Friday, August 23, 2013

Dow Theory Update for August 23: The “status quo” not ready to unglue

Gold and Silver near primary bull market signal...but not yet

The title of today’s post on this Dow Theory blog is “status quo” because, the charts seem to show that, at least short term, things will continue as usual. Thus, bonds have, momentarily, arrested their decline; paper gold continues surging (even though by my Dow Theory standards, is not in a primary bull market yet), silver continues to mimic paper gold, and even stocks went up. Of course, the miners participated in today’s bullishness as well. The junior miners are stronger than the seniors. All in all: the markets seem to think that the current “status quo” is not in jeopardy, at least for the time being.

Things will change the day we see paper gold collapsing in unison with bonds. The two hallmarks of the current “system” or status quo: paper gold with is considered “as good as” the real thing, and US bonds, as the debt (and reserve asset) per excellence. While both paper gold and US bonds have exhibited considerable weakness of late, which points at the inevitability of a reset, it seems that the timing thereof remains elusive. I think declining paper gold and bonds will give us a clue as to the “ungluing” of the current financial system. Time will tell. You can find more musings concerning the “timing” of a “reset” here.


The SPY, Industrials, and Transports closed up.

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

The secondary is bearish, which implies an ongoing secondary reaction against the primary bullish trend, as explained here.
Today’s volume was higher than yesterday’s. Since stocks closed up, expanding volume has a bullish connotation, as higher prices were confirmed by volume. I’d label current volume readings as neutral.

Gold and Silver

SLV, and GLD closed strongly up. For the reasons I explained here, I feel the primary trend remains bearish. Here I analyzed the primary bear market signal given on December 20, 2012. The primary trend was reconfirmed bearish, as explained here. The secondary trend is bullish (secondary reaction against the primary bearish trend), as explained here.

However, if SLV and GLD continued its ascent and manage to break above the last recorded secondary reaction highs of 04/29 (SLV) and 04/30 (GLD), a primary bull market would be signaled for both precious metals. As you can see on the chart below, SLV is getting close to the breaking up point. GLD is lagging, for the time being. So let’s keep our eyes glued to the SLV’s and GLD’s charts.

A breakout of the blue horizontal lines entails a primary bull market signal for SLV and GLD

GDX and SIL closed up, and, unlike GLD and SLV, are unambiguously in a primary bull market under the Dow Theory, as explained here and here. The secondary trend is bullish as well. SIL made a higher high, unconfirmed by GDX.

Bullishness seems to be pervading the precious metals' arena (which under the current economic conditions is good for the preservation of the “status quo”). Accordingly, the junior gold miners (GDXJ) are clearly outperforming the seniors (GDX). If the system was to unhinge, I’d expect to see the opposite pattern. The chart below shows GDXJ (top) and GDX (bottom), and the red line displays the GDXJ/GDX ratio which denotes risk appetite.

The GDXJ/GDX ratio (red line) shows that junior gold miners are stronger than the seniors.

This weekend, I will relax,  and no new study will be published. However, you have plenty of material to read on this blog, especially the saga “Face off: Schannep versus the classical Dow Theory," which you can find here, here and here.

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


Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
08/23/2013 166.62
Current stop level: Bear mkt low


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

-1.33% 6.09% 7.52%



Bull market started
06/26/2013 10.59
Bull market signaled
08/14/2013 15.36
Last close
08/23/2013 16.15
Current stop level: Primary bear mkt low 06/26/2013 10.59

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

5.14% 52.50% 45.04%


Bull market started
06/26/2013 22.22
Bull market signaled
08/14/2013 28.7
Last close
08/23/2013 30.14
Current stop level: Primary bear mkt low 06/26/2013 22.22

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

5.02% 35.64% 29.16%


The Dow Theorist

No comments:

Post a Comment