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


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


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

3.73% -3.93% -7.38%


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%


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%


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


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

4.35% 33.37% 27.81%


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


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

0.27% 21.08% 20.75%


The Dow Theorist.

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