Monday, May 6, 2013

Dow Theory Update for May 6: Transports confirm higher highs and with it primary bull market

Stocks dodge, once again, a secondary reaction.

Let’s get started with our Dow Theory commentary in this blog. Today was a day laden with Dow Theory and technical relevant events.


Last Friday May 3rd, the Industrials broke above the last recorded primary bull swing closing highs (04/10/2013). By doing this, the Industrials confirmed the higher highs made by the SPY. According to Schannep’s version of the Dow Theory (more about it here), we use 3 indeces (SPY, Industrials and Transports), and for a signal to exist it is necessary that at least two of them confirm.
Today, May 6th, the Transports closed at 6,297.98 and, accordingly, broke above the 03/14/2013 closing highs (primary bull market swing). Thus, higher highs have been unanimously confirmed by the three indices we monitor.  Hence, it doesn’t matter which Dow Theory flavor you take. Be it with more “generous” Schannep’s or with the “Rhea/Classical” Dow Theory (which only uses two indices, namely, the Industrials and the Transports), confirmed higher highs have been made and, accordingly, the primary bull market has been reconfirmed.

As a logical consequence, the stock market has dodged once again a secondary reaction. Thus, we are witnessing a long a powerful primary bull market swing that started on November 15, 2013 and was “detected” by the Dow Theory on January 2, 2013 as you can read here and here.

Of course, this is an already “aging·” primary bull market swing (please mind, I am saying "swing" and not an aging "bull market. The bull market ifself is young; however, this "leg" or "swing" is getting old), and the longer it lasts uncorrected, the higher the odds for a secondary reaction. However, for the time being, a correction is not on the horizon, as confirmed higher highs negate all (modest) declines hitherto seen (which failed to evolve into a secondary reaction) and, with it, any developing secondary reaction.

Therefore, the primary and secondary trend of stocks is bullish.

The updated chart below shows all recent price action. As you can see the SPY, Industrials and Transports have neatly broken above the previous highs (shown with red horizontal lines).

Primary bull market confirmed by SPY, Transports and Industrials

Today’s volume was lower than Friday’s, which has a bearish connotation. As I have been copiously writing, the overall picture of volume is quite bearish. However, as I have also copiously written, volume merely qualifies price. In other words, volume increases the odds for a change of trend to occur. However, the ultimate “judge” is price action itself. Furthermore, for those interested in investing along the primary trend, volume considerations are of very limited importance, as the primary trend is defined by simple price action (i.e. penetration of secondary reactions, irrespective of volume considerations).

Furthermore, a primary bull market has been confirmed from an alternative analysis that has nothing to do with the Dow Theory. More about this technical study and its consequences for investors tomorrow.

Gold and silver

I am gonna simplify my life: I will omit any mention to GLD’s inventory changes until I see one day when they go up. Until then, you may safely assume that the hemorrhage continues.

GLD closed up, SLV down. The primary trend is bearish, and the secondary trend is bullish.

SIL closed down, and GDX closed up. The primary trend and secondary trend for both ETF miners is down.

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

Data for May 6, 2013


Bull market started
11/15/2012 135.7
Bull market signaled
01/02/2013 146.06
Last close
05/06/2013 161.79
Current stop level: Bear mkt low


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

10.77% 19.23% 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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