Friday, October 18, 2013

Dow Theory Update for October 18: Stocks close up on bearish volume setup

Precious metals remain in nowhere’s land

Ritholtz’ blog “The Big Picture” contains valid observations concerning 90% up days.

Ritholtz’ blog “The Big Picture” posted recently an interesting post name “90% Up days are bullish” concerning 90% “up” days and subsequent price action. The study shows that 90% up days (which are defined by Ritholtz as 90% of NYSE shares closing up and 90% of volume corresponding to advancing issues) are bullish and generate significant follow-through.

Go to the BigPicture post and acquaint yourself with the stats shown.

I derive, accordingly, two conclusions:

1)     Ultra bullish volume is bullish long term.

2)    However, ultra bullish volume is bearish short term and price action following the next five days, clearly shows some temporarily exhaustion. This is why a frequently say that too bullish volume tends to beget a short-lived bearish counter movement. The same applies to too bearish volume (i.e. volume spikes with declining prices) which tends to be followed by a rebound of modest proportions, in spite of being bearish medium term.This is what makes trading based on volume elusive.

US stocks

The SPY, Industrials and Transports closed up.

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

The primary trend was reconfirmed as bullish on October 17th, for the reasons given here.

Today’s volume was higher than yesterday’s, which is bullish, as higher prices were met by expanding volume. I consider volume to be bearish for the reasons given here. Furthermore, as you can see on the chart below, yesterday we had a bearish pivot, which means that the volume seen at yesterday’s closing high (pivot) was lower than the volume seen at the preceding pivot of September 18th (previous closing high). Shrinking volume at pivots tends to have bearish implications for the next few weeks (even though for the reasons given in the beginning of today’s post, bearish volume can be bullish in the very short term of 1-5 days). 

Volume is not supportive
Gold and Silver

SLV closed up, and GLD closed down. 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 closed up, and GDX closed down. SIL and GDX, unlike GLD and SLV, are 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.



Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
10/18/2013 174.39
Current stop level: Secondary reaction low


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

3.27% 11.03% 2.05%


Bull market started
06/26/2013 10.59
Bull market signaled
08/14/2013 15.36
Last close
10/18/2013 12.95
Current stop level: Primary bear mkt low
06/26/2013 10.59

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

-15.69% 22.29% 45.04%


Bull market started
06/26/2013 22.22
Bull market signaled
08/14/2013 28.7
Last close
10/18/2013 24.38
Current stop level: Primary bear mkt low
06/26/2013 22.22

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

-15.05% 9.72% 29.16%


The Dow Theorist

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