Dow Theory Update for May 31: A Secondary reaction in the making?

Gold and silver unable to show strength

Let’s get started with our analysis of the markets under the prism of the Dow Theory

Stocks

The SPY, Industrials and Transports closed down. While it is still too early to declare a secondary reaction in existence, we should keep our eyes glued on the charts. The Transports have been declining for 9 days. The Industrials and SPY for just 3 and 7 days. Thus, it is still too early to declare a secondary reaction since the last recorded highs. However, little by little we approach our 10 trading days requirement. Thus, and in spite of our “gut feeling," we stick with the rules and keep classifying both the primary and secondary trend as bullish.

Here you have an updated chart. The blue rectangles signal market action since the last recorded highs.

Still too early to declare a secondary reaction, but keep an eye on the blue rectangles

 Today’s volume was the highest seen since 04/15/2013. Furthermore, today's volume was much higher than yesterday’s, which is bearish. To add insult to injury, today’s pivot low (see the chart below), was bearish as today’s volume clearly exceeded the volume seen at the preceding pivot low. Both pivots are highlighted with an ellipse, and both lows are connected with a red line. In my post of May 22, which you can find here, I stressed that the volume action seen on that day, negated any bullish volume reading. Thus, to recap, we have the following bearish volume signs:

1.      Today’s bearish volume day within an overall pattern of bearish volume days in the last 3 days.

2.      Today’s bearish pivot low.

3.      Very bearish action on May 22.

Volume is becoming bearish

Therefore, the overall pattern of volume has become bearish. If we couple this bearish volume reading with the lack of confirmation of the last highs made by the Industrials on May 28 (more details here), we can conclude that the odds favor the development of a secondary reaction. Let’s see what happens.

Gold and Silver

GLD and SLV closed down. The primary and secondary trend remains bearish.

GDX and SIL, the gold and silver miners ETFs closed down. The primary and secondary trend remains bearish.

Yesterday, I wrote some comments concerning the relationship between the miners, gold and paper gold. You can read them here.

If I get some time, I plan to finish this weekend my study concerning the "classical/Rhea" Dow Theory record. You can find the first part of this study here.

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

 

Data for May 31, 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		05/31/2013	163.45
Current stop level: Bear mkt low			135.7
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
11.91%	20.45%	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