Friday, January 18, 2013

Dow Theory Update for Jan 18: No time for excuses. Stocks market in primary bull market even under “classical” Dow Theory






The Rhea version of the Dow Theory flashes primary bull market signal.


There are days when I keep this daily commentary short. No reason to babble when the market has nothing relevant to say.

Today is not one of such days. Dow Theory relevant events are piling up.

As you know I announced in this Dow Theory blog that on January 2, 2013 the Dow Theory signaled the existence of a new primary bull market. More details here.


However, since I follow in many aspects Schannep’s version of the Dow Theory (more about it here and here), it could be argued that I was too premature, since, after all, the Industrials were below their October 5, 2012 closing highs.

Today, the Industrials closed at 13649.70 clearly breaking above the close of October 5, 2012 at 13610.15. Since the Transports already bettered their 6/19/2012 closing highs on 12/18/2012, today a primary bull market has been signaled by the “classic” Dow Theory.

So now the three Dow Theory “flavors” are in alignment. Schannep’s (the most reactive and slightly shorter term oriented), the “Rhea” or classical flavor, normally followed by Richard Russell, and even the secular term oriented Schaefer’s Dow Theory flavor, since according to the 50% principle (to be studied in a future post in this Dow Theory blog) the very long-term trend is bullish.

Here you have a chart containing only the Industrials and the Transports and the relevant highs that have been penetrated:

A primary bull market signal has been signaled by the "classical" Dow Theory
 
So much accord, even seems like a contrary indicator. Is a big correction lurking?

One thing is clear: We don’t know what the future has in store for us. We don’t know whether as it is announced everywhere we are on the verge of a meltdown. What we do know is that the primary trend is unambiguously bullish by any technical measure.

I hope that Richard Russell, of the Dow Theory letters, will notice soon today’s bullish breakout.

Now the customary sentence: In case it was not clear, the primary trend and secondary trend of stocks remains bullish.

Volume today’s was notably higher than yesterdays. This makes it a bullish volume day as advancing prices were supported by expanding volume. Furthermore, today’s volume has been the third largest volume since September 2012. This has also bullish implications in the short to medium term. However, such explosions of volume normally tend to signal imminent short term tops to be later continued by the prevailing trend. All in all, volume is too bullish and given the overbought condition of the market it is susceptible to a pullback. However, after such a pullback the bullish condition of the market should reassert itself with higher prices.

Furthermore, today’s big volume makes me question whether yesterday’s break out pivot volume was actually bearish. Yesterday I wrote:

“[t]oday 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”.

However, today’s follow up volume seems to show that the breakout has been indeed confirmed by higher volume, although delayed by one day.

Furthermore, the latest rally out of the consolidation of the last few years has been supported by expanding volume. To sum up:

1)     Daily readings of volume are bullish (I see more blue arrow than red arrows).

2)     The trend of volume has supported the last two rallies, which is bullish.

3)     Volume at the three last significant pivots has been bullish. The last one seemed bearish but today’s volume makes think otherwise.

Here you have an updated chart containing the SPY and volume.

Volume continues bullish


Bottom line: While anything can happen and the market could correct soon, this is not a market to short.

Let’s turn our attention to gold and silver.


Silver (SLV) closed up, and gold (GLD) closed down. If all the chatter about the Bundesbank gold repatriation doesn't move gold, nothing will. This is why yesterday, I didn’t jump the gun and in a strict technical fashion, I refused to label the secondary trend as bullish. For the time being both the primary and secondary trend remain bearish. I am not the one to make fundamental assessments in this blog, but those interested in trying to find what may be going on with paper gold (GLD), should well read this post at Fofoa’s blog and the comments thereto (since most of the comments are made by well informed people).

 
SIL (silver miners) closed down, and GLD (gold miners ETF) closed up. Another day of meandering and nothing being accomplished. The primary trend remains bullish and the secondary trend bearish.

Later today I will post what I hope is a very telling post about the power of the Dow Theory and how it performed in the last +116 years. A real tour de force I haven`t seen published anywhere else.

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

 
Data for January 18, 2013





DOW THEORY PRIMARY TREND MONITOR SPY




SPY
Bull market started
11/15/2012 135.7
Bull market signaled
01/02/2013 146.1
Last close
01/18/2013 148.3
Current stop level: Bear mkt low

135.7




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




1.55% 9.31% 7.63%




DOW THEORY PRIMARY TREND MONITOR GOLD (GLD)



GLD
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%





DOW THEORY PRIMARY TREND MONITOR SILVER (SLV)



SLV
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%





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
01/18/2013 22.05
Current stop level: Bear mkt low

17.08




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




1.01% 29.10% 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
01/18/2013 45.11
Current stop level: Bear mkt low

39.56




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




-5.57% 14.03% 20.75%

Sincerely,

The Dow Theorist

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