Dow Theory Update for September 18: Primary bull market for stocks reconfirmed

 Precious metals seem to escape, at temporarily, danger area

Today there are Dow Theory relevant news. Let's get started with today's Dow Theory commentary on this blog.

US Stocks

The SPY, the Industrials and Transports closed up. The Industrials and Transports broke out the previous primary bull market closing highs of 08/02 and 08/01 respectively. Thus, being “in the clear” the three indeces we monitor, the primary bull market has been reconfirmed.

Furthermore, new confirmed higher highs imply that the secondary trend has turned bullish as well. No more secondary reaction.

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

Thus, it is time to adjust our Dow Theory trailing stop. Once the stock market has “survived” the first secondary reaction, the new trailing stop is to be placed at the secondary reaction closing lows, which stand at 163.33 for the SPY. More about the Dow Theory trailing stop, here.

As you can see, in the spreadsheet at the bottom of this post, our stop has significantly narrowed. With the stop placed at the secondary reaction lows, our worst likely loss (measured from our entry point on 07/18/2013 at 168.87) is a paltry 3.39%. The unrealized gain amounts to 2.48%.

Here you have an updated and commentated chart:

Primary bull market re-confirmed today

 

Today’s volume was higher than yesterday’s, which is bullish as higher prices were  accompanied by higher volume. The overall pattern of volume remains neutral, since bullish and bearish volume days alternate and I cannot discern a clear pattern. The only technical fact that seems to slightly increase the bullish volume case, is that today we had a bullish pivot. Thus, today’s volume was much higher than the volume saw at the previous high point in the past (both highs connected by a blue horizontal line). While exuberant 1-day volume may point at temporary exhaustion, the fact that volume at the new high is higher than volume at the last recorded high shows good following and tends to be bullish for the intermediate term (i.e. 2-4 weeks).

In spite of today's bullish pivot, the overall pattern of volume lacks clarity; at least to me.

 

Chinese Stocks

The FXI and the HAO broke above the last recorded primary bull market highs. Thus, the primary and secondary trend is bullish. More about the primary bull market signal here and here.

Here you have an updated chart:

 

Chinese stocks also in a primary bull market. Higher highs made today

And here you have the spreadsheet that contains vital numbers such as, unrealized gain, initial stop loss (Max Pot Loss), etc:

 

DOW THEORY PRIMARY TREND MONITOR FXI
			SPY
Bull market started		06/25/2013	31.7
Bull market signaled		09/10/2013	38.79
Last close		09/18/2013	39.16
Current stop level: Bear mkt low			31.7
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
0.95%	23.53%	22.37%

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.

Here, I explained that GLD and SLV set up for a primary bull market signal. However, a setup is not the same as the “real thing," namely the primary bull market; thus, many “setups” do not materialize and until the secondary reaction closing highs are jointly broken up, no primary bull market will be signaled.

SIL and GDX closed strongly up. SIL and GDX, unlike GLD and SLV, are unambiguously in a primary bull market under the Dow Theory, as explained here and here.

The secondary trend is bearish, which is tantamount to saying that there is an ongoing secondary reaction against the primary bullish trend, for the reasons given here.

Here you have the figures for the SPY, GDX and SIL which represents the only markets with 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		09/18/2013	173.05
Current stop level: Secondary reaction low			163.33
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
2.48%	10.18%	3.39%

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		09/18/2013	15.18
Current stop level: Primary bear mkt low		06/26/2013	10.59
Unrealized gain %	Tot advance since start bull mkt	Max Pot Loss %
-1.17%	43.34%	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		09/18/2013	28.25
Current stop level: Primary bear mkt low		06/26/2013	22.22
Unrealized gain %	Tot advance since start bull mkt	Max Pot Loss %
-1.57%	27.14%	29.16%

Sincerely,

The Dow Theorist