Dow Theory Update for Feb 15: Precious metals in free fall

 Primary bear market re-confirmed for GLD and SLV

Let’s get started with our daily Dow Theory commentary in this blog.

The “Pragmatic Capitalism” blog posted yesterday an interesting article concerning historical drawdowns for stocks and bonds. The figures displayed in Pragmatic Capitalism should make any serious investor think it twice before committing one's life savings to buy and hold.

If one is serious about protecting wealth (“return OF investment”), one should heed technical analysis in order to be endowed with some kind of market timing device. 

Readers of this Dow Theory blog know that I have already discussed this issue in my posts “How often does the Dow Theory outperform buy and hold?” and “Dow Theory’s performance during the secular 1966-1981 bear market," which you can find here and here.

 

The conclusión of such posts is clear: The Dow Theory (as, IMHO, one of the best technical analysis devices) excels at protecting the investor from what I call “killer draw downs."  

Furthermore, such significant risk reduction is achieved while increasing 2% annual performance versus buy and hope, sorry, hold.

Today the SPY and Transports closed down. The Industrials closed up. The primary and secondary trend remains bullish.

Today’s volume was higher than yesterday’s. Since globally it was a down day, it has a bearish implication.

GLD (gold) and SLV (silver) displayed abject weakness again. SLV made a lower low, as it violated the lows hitherto made since the primary bear market got started. By making a lower low, SLV has confirmed the lower low made by GLD yesterday. Under Dow Theory, the primary bear market has been reconfirmed. The primary and secondary trend remains bearish. Here you have an updated chart showing recent price action. the read line superimposed on SLV is the SLV/GLD ratio, which as you can see denotes stronger gold:

Primary bear market in GLD and SLV reconfirmed

 

The gold and silver miners ETFs (GDX and SIL) jointly made lower lows for the move. So, the primary bear market in both ETFs has been reconfirmed. Furthermore, if you observe the charts, you will see that all price action has been occurring below the level that defined the primary bear market signal (horizontal pink lines). Not a good omen. The primary and secondary trend remains bearish. Here you have an updated chart.

SIL and GDX also reconfirmed primary bear market

 So much bearishness among precious metals makes me wonder whether we are witnessing a selling climax? Are we nearing a bottom? If so, soon we will know as bullish patterns will emerge from the charts. Until then, I'll wait for the verdict of the markets.

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

 

Data for February 15, 2013
DOW THEORY PRIMARY TREND MONITOR SPY
			SPY
Bull market started		11/15/2012	135,7
Bull market signaled		01/02/2013	146,06
Last close		02/15/2013	152,11
Current stop level: Bear mkt low			135,7
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
4,14%	12,09%	7,63%
DOW THEORY PRIMARY TREND MONITOR GOLD (GLD)
			GLD
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%
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
Exit January 23		01/24/2013	21,69
Current stop level: Sec React low		11/15/2012	21,87
Realized Loss %	Tot advance since start bull mkt	Max Pot Loss %
-0,64%	26,99%	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
Exit January 23		01/24/2013	44,56
Current stop level: Sec React low		12/05/2012	45,35
Realized Loss %	Tot advance since start bull mkt	Max Pot Loss %
-6,72%	12,64%	20,75%

Sincerely,

The Dow Theorist.