Dow Theory Update for May 30: Stocks close up but fail again to better recent highs

 Gold seems to gain some strength on USD weakness

 

Let’s get started with our Dow Theory commentary on this blog for today.

Stocks

The SPY, Transports and Industrials close up. However, no index has been able to better recent highs. The longer this situation persists, the higher the odds for a secondary reaction. The primary and secondary trend is bullish.

Today’s volume was lower than yesterday’s, which is bearish.

Gold and silver

GLD gained one tonne of inventory yesterday. This is a feat if we bear in mind more than five months of relentless inventory declines have elapsed.

GLD and SLV closed up. Gold seems to have gained some strength due to the USD recent weakness. However, as readers of this Dow Theory blog are well aware, I will not jump the gun until my Dow Theory patterns tell me to do so. Thus, 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.

One observation about the precious metals' universe (including miners) bear market. Primary bear markets in stocks tend to last an average of ca. 6 months. Thus, primary bear markets last significantly less than bull markets. However, when it comes to the precious metals' universe, I lack the empirical record available to stocks indices. If I were dealing with stocks indices, I could confidently say that it is likely that the primary bear market is running out of gas, at least statistically. However, when it comes to precious metals, I lack such empirical record and all I can do is rely on the Dow Theory patterns I see on the charts. Therefore, until I see a primary bull market signal, I have to conclude that the primary trend remains bearish.

One more thought: I feel the action of the miners is vital to ascertain whether blogger FOFOA is right or wrong. His main tenet is that only physical gold will experience a monster revaluation, whereas silver and the gold and silver miners will be left behind. If gold is to experience a massive revaluation (i.e. USD 55000 in current purchasing power, as per FOFOA), I feel we will not see any traces of the coming revaluation on the GLD chart. If, once again, FOFOA is right, the price of paper gold will go down, markets will shut, and after such a hiatus, physical-only gold markets will reemerge.

Accordingly, my real-life application of FOFOA’s insights is as follows:

·        GLD or COMEX gold will not give us any clue as to when the revaluation of gold is nigh.

·      On the contrary, it is very likely that shortly before the closure of the gold markets as we know them now, there will be a monster bear market in gold, which will reflect the demise of paper gold. This is not a certainty but a distinct possibility according to FOFOA.

·      Thus, paper gold charts will only let us know whether paper gold is to survive or is headed for disaster. Paper gold charts will never tell us that a huge revaluation for physical gold is coming.

·        However, if my understanding of FOFOA is right, there are two distinct scenarios:

1.      If paper gold survives, so will the miners. Gold will not experience a 30-bagger, but it will  be just another bull market. Maybe it will reach 2000, 3000, who knows, but no massive revaluation. Under such “normal” conditions, the miners will probably thrive and show it on the charts. Thus, if a primary bull market in gold and silver miners starts, I’ll see it as a signal that the “old normal” is going to continue, at least for the time being. No end of the world in sight, no reset.

2.      However, if paper gold dies and a physical only market for a revalued gold is to emerge, the miners are likely to be doomed (gold miners because gold will become too valuable to let the miners enjoy the booty; and silver miners because silver will not participate in the copious revaluation). If this is to occur, weakness (i.e. a primary bear market) should be visible on the charts. If there is a “reset," I feel we will find some clues by looking at the miners' weakness.

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

Data for May 30, 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		05/30/2013	165.83
Current stop level: Bear mkt low			135.7
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
13.54%	22.20%	7.63%
Alternative Schannep's stoploss:
Highest closing high		05/21/2013	167.17
16% stoploss from highest closing high			140.42
		Max Pot Loss %
		-3.86%
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