Dow Theory Update for Dec 18: Stocks just about to signal primary bull market signal

Gold and silver just about to signal primary bear market signal

 

Today has been an interesting day for those that analyze the markets under the Dow Theory.

The SPY, the Industrials and the Transports closed firmly up. The Transports by closing at 5310.75 clearly broke above the 06/19/2012 high of 5250.54.

However, the SPY and the Industrials, while being within short distance of the 09/14/2012 (SPY) and 10/05/2012 (Industrials) highs have refused to confirm the breakout of the Transports. Under Dow Theory, a movement not confirmed by at least one index is to be disregarded. Furthermore, if the non confirmation of the breakout were to persist in would have a bearish reading.

If either the SPY or the Industrials (or both) confirm the breakout of the Transports, the Dow Theory would be flashing a primary bull market. Such primary bull market signal is not frequent as it entails an uncorrected rally from the primary bear market lows. Such patter, albeit infrequent, is clearly part and parcel of the Dow Theory, and it was recorded by Rhea in his writings. You can fin more about the current setup in yesterday’s Dow Theory update which you can find here.

 

All in all: The primary trend remains bearish (although this can change quickly) and the secondary trend bullish.

Volume was higher than yesterday’s and since it was an up day, it has a bullish connotation. Volume is becoming neutral. I insist the volume does not make trends but merely qualify them. In other words, I’d say that 90% of our trends are made by sheer price action. Volume serves to merely “fine tune” 10% of the trends made by price action. Or to put it otherwise: If you take 100 trends with confirming volume and 100 trends without confirming volume, the trends with confirming volume are 5% more likely to sport higher price. However, this does not mean that trends without supporting volume are going to fail. They are merely 5% less likely to continue its ascent. This is why volume, while important is always of secondary importance.

Here you have an updated chart:

Volume is turning less bearish. More blue arrows in the last few days

Today was a dramatic day in gold and silver. GLD (gold) violated its Nov 2 secondary reaction lows. Silver (SLV), however, while very weak, refused to violate its Nov 2 lows. So we got today in the precious metals a mirror image of that which is happening in stocks. We have had new lows unconfirmed. When or if silver violates its Nov 2 lows, we will get a confirmed primary bear market signal.

Here you have an updated chart:

GLD violated its Nov 2. SLV refused to do so.

SIL and GDX, the silver and gold ETF miners, closed down today. Technically, nothing has change, albeit both metals are very close to breaking the last recorded lows of Nov 15. The primary trend remains bullish and the secondary trend bearish.

And what about the vital BLV/GLD (long-term bond/gold term bond/gold) ratio?  As you know, I keep a close eye to this ratio for the reasons explained here and here.

  

Well, the ratio is still refusing the announce Armaggedon (which accounts for gold’s weakness). However, technically something important has happened. More about such a ratio tomorrow in a special issue in this Dow Theory blog.

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

 

Data for December 18, 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		12/18/2012	145.37
Current stop level: Bull market high			147.24
Price chg since bear mkt signaled	Tot decline since start bear mkt	Max Pot Loss %
6.60%	-1.27%	-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		12/18/2012	162.08
Current stop level: Sec React low		11/02/2012	162.6
Unrlzd gain %	Tot advance since start bull mkt	Min Pot Gain %
0.96%	8.44%	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		12/18/2012	30.65
Current stop level: Sec React low		11/02/2012	29.95
Unrlzd gain %	Tot advance since start bull mkt	Min Pot Gain %
5.98%	19.59%	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		12/18/2012	22.74
Current stop level: Bear mkt low			17.08
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
4.17%	33.14%	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		12/18/2012	45.75
Current stop level: Bear mkt low			39.56
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
-4.23%	15.65%	20.75%

Sincerely,

The Dow Theorist