Dow Theory Update for Feb 20: Precious metals debacle

 Stocks also down.

Once again, Barry Ritholtz of “The Big Picture” has posted a very interesting article concerning “timing” in his blog. In a nutshell, Barry’s system works as follows:

1.      A 10 month moving is used a timing device.

2.      When the price closes below the 10 month moving average sell your stocks and go to cash or to 10 year bonds. 

3.      When the price closes above the 10 month moving average get fully invested in stocks.

The conclusions are as follows:

1.      Timing indicators do not per se increase returns but reduce volatility (risk) and drawdowns.

2.  Timing indicators coupled with relative strength or momentum techniques outperform the market.

I encourage you to read the full article as it is worth your time.

Of course, this is nothing new to the readers of this Dow Theory blog. As I explained with hard figures here and here the Dow Theory is king when it comes to timing the market with a medium /long-term perspective term perspective (let’s say 6 months-2 years). Furthermore, and in contrast with a more modest moving average, the Dow Theory not only reduces risk (and by a greater measure than a moving average) but also manages to outperform buy and hold significantly (2% for the “classic/Rhea” version and ca. 4% if one follows  Schannep).

Empirical evidence is so strong in favor of timing through some sort of technical device that it is hard to me to conceive strict adherence to unmitigated fundamental analysis. This is why we can read in the “ReformedBroker” blog that Soros has quietly hired a well-known technician. Soros is too intelligent to just trust his intelligence.

 

The SPY, Industrials and Transports closed down today. The primary and secondary trend remains bullish.

Today’s volume was significantly higher than yesterday’s. Since the stocks closed down, this has a bearish connotation.  We have had three bearish volume days in a row. It seems that volume is little by little turning bearish short term. Here you have an updated chart.

Is volume giving bearish hints?

 

Gold (GLD) and silver (SLV) closed down. Well, we are seeing primary bear market action in full gear.  It seems that the primary bear market signal that was signaled on December 20, 2012 was not so misguided after all.  

As to the gold and silver miners ETF (GDX and SIL), we have seen, once again, bearish action. Both closed down. The primary and secondary trend remains bearish.

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

 

Data for February 20, 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		02/20/2013	151.3
Current stop level: Bear mkt low			135.7
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
3.61%	11.53%	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
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