Tuesday, October 15, 2013

Dow Theory Update for October 15: Stocks temporarily halt their rally

 And Precious metals temporarily halt their decline with unconfirmed lower lows

US stocks

The SPY, Industrials and Transports closed down.

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

The secondary trend is bearish (secondary reaction against the primary bull market) for the reasons explained here.

Last Friday October 11th, the stock market set up for a primary bear market signal, for the reasons given here

Today’s volume was higher than Monday’s, which is bearish, as lower prices were met by expanding volume. We have had four consecutive bearish volume days (as shown on the chart below). Furthermore, the pattern of volume during the last 4-days rally is bearish as each subsequent higher price attracted less and less volume (see the declining trendline on the volume chart). Therefore, I consider volume to be bearish, which means that now the odds favor lower prices (or at least stalling prices) in the days ahead. 

Volume is bearish: last rally saw contracting volume and today's decline was on higher volume
Gold and Silver

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

By the way, on October 11th, GLD made a lower closing low unconfirmed by SLV. Such a lack of confirmation may be hinting that the current pullback might be running out of gas. The longer the non-confirmation persists, the higher the odds for a trend reversal (of secondary proportions, given that the unconfirmed lows relate to a modest pullback). Take a look at the chart below. It displays an interesting juncture. If the red horizontal lines got jointly violated, the primary bear market would be re-confirmed. If the blue horizontal lines got broken up, then a primary bull market would be signaled. Price action is currently caught between these two vital technical levels. If the current non-confirmation bore fruit and prices would arrest their decline, then a new primary bull market would be a distinct possibility. In the meantime, let’s wait an observe price action. 

Is the current pullback against the secondary bullish trend (blue rectangle) being temporarily halted. Unconfirmed lower lows (blue arrows) seem to indicate so
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.



Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
10/15/2013 169.7
Current stop level: Secondary reaction low


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

0.49% 8.05% 2.05%


Bull market started
06/26/2013 10.59
Bull market signaled
08/14/2013 15.36
Last close
10/15/2013 12.3
Current stop level: Primary bear mkt low
06/26/2013 10.59

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

-19.92% 16.15% 45.04%


Bull market started
06/26/2013 22.22
Bull market signaled
08/14/2013 28.7
Last close
10/15/2013 23.76
Current stop level: Primary bear mkt low
06/26/2013 22.22

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

-17.21% 6.93% 29.16%

The Dow Theorist

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