Thursday, June 27, 2013

Dow Theory Update for June 27: Paper gold melting down



 Stocks rally on weak volume



Time to buy the junior gold miners ETF GDXJ?

Mebane Faber of Mebane Faber Research has penned an interesting article named “What happens when you buy assets down 80%”. In the article she analyses the subsequent 3 years return when you buy a sector, industry or country that has declined more than 60%, 70% and 80%. As you can guess the subsequent returns are mind boggling.

The article finishes by hinting the GDXJ (the junior gold miners ETF) might be a good buy right now given that it is extremely oversold.

Of course, buying extreme bottoms, which essentially is mean reversion, has nothing to do with the Dow Theory (which is pure “trend following”). However, I acknowledge that there are times (most) were one has to be a trend follower, and few and far between times were mean reversion may be indicated. Nevertheless, while agreeing with Mebane Faber that GDXJ may be a good buying opportunity, I’d couple the bet on mean reversion with some trend following, and I’d wait until the primary trend for the gold and silver miners turns bullish. No need to rush, even when this time catching a falling knife may seem statistically adequate.


Stocks

The SPY, Industrials, and Transports closed up.

The primary trend and secondary trend is bearish for the reasons explained here, and further explained here.

Today’s volume was lower than yesterday’s, which is bearish as volume contracted. The overall pattern of volume is bearish for the reasons explained here. Here you have a chart that shows lots of red arrows (bearish). You can notice that the last three days of price advance have not been confirmed by volume, which has grown smaller and smaller. The updated chart below shows clearly that the trend of volume is clearly bearish: Ascending when prices decline and descending when prices rally. 

Volume expands in declines and contracts in rallies: bearish

Gold and Silver

SLV closed unchanged, and GLD closed down once again in a climatic way. The primary trend is bearish, as explained here and reconfirmed bearish here; the secondary trend remains bearish too.

GDX and SIL, the gold and silver miners ETFs closed up. The primary trend is bearish, as explained here and reconfirmed bearish here; the secondary trend remains bearish too.

Eventually, one of these primary bear market re-confirmations will be proven false. In the meantime, it is better not to fight the trend, and wait for a primary bull market signal in order to make a commitment on the long side.

Here you have the figures of the markets I monitor for today, which contain no changes as we are flat.


Data for June 27, 2013






DOW THEORY PRIMARY TREND MONITOR SPY




SPY
Bull market started
11/15/2012 135.7
Bull market signaled
01/02/2013 146.06
Exit June 21
06/21/2013 159.07
Current stop level: Sec reaction lows

161.27




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




8.91% 17.22%      None.








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

No comments:

Post a Comment