Friday, January 4, 2013

Dow Theory Update for Jan 4: stocks up

Gold might be near making a bottom according to the puke indicator.

Let’s begin our Dow Theory commentary for today.

What are other Dow Theorists saying? Are they bullish or bearish?

Richard Russell, of the Dow Theory Letters, insists on the importance of the September highs. Until the Industrials don’t better such highs, he remains bullish as to the secular trend (due to the application of Schaefer’s 50% principle) and if I understand him properly, skeptical bearish as to the long-term trend.

 Jack Schannep, of The Dow Theory Newsletter has signaled punctually and unambiguously the new primary bull market.  As far as stocks are concerned Schannep has the best audited track record to boast.

As to this humble blogger of yours, I am bullish since January 2. Here you can find the details of the primary bull market signal. Additional information as to this Dow Theory primary bull market signal will be posted in this blog tomorrow Saturdays.

The SPY, Industrials and Transports closed up today. Furthermore, they closed above their 01/02/2013 highs, which is always a bullish sign.

Volume today was lower than yesterday’s. Since it was an up day it has a bearish connotation.

Gold closed down, and silver closed up. The primary trend and secondary trend remains bearish. 

Although this blog is heavily tilted towards technical analysis (basically Dow Theory) there is a “funda-technical” indicator which I tend to shed some credence. I call it “funda-technical” because it is not based on charts or patterns but on fundamental data like gold stocks. However, the reading of such “fundamental” information is technical in the sense that it is made on a mechanical, non judgmental basis. It is the so-called “puke” indicator for GLD, which was developed by Lance Lewis. Basically, the “puke” indicator says that when GLD experiences a significant gold drain (i.e. a “puke” of 1% of total gold stocks), a medium term bottom is likely to have been made. The indicator (which hitherto has performed very well) runs contrary to common wisdom. Normally, when GLD’s inventory increases, many financial analysts wrongly see it as bullish for gold as it expresses strong demand. Conversely, when GLD’s inventory decreases, it is seen erroneously as a bearish sign. However, things are not as simple as they appear on the surface. Thus, declining inventories tend to point scarcity of physical gold in the hands of bullion banks due to a too low price of gold (at low prices the owners of physical gold are not willing to part with their gold and/or demand shoots up). Consequently, authorized participants redeem GLD shares in order to obtain physical gold.

As you know from previous posts which you can find here and here, I don’t believe in “investing methods," “trading systems," “indicators," and the like, unless they make aprioristically sense and such aprioristic explanation is validated by actual experience (empirically). Personally, I think that the “puke indicator” passes both tests: it is aprioristically sound and empirically it works.

This Dow Theory blog is not the right place to delve further into the puke indicator. The best explanation thereof has been made by blogger “Victor The Cleaner." Here you have the relevant link.

Of course, being a technical guy and knowing well the difference between physical gold and securitized (paper) gold (GLD), I’d never buy GLD based only on the puke indicator. I believe in the adage “never catch a falling knife” and, hence, I’d always wait for some kind of technical confirmation before going all in. As I explained here I see GLD as a vehicle for trading not as the ideal means of investing in gold if one is interested in the secular trend or a lifetime holding of gold.

SIL closed down, and GDX closed up. 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 4, 2013


Bull market started
11/15/2012 135,7
Bull market signaled
01/02/2013 146,06
Last close
01/04/2013 146,37
Current stop level: Bear mkt low


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

0,21% 7,86% 7,63%


Bull market started
05/16/2012 149,46
Bull market signaled
08/22/2012 160,54
Exit December 20
12/20/2012 161,16
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
01/04/2013 22,51
Current stop level: Bear mkt low


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

3,11% 31,79% 27,81%


Bull market started
05/16/2012 39,56
Bull market signaled
09/04/2012 47,77
Last close
01/04/2013 45,33
Current stop level: Bear mkt low


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

-5,11% 14,59% 20,75%


The Dow Theorist.

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