Friday, June 14, 2013

Dow Theory Update for June 14: Stocks down but the June 5 lows were not violated

 Russell once again lukewarm with the stock market


The SPY, Industrials and Transports closed down. The primary trend is bullish, and the secondary one is bearish for the reasons given here.

The longer the 06/05/2013 lows hold, the better the odds for a new rally, which would move stocks away from the danger zone (the June 5 lows) and from the dreaded primary bear market signal which will be flashed if such lows are violated, as was explained here.
Today’s volume was lower than yesterday’s, which is bullish. While this is subjective, if we bear in mind that we have had four bullish volume days in the last five days, plus a bullish pivot four days ago, I’d label the volume reading as neutral and not as bearish any more. Here you have the latest chart that says it all.

Look at the blue arrows at the right hand of the chart: Volume is not bearish anymore
So we close this week with the following thoughts in mind:

·        In spite of everything, the primary trend continues bullish, and it deserves the benefit of the doubt. Furthermore, being the current position signaled on January 2 (more details here), we are not dealing with an old bear market. We should bear in mind that Dow Theory positions along the primary bull market last slightly less than 2 years on average for “Rhea/classical” signal, and something around 1.3 years for those, like I, that follow Schannep. More about Schannep’s “flavor” soon as I am completing very interesting research. Of course, “averages” are just “averages," and there have been many instances during the past when the trades had a significantly shorter lifespan. Moreover, secular bear markets (and I believe given current valuations we are still in one of them) tend to shorten the average lifespan of cyclical bull markets.

·        However, we are in the midst of a secondary reaction against the primary trend, and we are too close to the “danger zone” (the June 5 lows).

·        Although volume is of marginal importance, volume has turned neutral of late. 

·        If we couple a better volume reading with (until now) refusal to violate the last recorded lows, there is some hope for the bulls.

·        However, if the worst happens, Dow Theory investors have nothing to regret, as thanks to the Dow Theory trailing stop (at the June 5 lows) it is likely that respectable profits (around 10% in less than 6 months) would be locked in.

I am happy I can do my own Dow Theory readings, and keep my independent judgment, as Richard Russell, of the “Dow Theory Letters” has once again in a week changed his mind about this market. Yesterday he wrote, “[p]laying the bull side of this stock market is a dicey game, so if you take the gamble, never forget your stop losses." A couple of days ago, Russell was likening the current situation with the mega bull market of the early ninety fifties, as you can read here. Now he calls a long position a “gamble”. I really don’t know what to make of it. By the way, no indication is given to his subscribers as to what is the logical and technically correct stop. They are left to their own devices.

Gold and Silver

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

GDX and SIL, the gold and silver miners ETFs, closed up. The primary trend is bearish, and the secondary trend is bullish for the reasons explained here.

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


Data for June 14, 2013


Bull market started
11/15/2012 135.7
Bull market signaled
01/02/2013 146.06
Last close
06/14/2013 163.16
Current stop level: Sec reaction lows


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

11.71% 20.24%       None.


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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