Wednesday, February 6, 2013

Dow Theory Update for Feb 6: Stocks almost unchanged



 Precious metals timidly up


I read recently that Richard Russell, of the “Dow Theory Letters," needs to see the Industrials making all new time highs in order to unambiguously declare the primary trend as bullish.

With all due respect, I beg to disagree with Russell.

Even under the Rhea/classical Dow Theory a primary bull market is not necessary signaled by the Industrials and Transports jointly making new all-time highs. If this were so, the markets would have never flashed a primary bull market signal in 1933 when mired in the depths of the Great Depression, since the all-time highs of 1929 were roughly 400% above the then-existing  price levels. Such an extreme example serves to illustrate the futility of demanding new all-time highs for a primary bull market to exist.

As I wrote in this post:


 For one index to confirm new highs or new lows made by other indices, it is not necessary that the confirming index increases or decreases by a similar amount percentagewise. Only the direction of the movement matters. In other words, if the Industrials make new highs after a 10% rally, it is not necessary for the Transports to rally 10% as well. A confirmation will be flashed provided that the underperforming Transports make new highs (even though such new highs represent a “mere” 6% rally). This explanation is at odds with a basic misunderstanding of the Dow Theory when, misguidedly, it is stressed that, i.e., “the June 2011 highs have to be bettered in order to confirm the bull signal of the Industrials”. Monthly highs (or lows) are not carved in stone. What really matters is that (for a bull signal) following a primary bear market swing (leg) a secondary reaction follows, thereafter a pullback and finally a rally that breaks through the secondary reaction highs. The relevant highs to be broken are the latest secondary reaction highs, even though such highs may be significantly lower that the “highest” highs hitherto made. In other words, the “relevant” highs (lows) to be bettered (or broken) are self-adjusting with market action. Relevant secondary reaction highs (lows) that were not broken, cease to be representative when after a new primary swing down (up) follows a new secondary reaction, a pullback and a new rally.

If I wrote this concerning the analysts' fixation with monthly highs and lows, it goes without saying that the preceding musings also apply to “all time” highs and lows.

The investor is better served by knowing that under the classical Dow Theory, a primary bull market was signaled on January 18, 2013. You can find more details here. And for those followers of the Schannep’s version of the Dow Theory a primary bull market was signaled on January 2, 2013 as you can read here.
  
All in all, while we don’t know what the future has in store for us, we do know that as per strict Dow Theory, the primary trend of the market is bullish. The coming of an already overdue correction doesn't negate the validity of this primary bull market signal. Nor would a failed signal, should the market reverse its course abruptly.


Well, let’s take a look at today’s markets.

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

Today’s volume was lower than yesterday’s. Since the SPY closed up, I consider it a up day and thus volume is bearish as it is not confirming rising prices.

Gold and silver closed up. However, technically, nothing has been accomplished. The primary and secondary trend remains bearish.

GDX and SIL (the gold and silver miners ETFs) closed up. The primary and secondary trend remains bearish.

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

 

Data for February 6, 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
02/06/2013 151,16
Current stop level: Bear mkt low

135,7




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




3,49% 11,39% 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

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