Stocks take a breather. Precious metals languish
Yesterday I announced the secondary trend of the market had turned bullish.
This is tantamount to saying that there is an ongoing secondary reaction
against the primary bearish trend. Well, let’s dig deeper into it.
As I wrote here, please bear in
mind that appraising secondary reactions is not math. Rhea wrote:
“Probably no two students
would agree on any rule for selecting and tabulating the important secondary
reactions."
All Dow Theorists, past and present, agree that gauging secondary reactions
is not an easy feat. Furthermore, it appears that its rules (i.e 10 trading
days, etc.) are bent quite often. Even Rhea when he conducted a study of all
secondary reactions that occurred until 1931, he labeled as “secondary
reaction” movements that didn’t reach 10 trading days, much less the 3 weeks
times he advocated in his book. Other practitioners drop the retracement
requirement altogether (i.e. Martin Pring). Personally, I find that the
Schannep way strikes a decent balance between respecting basic Dow Theory rules
(i.e. minimum time requirement, minimum extent requirement and technical
requirement) and responsiveness (i.e. by accepting 10 days and even less in
very exceptional circumstances).
Dow Theorist
Schannep satisfies himself with at least 10 calendar days with at least 8
trading days as the average of all indices (Industrials, Transports and SPY). I
tend to demand at least 10 trading days in at least two indices, even though, I
can easily bend my own rule and follow Schannep. All in all, there are not hard-and-fast rules when it comes to appraising secondary
reactions.
In any instance, the requirements to declare the existence of a secondary
reaction according to Schannep’s Dow Theory “flavor” or even my own “flavor”
(10 trading days in at least 2 indices) have been fulfilled, since the SPY,
Transports and Industrials rallied 10 trading days from 06/24/2013 (primary
bear market lows) until 07/09/2013 (last recorded closing highs).
For a
secondary reaction to exist, it is further required that at least two
indices rally more than 3% from the last recorded closing lows.
Here you have the percentages made by each
index:
DIA
|
TRANSPORTS
|
SPY
|
Date
|
|
Closing high
|
15300.34
|
6440.47
|
165.13
|
07/09/2013
|
Closing Low
|
14659.56
|
5990.79
|
157.06
|
06/24/2013
|
Pctg rally
|
0.04371073
|
0.075061887
|
0.05138164
|
Therefore, we see that both the Transports, the Industrials, and the SPY
have rallied more than 3% in the last few days.
So on 07/09/2013 both the time
requirement and the extent requirement
have been fulfilled, and, accordingly, we label all the price action that
occurred since the last recorded lows (06/24) as a secondary reaction against
the primary bearish trend.
So now, we have within striking distance two alternative primary bull
market signals:
a) On the one hand, the last
recorded primary bull market highs (blue horizontal lines on the chart below). As I explained yesterday, a breakup of such closing highs flashes a new
primary bull market signal. In case you are asking yourself whether such a
breakup is "orthodox" according to the Dow Theory, I'll tell you that
"yes"; it is "orthodox" under Dow Theory, and Rhea, and Schannep
explicitly wrote about it, even though it is very infrequent. Since I have
personally examined all the Dow Theory record, I can safely say that less than
10% of the primary bull market signals are flashed by this particular setup. A
future post in this Dow Theory blog will occupy more in depth with all primary
bull and bear market signals.
b) On the other hand, the
secondary reaction highs, in case at least one index undergoes a pullback
exceeding 3% followed by a breakup of the 07/09 closing highs (upper boundary
of the blue rectangles).
Stocks
The SPY closed up by a cent. The Industrials and Transports closed down.
The secondary trend is bullish, as has been explained above.
Today’s volume was lower than yesterday’s. Given that the SPY closed up (by
a cent), and the Nasdaq closed solidly up, I’d tend to say it was a mildly “up”
day. Thus, volume has not supported higher prices, which has a bearish
connotation. The overall pattern of volume continues bearish.
Gold and Silver
SLV closed down, and GLD closed up. 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 down. 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 July 10, 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
Do you have any thoughts as to whether we're seeing capitulation in GDX? Thanks for sharing your work with us.
ReplyDeleteThx for you interest.
DeleteI really don’t know. What I do know, though:
1) I lack the skills to call bottoms. Experts with more acumen than I have been trying to call the bottom since the last six months, and have been proven repeatedly wrong (go to this post http://www.dowtheoryinvestment.com/2013/04/dow-theory-update-for-april-4-meltdown.html and you will see that I did the right thing by not succumbing to siren’s songs)
2) The primary trend for GDX and SIL is clearly bearish. Same applies to the secondary trend. I never fight the trend.
3) The primary and secondary trend for GLD and SLV continues bearish. This is clearly headwind for GDX.
4) If a bottom has been just formed, the Dow Theory will inform us sufficiently in time to get aboard. If you follow this blog, you can see that the Dow Theory does an excellent job in recognizing new trends early enough. The few percentage points lost by not calling the exact bottom are amply compensated by the increased likelihood of not catching a falling knife.
Sincerely,
The Dow Theorist