Thursday, January 17, 2013

Dow Theory Update for Jan 17: SPY and Industrials bettered their Sep 14, 2012 closing highs

 Gold finally confirms silver upward movement.

Well, let’s see what the Dow Theory has in store for us today. Today is a rich day in technically significant events.

Are the markets sensing liquidity, an improvement in economic conditions or this is merely the last blow off before the onset of a secondary reaction? We really don’t know.

What I do know is that both the SPY and the Industrials have bettered their Sep 14 closing high. The Transports did long time ago (in mid December) better the Sep 14 closing high. So even for “classical” Dow Theorists who only follow the Industrials and the Transports, I think this is clearly bullish action. Of course, to be even more sure about a bullish breakout, the Industrials should better their 10/05/2012 closing high (at 13610.15).

In any instance, for the reasons explained in this post in this Dow Theory blog, I am of the opinion that the primary trend turned from bearish to bullish on November 15, 2012 and was signaled by the Dow Theory on January 2, 2013. So thinks leading Dow Theorist Schannep.

The market is getting overbought and hence those happy longs should be prepared to endure a secondary reaction. From a Dow Theory perspective the current primary bull swing that started on November 15 has been in motion slightly more than 2 months uncorrected. Statistically, the odds favor a correction soon.

The primary trend and secondary trend of stocks remains bullish.

Let’s turn to volume. Here we have news. Today’s volume was higher than yesterday’s. As higher prices were confirmed by rising volume it has a bullish connotation. Thus, I added another blue arrow on top of the volume bar.

However, today the SPY also broke above its Sep 14, 2012 high (which was clearly a pivot day). When we compare volume at the Sep 14 closing high with today’s volume we see that today’s volume was lower than that of Sep 14. This is a bearish sign. Even though, in itself, is not enough to end a bull market, it may be hinting that a secondary reaction might be in the making soon. In any instance, breakouts are more dependable when they occur on higher, not lower, volume. Thus, I added a red arrow on top of the volume bar (which then has two conflicting arrows: it was a bullish day, but a bearish breakout).

Here you have an updated chart. You can see the Sep 14 closing high encircled with an oval. The pink line connects today’s closing high with Sep 14 closing high. If you look at volume at these two bars, you can see that volume is not supporting the breakout. 

Today's breakout out of the Sep 14 highs was not confirmed by volume

So while I cannot discard all the previous bullish volume readings which have been echoed here, I am a little less bullish as far as volume is concerned.

Gold (GLD) and Silver (SLV) closed up. The big news is that gold finally deigned to confirm silver breakout of the 01/02/2013 highs. While such confirmed breakout of the minor (very minor) 01/02/2013 highs is bullish we shouldn’t get too carried away. The highs of 01/02/2013 barely qualify as a significant high under Dow Theory. As you probably know if you follow this Dow Theory blog a movement must exceed 3% to be relevant. While this was formulated for stocks, it roughly applies to precious metals provided we adjust for their inherent volatility. While gold has a daily volatility resembling that of the SPY, silver roughly doubles it. Thus, for a rally in gold to be relevant under Dow Theory I demand at least 3%. For silver I demand ca. 6%.

All in all, the 01/02/2013 highs didn’t come remotely close to staging a decent “rally” under Dow Theory. Therefore, the breakout of such highs (first by silver today by gold), while certainly not bearish doesn’t even qualify to turn the secondary trend as bullish. If my calculations are right silver has rallied 5.97% from the 12/24/2012 lows at 28.94 (it closed today at 30.67). Gold has rallied 2.45% from the 01/07/2013 lows at 159.43 (it closed today at 163.35).

Here you have an updated chart:

Today gold confirmed silver's breakout. However too soon to turn even the secondary trend bullish
So the primary trend and secondary trend for GLD and SLV remain bearish.

SIL and GDX closed down. Either big accumulation o distribution is taking place. I have my own fundamentally-based ideas about what is happening to the miners but, being always leery of pontificating fundamental ideas, I keep them to myself for the time being. I’ll just give you one clue: read Fofoa.

In the meantime, the primary trend remains bullish and the secondary trend bearish.
Here you have the figures of the markets I monitor for today:


Data for January 17, 2013


Bull market started
11/15/2012 135.7
Bull market signaled
01/02/2013 146.1
Last close
01/17/2013 148
Current stop level: Bear mkt low


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

1.33% 9.06% 7.63%


Bull market started
05/16/2012 149.5
Bull market signaled
08/22/2012 160.5
Exit December 20
12/20/2012 161.2
Current stop level: Sec React low
11/02/2012 162.6

Realized Loss % Tot advance since start bull mkt

0.39% 7.83%


Bull market started
06/28/2012 25.63
Bull market signaled
08/22/2012 28.92
Exit December 20
12/20/2012 29
Current stop level: Sec React low
11/02/2012 29.95

Realized gain % Tot advance since start bull mkt

0.28% 13.15%


Bull market started
07/24/2012 17.08
Bull market signaled
09/04/2012 21.83
Last close
01/17/2013 22.16
Current stop level: Bear mkt low


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

1.51% 29.74% 27.81%


Bull market started
05/16/2012 39.56
Bull market signaled
09/04/2012 47.77
Last close
01/17/2013 45.04
Current stop level: Bear mkt low


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

-5.71% 13.85% 20.75%


The Dow Theorist.

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