Tuesday, December 31, 2013

Dow Theory Update for December 31: Stocks close up making confirmed higher highs



 

Precious metals finish the year close to lowest lows


Let’s get started with our last Dow Theory commentary for 2013.

US stocks

The SPY, Industrials and the Transports closed up and made confirmed higher closing highs. As a faithful trend follower, I can only say that the primary bull market continues unabated. Maybe it will change soon, but, until then, the trend is your friend. 

We close 2013 with realized profits of 8.91% for the SPY (position opened on January 2nd and closed on June 21st) and unrealized profits of 9.37% (position opened on July 18th, currently open as the primary bull market remains in force). More about performance in the post that I hope to publish on January 2nd which will be a Dow Theory review for 2013. Readers of this blog stay tuned.

The primary trend is bullish, as explained here, and more in-depth here.

The primary trend was reconfirmed as bullish on October 17th and November 13th, for the reasons given here and here.


Gold and Silver

SLV down and GLD closed up. Both precious metals finish the year close to their last recorded lows. For the reasons I explained here, and more recently here, I feel the primary trend remains bearish. Here I analyzed the primary bear market signal given on December 20, 2012. The primary trend was reconfirmed bearish, as explained here. The secondary trend is bullish (secondary reaction against the primary bearish trend), as explained here.

As to the gold and silver miners ETFs, SIL, and GDX closed up. The primary trend is bearish, as was profusely explained here and here. Likewise, the secondary trend is bearish.

Yesterday, I promised a review of 2013 according to the Dow Theory. It is taking more time than I expected and, since I want to do a good job and provide you with valuable information, it is going to be postponed for, hopefully, the next post on January 2nd. We will revisit all the Dow Theory-based market calls and how we have fared compared to buy and hold. It’ll be a real tour de force, as you will have before your eyes one full year of market action.

Here you have the figures for the SPY which represents the only market with a suggested open long position:

 

Data for December 31, 2013






DOW THEORY PRIMARY TREND MONITOR SPY




SPY
Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
12/31/2013 184.69
Current stop level: Secondary reaction low

165.48




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




9.37% 17.59% 2.05%


Happy new year to you all.

The Dow Theorist

Monday, December 30, 2013

Dow Theory Update for December 30: Unconclusive day for stocks




Timing the next primary bear market in stocks


The website “State of the Markets," run by Dave Moenning produces, in my opinion, one of the best market commentaries. And their free content is much better than that offered by other paid subscription sites (Schannep and a few others, excluded, of course, where subscribers find real value for their money)


The “State of the markets” managed to get its readers on the right side of the market during 2013 and kept a bullish stance whereas other commentators and market practitioners were outspoken bears.

Now, when even the last bears have thrown the towel, as reported by Zero Hedge, the “State of the Markets” begins to consider the possibility of a serious correction in 2014. With lots of good sense, the “State of the Markets” deals with two alternative sell signals that, in their opinion, are worth heeding. One is based on identifying the technical health of the market's industry groups, and as Dave stresses, is not so easy to calculate and implement by the neophyte; the other one is based on a modest, but effective, 13-month exponential moving average which even an investment rookie can  calculate.

  
On the other hand, Zero Hedge has recently stressed that the probability for a stock market crash is soaring. You can read Zero Hedge well grounded article here.


Thus, it seems that the odds begin to favor, at the very least, a severe correction or, why not, even a primary bear market. 

So what’s my take on this?

As to the likelihood of a severe correction, I simply don’t know, and I don’t care. Why? Because, when the tide turns, the Dow Theory will sufficiently close from the top tell us that is time to kiss good-bye to stocks. Instead of wasting my energy in trying to time the top of the market based on cycles (as the Zero Hedge article suggests), Fibonacci numbers, value considerations, etc., I think I am better served by spotting according to the time-tested Dow Theory rules the actual turn of the tide once it becomes apparent. It has taken many years to humbly accept that sometimes the hardest thing to do for an investor is to keep it simple since it tends to be ego-humiliating.

As to the timing devices suggested by “The State of the Markets," I agree with them, and surely they will keep the investor on the right side of the market; however, as you could expect from a Dow Theorist, I personally choose the Dow Theory as my method of timing. It is simpler and has a longer successful track record than monitoring the health of industry groups (first timing method suggested); and is by several orders of magnitude more effective than the moving average (second timing method suggested for the average Joe). One future post of this Dow Theory blog will highlight the overwhelming superiority of the Dow Theory as a timing device over moving averages.

