Stocks and precious metals in free fall
Let's get started with our Dow Theory commentary in a day full of Dow Theory relevant events.
Stocks
The SPY, Industrials and Transports closed down. The
primary and secondary trend remains bullish under Dow Theory.
Here you have an updated chart showing volume relevant events:
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Volume continues bearish |
As followers of this Dow Theory blog know, I have been
quite bearish on volume for some weeks. The situation has become even
more bearish, since:
1. Yesterday
was a bearish pivot day. Yesterday the market made higher highs. When we
compare volume yesterday with volume at the last recorded pivot high
(03/14/2013), we see that we had lower volume yesterday. This is bearish as it
implies that higher highs didn’t attract market participation.
2. Today
has been a reversal high volume bar. The market failed to exceed yesterday’s
high and went down on increasing volume. Furthermore, on 03/15/2013 we had
another bearish reversal bar (which implies that selling pressure prevails).
3. Today’s
volume has been larger than yesterday’s, which is bearish as declining prices
were met by expanding volume. If we look at the last few weeks, we see more red
arrows (bearish volume) than blue arrows (bullish volume).
However, we shouldn’t get too excited with volume
patterns. As I wrote here:
[t]he following
caveats come to my mind:
1. Volume readings merely increase
the odds of something happening (i.e. development of a secondary reaction).
However, trends and secondary reaction are made by price action not by volume.
Volume merely qualifies the trend.
2. Excessive volume
bearishness tends to beget a short-lived counter movement (i.e. a minor
rally). (...).
3. All these musings concerning
volume are of barely any interest for investors along the primary trend. However,
I am of the opinion that there is a golden rule of markets that rewards the
knowledgeable and punishes the unprepared. So, even if I am more concerned
with the primary trend, I feel the more I understand markets (and volume), the
better. Furthermore, investing is so trying that the more I understand the
intricacies of the ongoing trend, the less prone I will be to panic when the
going gets tough (as it will inevitably happen sooner or later). Knowledge is
power.
Gold and silver
GLD by making lower lows finally violated the last
recorded lows, thereby confirming SLV. Now both precious metals are well below
the last recorded lows and, hence, the primary bear market has been
reconfirmed. Here you have an updated chart.
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Primary bear market in gold and silver re-confirmed |
Gold and silver action in the last few months has
taught us a valuable lesson concerning the importance of technical analysis (the
Dow Theory patterns in this case) and the importance to give the benefit of
doubt to the existing trend. In many instances, we were tempted to declare a
change in the secondary trend. However, as neither rally managed to qualify as
such as per our technical rules (i.e. 6% for silver and 3% for gold), and in
spite all siren’s songs (i.e. GLD inventory readings, Jim Sinclair’s
predictions, etc.), we stuck to our rules and maintained that the primary and
secondary trend was bearish.
Thus, what I wrote on January 26, 2013 seems now more
valid than ever:
Even though I shroud
myself with a technical blanket, I also have feelings and, to my utter dislike,
fundamental opinions (…)
Mr. Sinclair (of Mineset), legendary
trader and mine developer is of the opinion that the current meltdown is sheer
manipulation. Thus, he urges his readers not to sell out and hold. He gives
plenty of reasons which, at least for the short and medium term, make sense.
Thus, he is of the opinion that gold and silver will go up (at least $ 3500),
and the miners will enormously benefit from it.
On
the other hand, renowned blogger FOFOA is of
the opinion that gold will go up but to such a huge extent that it will become
too precious. So valuable that the miners will face governmental confiscation
(or something akin to this like a 95% tax on windfall profits). FOFOA doesn’t
rule out gold going as high as $ 55,000 (in current value terms). However, such
massive revaluation of physical gold will spell trouble for silver and for all
kinds of gold and silver miners. If the FOFOA scenario plays out, then the
primary bear market signal is the real thing.
So
fundamentally, I am in a quandary. Two persons I highly respect, both with an
articulate discourse, are in the antipodes. Whom should I follow fundamentally?
However,
the technical beast that inhabits in me tells me to heed the Dow Theory
signals. If FOFOA is right and eventually the stocks miners will plummet,
then the current bear market signal is a faithful harbinger of things to come,
If Sinclair is right, then the current signal will eventually prove to be a
failed signal. In such a case, sooner or later we will get a primary bull
market signal (hopefully at a lower price), and we will ride the new bull. If
Sinclair is right mining stocks should go up manifold ($ 3500 gold as he
predicts, would imply mining stocks going up at least four fold from current
prices). Should stocks prices go up four fold, then we shouldn’t worry about
realizing some minor losses (or getting back aboard a bit late), since they
pale by comparison to the huge rewards waiting for us. To some extent, I see
the small realized loss or the likely small gain lost in the future by
re-entering the trade later when a new primary bull signal is announced as the
small risk premium to pay in case mining stocks take a big nosedive. If
eventually Sinclair is right, the Dow Theory will give us ample opportunity to
extract a good chunk of the future bullish trend. However, if something nasty
is around the corner for such stocks, the best thing to do is to heed the
primary bear market signal and get out.
SIL and GDX
closed down. The primary and secondary trend remains bearish.
Here you have
the figures of the markets I monitor for today:
Data for April 3, 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 | 04/03/2013 | 155.23 | |
Current stop level: Bear mkt low | 135.7 | ||
Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |
6.28% | 14.39% | 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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