Friday, November 16, 2012

Dow Theory Update for Nov 16: Primary bear market for stocks signaled today

 Keep an eye on gold and silver

Well, we finally got our primary bear market signal under Dow Theory. We got it by just some cents, but we got it after all.

Today the Transports closed at 4891.27. The secondary reaction lows of the Transports of 09/28/2012 stood at 4892.62. So just by some cents the Transports closed below the relevant lows thereby signaling a primary bear market signal.

Under Dow Theory, it is immaterial whether the relevant low is violated by just one cent or two hundred points, and hence, we have to declare that today the market has told us that the primary trend is bearish. Furthermore, those doubting the validity of this signal because it was just given by a penetration of some cents are well advised to read my Dow Theory special issue “Is the primary trend for stocks about to change?” which you can find here.

If you go to that post, you will see that Schannep already signaled a bear market signal on 11/07/2012. While my Dow Theory flavor is slightly less aggressive than Schannep’s, one thing is clear: I wouldn’t argue too long with Schannep and his outstanding track record. Today even under my somewhat more conservative interpretation of the Dow Theory a primary bear market signal was signaled.

Please note that I don’t say that today the primary trend has turned bearish. The primary trend turned bearish when the last confirmed highs were made on 09/14/2012. Since that date, the stock market was unable to make higher confirmed highs. The Industrials made higher highs on 10/05/2012 but unconfirmed. Thus, all the price movement we experienced since 09/14/2012 is to be relabeled as the first primary swing of the new primary bear market.

Today those investing along the primary trend should have gotten out of stocks or, at the very least, sell down to 50%. While we don’t know what is in store for us, as the Dow Theory doesn’t make the pretense of knowing the future, we do know that the odds favor the continuation of the bear market. Even if the market might reverse and shoot up in the weeks and months ahead, we must be disciplined and heed the signals given by the Dow Theory. Discipline is vital and to have discipline you have to understand the intricacies of the Dow Theory.

I will post later today or tomorrow Saturday a special Dow Theory issue where I will further analyze the implications of this primary bear market signal. Please stay tuned.

The Industrials and the SPY closed up for the day. However, their action under Dow Theory was not enough to dodge the bullet.

Volume was higher today and being the SPY up today it has a bullish implication. However, the overall pattern of short term volume remains bearish.

Gold and silver closed down today. By closing down they begin to approach dangerously the secondary reaction lows made on 11/02/2012  If such lows are violated, then gold and silver will have signaled a bear market of their own. Here you have an updated chart:

If the red line is jointly violated a primary bear market signal for gold and silver will be flashed

The gold and silver miners ETFs (GDX and SLV) both closed up today. Technically, nothing has changed.

Here you have the figures of the markets I monitor for today. Please note that for the SPY, I changed the column “unrealized gain” and wrote, “Realized gain." Since the investor is supposed to have exited stocks at today’s close following the bear market signal, the SPY unrealized gain became a realized gain. As you can see even under adverse conditions and with a “failed” primary bull market signal, the Dow Theory follower has managed to escape the debacle unscathed. More on this in the Dow Theory special issue that will follow soon.

Data for November 16, 2012


Bull market started
06/04/2012 128.1
Bull market signaled 06/29/2012 136.1
Last close
11/16/2012 136.37
Current stop level: Bear mkt low


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

0.20% 6.46% 6.25%


Bull market started
05/16/2012 149.46
Bull market signaled 08/22/2012 160.54
Last close
11/16/2012 165.88
Current stop level: Bear mkt low


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

3.33% 10.99% 7.41%


Bull market started
06/28/2012 25.63
Bull market signaled 08/22/2012 28.92
Last close
11/16/2012 31.21
Current stop level: Bear mkt low


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

7.92% 21.77% 12.84%


Bull market started
07/24/2012 17.08
Bull market signaled 09/04/2012 21.83
Last close
11/16/2012 22.26
Current stop level: Bear mkt low


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

1.97% 30.33% 27.81%


Bull market started
05/16/2012 39.56
Bull market signaled 09/04/2012 47.77
Last close
11/16/2012 46.47
Current stop level: Bear mkt low


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

-2.72% 17.47% 20.75%


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 footer of this blog. 

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