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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