio thanks to the Dow Theory’s trailing stop”, which you can read here:

as the market undergoes corrections our “exit” point is lifted higher and higher. Thus, the Dow Theory provides us with a very effective trailing stop that automatically adjusts to the advancing trend.”

Gold and silver have unambiguously established the lows of the secondary reaction on 11/02/2012. If such lows are violated, then we have a new primary bear market, and, thus, the talk will not be anymore of a “reaction” but a primary bear leg or swing. If they are not violated, then sooner or later the 10/04/2012 primary market highs will be broken out and from that point a new secondary reaction (please bear with me: a new one, not the current one) will develop at some time in the future.

As the market stands now one thing is clear: Once we had a qualifying rally after the 11/02/2012 lows, our exit point was not anymore the last lows seen in the last leg of the primary bear market that finished on 05/16/2012 at 149.46. Our new exit point stands at 162.6 for GLD (11/02/2012 lows).

If you do the math, this means that even if GLD and Silver violate such lows, it is very likely that some profits have been locked in.

The chart below clearly illustrates the current situation for GLD and SLV.

New exit level when/if two red lines violated

The short red line represents the price level of the secondary reaction lows.

The pink line represents the entry price when a primary bull market was signaled (August 22). Here you can find more information about the primary bull market signal for gold and silver.
 
The blue rectangle displays the distance between both lines. This distance is the amount of profit likely to be locked in even in case of a primary bear market signal. While, this is not carved in stone, as profits only exist when the trade is closed, clearly the investor in gold and silver follower of the Dow Theory is in a comfortable position.

Armed with all this information, you are in a better position to understand the changes I made on the cells containing information for GLD and SLV.

The cell “Maximum Potential Loss” has been changed. Now it reads “Minimum Potential Gain” since, even if the worst comes, some gains are likely to be locked in. The percentages displayed correspond with the difference between the entry price (cell: Bull market signaled) and the secondary reaction lows (cell: Current stop level: Sec Reac Low)

What about SIL and GDX? More about them tomorrow. 
  

Data for November 28, 2012





DOW THEORY PRIMARY TREND MONITOR SPY




SPY
Bear market started
09/14/2012 147.24
Bear market signaled
11/16/2012 136.37
Last close
11/28/2012 141.46
Current stop level: Bull market high

147.24




Price chg since bear mkt signaled Tot decline since start bear mkt Max Pot Loss %




3.73% -3.93% -7.38%




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
11/28/2012 166.55
Current stop level: Sec React low
11/02/2012 162.6




Unrlzd gain % Tot advance since start bull mkt Min Pot Gain %




3.74% 11.43% 1.28%




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
11/28/2012 32.62
Current stop level: Sec React low
11/02/2012 29.95




Unrlzd gain % Tot advance since start bull mkt Min Pot Gain %




12.79% 27.27% 3.56%




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
11/28/2012 22.78
Current stop level: Bear mkt low

17.08




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




4.35% 33.37% 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
11/28/2012 47.9
Current stop level: Bear mkt low

39.56




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




0.27% 21.08% 20.75%



Sincerely,

The Dow Theorist.


Tuesday, November 27, 2012

Dow Theory Update for Nov 27: Markets down. No changes in trends




Volume for stocks very bearish

 Let’s get started with our Dow Theory analysis in this blog for today.


The SPY, Industrials and Transports closed down again. Under Dow Theory nothing has changed. The primary trend and the secondary trend remain bearish.

Volume was up in a down day which has a bearish connotation. We have had six bearish volume days in a row. To add insult to injury, the last pivot high made two days ago was on notoriously lower volume than the previous pivot high made on 11/06/2012. This is also a bearish sign. Furthermore, the last two pivot lows as well as the last two pivot highs have displayed bearish volume patterns. The icing on the bearish cake, as you can see in the chart below, has been the declining trend of volume as the market rallied until a couple of days ago. Clearly, price action was negated by volume (see blue trend lines).

All in all, it is not frequent to see so much bearish information conveyed by different volume readings. While anything can happen in the next few days, volume seems to suggest that the primary bear market signal displayed on Nov 16 (Nov 11 according to Schannep) is to be heeded. More about the primary bear market signal here.
 
Here you have a chart displaying volume so that you can judge for yourself.

Six bearish volume days in a row. Volume at last four pivots bearish
 
Gold (GLD), Silver (SLV), GDX (gold miners’ ETF) and SIL (silver miners’ ETF) all of them closed down today. Technically, nothing has been achieved under the Dow Theory. The primary trend remains bullish whereas the secondary trend remains bearish.

Here you have the figures of the markets I monitor for today:

 
Data for November 27, 2012





DOW THEORY PRIMARY TREND MONITOR SPY




SPY
Bear market started
09/14/2012 147.24
Bear market signaled
11/16/2012 136.37
Last close
11/27/2012 140.33
Current stop level: Bull market high

147.24




Price chg since bear mkt signaled Tot decline since start bear mkt Max Pot Loss %




2.90% -4.69% -7.38%




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
11/27/2012 168.73
Current stop level: Bear mkt low

149.46




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




5.10% 12.89% 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
11/27/2012 32.93
Current stop level: Bear mkt low

25.63




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




13.87% 28.48% 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
11/27/2012 22.89
Current stop level: Bear mkt low

17.08




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




4.86% 34.02% 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
11/27/2012 47.48
Current stop level: Bear mkt low

39.56




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




-0.61% 20.02% 20.75%


Sincerely,

The Dow Theorist.