Wednesday, August 14, 2013

Dow Theory Update for August 14: Primary Bull Market for gold and silver miners signaled today



 

GDX and SIL in a primary bull market under the Dow Theory


Great article from Dave Kranzler connecting the dots between GLD declining inventories and negative GOFO.

Dave Kranzler penned a great article in Seeking Alpha whereby he makes a compelling analysis of the negative GOFO, its relationship with declining GLD inventories, and the long term bullishness thereof.
Investors interested about the precious metals sector, are well advised to read it.

From the article, I derive the following conclusions:

  a) The author does not believe in "system" meltdown or reset, as he feels comfortable with   "securitized" gold, instead of the real thing (physical gold safely stored).

  b) For the time being, the status quo will continue (comex, GLD, etc.) and paper gold will     continue trading together with physical gold. Many investors have been predicting the decoupling of "paper" from "physical" but, until now, have been proven repeatedly wrong. Will be they proven wrong again, and we will just see another bull market leg of "paper gold" instead of the demise of paper gold (which would entail a monstrous bear market in paper gold)?

I respectfully disagree, though, when it comes to materializing the bullish long-term vision on gold. The author recommends leveraged ETFs. Personally, I tend to view a bullish gold market as indicative of stress in the “system," and more specifically in the financial sector. Furthermore, as Mr. Kranzler rightfully notes, this is a long-term investment. It is not a short term trade. Thus, I’d feel leery holding gold for the long term by means of a securitized product, which might fail, if there were a “reset”. I’d prefer the real physical thing. Please mind that not all gold was created equal, as was explained here.
 
Caveat: As with any fundamental view, it can take time to play out.

Stocks

The SPY, Transports, and Industrials closed down.

The primary and secondary trend is bullish, as explained here, and more in-depth here

Today’s volume was lower than yesterday’s. Since stocks closed down, contracting volume has a bullish connotation. For the reasons I gave here, I’d say that volume has turned bullish. We have had six consecutive bullish volume days, and the last breakup of 08/01 was a bullish pivot, as was explained here.

Gold and Silver

SLV and GLD closed up. SLV is well above its 07/23 closing highs, whereas GLD refused to confirm for three days in a row, and, hence remains below the 07/23 closing highs. This lack of confirmation suggests that the secondary reaction against the primary bull market may be coming to a halt. GLD should soon join the bullish action of its GDX peer in order for the secondary trend not to become suspect.

The primary trend is bearish, as explained here and reconfirmed bearish here. The secondary trend is bullish (secondary reaction against the primary bearish trend), as explained here.

The big news today is SIL and GDX, the gold and silver miners ETFs. GDX has finally closed above its 07/23 closing highs, and by doing so, it has confirmed SIL’s breakout (which occurred three trading days ago).

The breakup of the secondary reaction closing highs by both ETFs constitutes a primary bull market signal under the Dow Theory. If you want to know more about the secondary reaction whose highs have been broken out, please go here.

Of course, this is a bullish accomplishment. This is the first positive technical new in the precious metals' arena since October 2012.  While nothing is carved in stone, and we are dealing with probabilities, the odds favor the continuance of this primary bullish trend. If I had at my disposal the Dow Theory record available for stocks, I’d say that 70% of such primary bull market signals end up in profits. I don’t have this privilege when applying the DowTheory tenets to ETFs; however, I do know that the Dow Theory patterns make full of sense, and it is reasonable technical analysis. As I explained here, the Dow Theory can be validly applied outside the realm of the typical indices (Industrials, S&P and Transports).
Tomorrow I will write more about the primary bull market signal.

Of course, if gold and silver were in a primary bull market of their own, I’d feel even more comfortable with the current primary bull market signal for GDX and SIL. However, until now, and while looking less bearish, it is too early under the Dow Theory to declare the existence of a primary bull market for gold and silver. The longer gold and silver remain under the grip of a primary bear market, the more headwind for SIL and GDX. 

Here you have a chart depicting the primary bull market signal for SIL and GDX.

Primary bull market for SIL and GDX announced today. Fata morgana or the real thing?

 Here you have the figures for the SPY, GDX and SIL which represents the only markets with a suggested open long positions.
 

DOW THEORY PRIMARY TREND MONITOR SPY




SPY
Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
08/14/2013 168.74
Current stop level: Bear mkt low

157.06




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




-0.08% 7.44% 7.52%


 

DOW THEORY PRIMARY TREND MONITOR ETF SIL




SIL
Bull market started
06/26/2013 10.59
Bull market signaled
08/14/2013 15.36
Last close
08/14/2013 15.36
Current stop level: Primary bear mkt low
06/26/2013 10.59




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




0.00% 45.04% 45.04%




DOW THEORY PRIMARY TREND MONITOR ETF GDX




GDX
Bull market started
06/26/2013 22.22
Bull market signaled
08/14/2013 28.7
Last close
08/14/2013 28.7
Current stop level: Primary bear mkt low
06/26/2013 22.22




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




0.00% 29.16% 29.16%


Sincerely,
The Dow Theorist


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