Monday, May 13, 2013

Dow Theory Update for May 13: SPY makes higher high unconfirmed

Gold and silver complete set up for primary bull market signal

Let’s get started with our Dow Theory commentary in this blog.

More on paper gold woes

Jeff Nielson, of The seems to get it right concerning paper gold woes.
People are not deserting gold, but “paper gold” which is quite a different beast. You can read the article here.


The SPY closed up. The Industrials and Transports closed down. For the current primary bull market swing not to be called into question, either the Industrials or the Transports should be making higher highs soon, thereby confirming the SPY.

The primary and secondary trend remains bullish.

Today’s volume contracted as the SPY closed higher. This is bearish volume action as higher prices were not met by rising volume. The overall pattern of volume is neutral.

Gold and Silver

Gold and silver find themselves at a very interesting juncture. Both closed down today and gold by closing down corrected 3.03% from its secondary reaction highs (04/30/2013). Here is the math:

      Close today (05/13/2013): 138.43
      Closing high 04/30/2013: 142.77

     Amount retraced: -3.039%

Thus, under the Dow Theory we have seen:

1)     Primary bear market lows jointly made by GLD and SLV on 04/15/2013

2)     Secondary reaction (rally lasting more than 10 trading days and more than 3% for GLD and 6% for SLV) as shown by the blue ellipses in the chart below. More on this secondary reaction here

3)     Pullback from the secondary reactions highs. Such pullback under Dow Theory should amount at least 3% in one index (or 6% for SLV given its higher volatility). In this case, GLD has retraced 3.039%. 

Once we have such pullback two things can happen:

1.      Either the GLD and SLV break above the secondary reaction highs (blue horizontal line) thereby giving a primary bull market signal.

2.      Or GLD and SLV violate the primary bear market lows (red horizontal line) thereby re-confirming the primary bear market.

Here you have an important chart. Mark the horizontal red and blue lines on your mind.

If the blue lines are jointly broken: New primary bull market. If the red lines are jointly violated: Primary bear market re-confirmed
Of course, all this Dow Theory analysis applies only to paper gold and, by extension, to silver (here all kinds of silver, both physical and “paper” one. In a future post, I will explain why I don’t distinguish “paper” from “physical” silver. Followers of FOFOA’s blog are surely guessing the right answer). If a primary bull market is signaled the implication is that it is too early for “paper” gold to die. The paper game can be kept on life-support a little bit longer.

If a primary bear market is reconfirmed, this may be indicative that something really serious is afflicting the paper gold world. Such “something” may clearly be the avidity for fully allocated gold, which results in the repudiation of “paper” and “unallocated” forms. I am talking of a “run” on bullion banks.

GDX and SIL, the gold and silver miners ETF closed down. There is much talk of a future short squeeze and a “revival” of the miners. Technical action, though, shows weakness, as both the primary and secondary trend remains bearish. Once again, from a FOFOA’s perspective, the action of the miners is far from shocking me.

Even though the likes of Sinclair are calling the bottom for both gold and miners for the “nth” time, I rather prefer to trust technical action. To this end, gold and silver must signal a primary bull market, something which, in spite of the current set up, is not warranted.

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


Data for May 13, 2013


Bull market started
11/15/2012 135.7
Bull market signaled
01/02/2013 146.06
Last close
05/13/2013 163.54
Current stop level: Bear mkt low


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

11.97% 20.52% 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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