Accordingly, I feel the Dow Theory is the best timing device because:

1)     It doesn’t require exhaustive work or access to almost professional data (such as monitoring the health of industry groups and integrate all the information into one reading). The Dow Theory only requires a keen understanding of its tenets.

2)     It has the built-in characteristic of spotting new trends close enough to the top  or bottom (ca.10%); thus, no complaint can be made of its responsiveness, which outdoes that of moving averages.

3)     And don’t underestimate the +100 years track record.

All in all, when the turn tides, I am confident the Dow Theory will let me know soon enough to avoid the carnage.

US stocks

The Industrials closed up, and the Transports and SPY closed slightly down.

The primary trend is bullish, as explained here, and more in-depth here.

The primary trend was reconfirmed as bullish on October 17th and November 13th, for the reasons given here and here.

Gold and Silver

SLV and GLD closed down. The winning streak of five consecutive “up” closes has come to an end today. For the reasons I explained here, and more recently here, I feel the primary trend remains bearish. Here I analyzed the primary bear market signal given on December 20, 2012. The primary trend was reconfirmed bearish, as explained here. The secondary trend is bullish (secondary reaction against the primary bearish trend), as explained here.

As to the gold and silver miners ETFs, SIL, and GDX closed down. The primary trend is bearish, as was profusely explained here and here. Likewise, the secondary trend is bearish.

Tomorrow I will publish a 2013 review according to the Dow Theory. We will revisit all the Dow Theory-based market calls and how we have fared compared to buy and hold. It’ll be a real tour de force, as you will have before your eyes one full year of market action.

Here you have the figures for the SPY which represents the only market with a suggested open long position:

 

Data for December 30, 2013






DOW THEORY PRIMARY TREND MONITOR SPY




SPY
Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
12/30/2013 183.82
Current stop level: Secondary reaction low

165.48




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




8.85% 17.04% 2.05%


Sincerely,

The Dow Theorist

Friday, December 27, 2013

Dow Theory Update: Indistinct day on low volume




Gold and silver come to life, close up for 5 consecutive days, but no trend has changed


US stocks

The Industrials and Transports closed slightly down, and the SPY closed unchanged. Unrealized gains continue mounting (please mind the word "unrealized") and near 9% for the position that was initiated on July. I would welcome a secondary reaction right now, as it would help us raise our Dow Theory stop and lock in some profits. More about such stop here.

The primary trend is bullish, as explained here, and more in-depth here.

The primary trend was reconfirmed as bullish on October 17th and November 13th, for the reasons given here and here.

Chinese Stocks

I see that Chinese stocks (FXI and HAO ETFs) are undergoing a secondary reaction against the primary bullish trend (which was signaled on September 12, 2013 on this Dow Theory blog)


Look at the chart below and you will see the orange rectangle highlighting the ongoing secondary reaction against the primary bullish trend. 

Orange rectangles show ongoing secondary reaction against primary bull market in Chinese stocks

  
I feel Chinese stocks might be telling us that US stocks could be nearing a secondary reaction. Furthermore, we better monitor the evolution of Chinese stocks the following days, as they could be setting up for a primary bear market signal. We are not there yet; but it is worth to keep an eye on them. In the meantime, the primary trend remains bullish (albeit much less convincing than that of US stocks).

Gold and Silver

SLV and GLD closed up. There has been five consecutive “up” closes, albeit it has not been enough to change our trend readings. Accordingly, for the reasons I explained here, and more recently here, I feel the primary trend remains bearish. Here I analyzed the primary bear market signal given on December 20, 2012. The primary trend was reconfirmed bearish, as explained here. The secondary trend is bullish (secondary reaction against the primary bearish trend), as explained here.

As to the gold and silver miners ETFs, SIL, and GDX closed up. The primary trend is bearish, as was profusely explained here and here. Likewise, the secondary trend is bearish.

Here you have the figures for the SPY which represents the only market with a suggested open long position:


Data for December 27, 2013






DOW THEORY PRIMARY TREND MONITOR SPY




SPY
Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
12/27/2013 183.85
Current stop level: Secondary reaction low

165.48




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




8.87% 17.06% 2.05%



Sincerely,

The Dow Theorist