Tuesday, March 5, 2013

Dow Theory Update for March 5: Industrials soar to all-time high

 Gold and silver modestly up

An interesting article in The Reformed Broker blog:

In a day where the Industrials have soared to all-time highs is good to remember what happens (long term) when higher highs are made by the indices.

The Reformed Broker” blog contains an interesting article concerning the S&P performances after making new bull market highs. It is important because it bears some resemblance with one of the tenets of the Dow Theory: higher highs are bullish. Even though the empirical study has nothing to do with the Dow Theory (as it contains just one index, and it lacks the concept of secondary reaction as a vital reference point for subsequent bull and bear market signals), it is clear that trends exist and that buying higher highs (no matter how painful it can feel) is not a bad thing. It clearly epitomizes the adage “don’t find the trend."

However, while being higher highs bullish long term, it is very possible that short term, the market starts a correction. This is why trading higher highs is so difficult for the investor as the market is particularly prone to a correction precisely when it looks (and is) strongest.


The SPY, Industrials and Transports closed up and made all of them higher highs. The primary trend has been reconfirmed (as it was yesterday).  The primary and secondary trend is bullish. 

Since even by the "strictest" Dow Theory "flavor" today's highs confirm the highs made months ago by the Transports, I feel that very soon Richard Russell of the "Dow Theory Letters" should proclaim that a primary bull market has been signaled.

Volume today was higher (albeit very modestly) than yesterday. Thus, it is a bullish volume day. However, as you can see in the chart, the overall pattern of volume continues bearish short term.

The last pivot high of 2/9/2013 (see ellipse with annotated date and pink horizontal line on top of the chart) has been exceeded today on lower volume. Hence, today new pivot high is bearish, as its volume is lower than the volume recorded at the preceding pivot high. Thus, while higher highs in all indices increases the odds of more bullishness long term, as far as volume is concerned volume readings increase the odds for short term bearishness, i.e. a secondary reaction.

Thus, I see the follow bearish patterns on the chart:

1.      Bearish volume day clearly outnumber bullish volume days in the last two weeks, which means volume expands when prices decline and volume retreats when prices advance.

2.       Don’t forget the “volume of the top” reversal bar of 02/20/2013. More about it here

3.  The trend line of volume was not supportive of the last stage of the rally and, conversely, it has been supportive of declining prices (upward trend line of volume with downward trend line of volume).

4.      Volume on 02/25/2013 was significantly larger than that saw on 02/04/2013 (last minor low). It denotes that the mood of the market has changed. More people were eager to sell their stocks on 25/02/2012 than on February 4. This is bearish. If you are interested in knowing more about volume and pivots, I advise you to read L.A.Little’s outstanding work in this subject. 

5. Today’s high (as explained above) was a bearish pivot.  

Here you have an updated chart.

Bullish breakout not confirmed by volume

Gold and silver.

Yesterday GLD lost only 0.6 tonnes. Current inventory stands at 1253.28. Is the decline of inventory being arrested?

GLD and SLV closed modestly up. The primary and secondary trend remains bearish.

As to the gold and silver miners ETFs, GDX closed unchanged. SIL closed up. The primary and secondary trend remains bearish.

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


Data for March 5, 2013


Bull market started
11/15/2012 135.7
Bull market signaled
01/02/2013 146.06
Last close
03/05/2013 154.29
Current stop level: Bear mkt low

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

5.63% 13.70% 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
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%


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%


The Dow Theorist

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