Thursday, July 11, 2013

Dow Theory Update for July 11: Stocks missed primary bull market signal by a hair



Secondary trend for GDX and SIL turns bullish


Good article on Seeking Alpha concerning negative GOFO


Dave Kranzler penned an interesting article “What GOFO is and Why it’s now very bullish for gold”. In a very straightforward manners he makes clear that there is an acute shortage of physical gold, and that past occurrences of a negative GOFO coincided with long term bottoms. Accordingly, gold is poised for a major up move.

My only qualm, which is not a criticism to this well-grounded article, is whether paper gold will participate in the expected rebound or something more systemic (for example, example a decoupling of paper and physical gold, with paper gold going toward its low intrinsic value) will scare us all. Until now, in every instance GOFO turned negative, TPTB could save the day, and the paper gold markets continued to thrive. Will they pull it off this time?

I've got the eerie feeling that this time things might be different due to systemic reasons. After all, until very recently GLD`s "puke" indicator was pretty good at timing intermediate bottoms, and since the beginning of this year it failed miserably, which seems to imply that "physical" and "paper" are about to part ways.

In any instance, I have very clear ideas about gold. If one believes that we are not approaching a reset, and that things will turn out well, the ownership of physical gold is a waste of time. One should be content with trading GLD or futures, and one good way to do it is by applying the Dow Theory. However, as I explained here, if one believes that something more profound is currently afflicting the financial system, then one should be in possession of physical gold, adopt a secular view, sit tight and forget about timing primary bull or bear markets.

Stocks

The SPY, Industrials, and Transports closed up.

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

The secondary trend is bullish, as has been explained here.

The Industrials and SPY broke above the last recorded primary bull market highs (05/28 for the Industrials, and 05/21 for the SPY). However, the Transports lagged behind. If we follow classical Dow Theory, as expounded by Rhea, the lack of confirmation by the Transports renders the breakout ineffective for Dow Theory purposes. If we follow Schannep’s Dow Theory, we need that the three indices break above the last recorded primary bull market highs (blue horizontal lines). So, whatever the Dow Theory flavor we take, we conclude that a primary bull market has not been signaled.

Here you have an updated chart displaying the action of the Industrials (top chart), Transports (middle), and SPY (bottom of the chart). The ellipse on the right hand of the chart highlights the Transport’s refusal to confirm. 

Primary bull market signal missed by a hair. Transports (blue ellipse on the right) failed to confirm
 
Today’s volume was higher than yesterday’s. Given that the SPY closed up, it has a bullish connotation. Furthermore, today we had a bullish pivot. Today’s close exceeded the 05/21 close on stronger volume, which denotes greater market participation, and confirms the up move. Thanks to today’s action, I’d label the overall pattern of volume as neutral. Here you have an updated chart.

Volume is turning neutral.
 
Gold and Silver

SLV and GLD closed up. The primary trend is bearish, as explained here and reconfirmed bearish here. However, 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 turned bullish today, which is tantamount to saying that there is an ongoing secondary reaction against the primary bearish trend. Followers of this Dow Theory blog know that I don’t trade secondary reactions, and I merely “use” them in order to establish my “entry” and “exit” points, as you can read here.

 Tomorrow, I plan to delve further into the details of the current secondary reaction in SIL and GDX.

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


Data for July 11, 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

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