Let’s begin with our Dow
Theory commentary for today in this blog.
The SPY, Industrials and
Transports closed strongly down. The Transports almost violated its 09/28/2012
lows, but failed to do so. Today’s close for the Transports was 4926.12 whereas
the secondary reaction lows to be violated stand at 4892.62.
Volume was higher than yesterday's,
which makes it a bearish volume day. Now unambiguously the pattern of volume is
bearish short term. However, again, I didn’t see a climax.
So tomorrow may be the moment
of truth. If the Transports finally close below 4892.62 a new primary
bear market will be signaled. Thus, all readers of this Dow Theory blog should
keep an attentive eye to the Transports, since a primary bear market signal
implies the need to get out of stocks as soon as possible.
Curiously enough, such alleged
bad news may be good news for latecomers who missed the primary bull market
signal on June 29. Today, the SPY by closing at 135.93 erased all the
unrealized gains made since June 29 (date when a primary bull market signal was
signaled). While this is certainly not good news for those that bought on a timely
manner, it is the second chance for latecomers to get aboard at the same price
and with the benefit of doing it four months later.
If you are a regular reader of
this Dow Theory blog, you know that I never advise to chase markets. If the
investor is too late for a timely entry, it is better to pass the trade or wait
for a belated opportunity to show up. This is why in September, I wrote the
post “What should I do if I missed the Dow Theory bull signals for the SPY
and GLD? Dow Theory’s second chance: The first secondary reaction” which
you may read here.
However, right now there is a
good opportunity for latecomers to enter the stock market.
On the one hand, as I wrote
above, the SPY is at a price level that even betters the entry price of June
29.
On the other hand, and more
importantly, risk is very limited in case things go wrong.
Why?
Because, if things go wrong it
is very likely that tomorrow or the day after tomorrow the Transports will
violate their 09/28/2012 thereby flashing a primary bear market signal. If such
primary bear market signal is signaled, then the investor should immediately
exit his/her position. In other words, risk is very limited because now we
have an ultra narrow stop (namely the distance between today’s Transports close
and its 09/28/2012 lows) while the upside, in case the Transports refuse to
go down, continues to be high. It isn’t uncommon for bull markets to witness
gains of 40%. While this may look laughable right now, one thing is clear: It
either is a new bear market, or it is a bull market. There is no third way. If
it is a bear market, fasten your seatbelts. If it is a bull market, then the
odds favor a solid price advance. The research made by Schannep concerning
price gains in bull markets is worth careful study by the investor and it is certainly
reassuring when trying to gauge the likely reward of a trade alongside the
primary trend. You can fin Schannep’s master piece here
Personally, I think that the
odds favor a primary bear market signal. However, when I think of a risk of
maybe 2% (the price decline likely to be suffered in case tomorrow the market will
close down, and a primary bear market signal is flashed) versus a likely of 30
or 40%, I realize that there is a magnificent risk reward ratio. In any
instance, if the trade goes sour, it will be a short-lived trade. Buy at the open and very likely sell
with a small loss at the close.
If one wants to exactly know
the measure of his/her risk, then a position in the Transports is advised.
Furthermore, and spite of today’s rout, the Transports have been the strongest
index since September 28.
Charles Dow advocated the
acquisition of stocks in the depths of secondary reactions with a tight stop
under the acquisition price under the premise that in most instances, the
primary trend finishes by reasserting itself. While now I am aware that it
takes strong guts to do it, one thing is clear: The harder it looks to do it,
the better the risk-reward ratio.
Of course, each investor must
do his/her home works, analyze his/her pain tolerance and take the final
decision. This Dow Theory blog just opens avenues for thinking.
Gold and silver closed up.
Remember that we must keep an eye on the 11/02/2012 lows. If they are violated,
a primary bear market will be signaled for gold and silver. In the meantime, the
primary trend remains bullish and the secondary trend remains bearish.
True to the signaling of a
secondary reaction in SIL and GDX, today both ETFs collapsed. The secondary
reaction must run its course. The primary trend remains, nonetheless, bullish.
The action of the miners ETFs
seems to suggest that all stocks were dumped today. I say this because gold and
silver closed up.
Here you have the figures of
the markets I monitor for today.
| Data for November 14, 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 | 11/14/2012 | 135.93 | |
| Current stop level: Bear mkt low | 128.1 | ||
| Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
| -0.12% | 6.11% | 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 | 11/14/2012 | 167.14 | |
| Current stop level: Bear mkt low | 149.46 | ||
| Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
| 4.11% | 11.83% | 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 | 11/14/2012 | 31.64 | |
| Current stop level: Bear mkt low | 25.63 | ||
| Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
| 9.41% | 23.45% | 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 | 11/14/2012 | 22.46 | |
| Current stop level: Bear mkt low | 17.08 | ||
| Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
| 2.89% | 31.50% | 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 | 11/14/2012 | 47.22 | |
| Current stop level: Bear mkt low | 39.56 | ||
| Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
| -1.15% | 19.36% | 20.75% | |
Sincerely,
The Dow Theorist
Disclaimer: Dow
Theory Investment and its author is not a financial adviser. Dow Theory
Investment and its author does not offer recommendations or personal investment
advice to any specific person for any particular purpose. Please consult your
own investment adviser and do your own due diligence before making any
investment decisions. Please read the full disclaimer at the bottom of the
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