Wednesday, October 9, 2013

Dow Theory Update for October 9: Stocks temporarily arrest their decline

 Precious metals remain anemic

Let’s get started with our Dow Theory commentary on this blog.

US Stocks

Let’s take a look at the chart below:

The secondary reaction (orange rectangles on the right side) puts the stock market in a diffcult juncture
If at least two indices violated the red horizontal line (last recorded secondary reaction lows), then a primary bear market would be signaled. The Industrials were just a few cents away from such a violation yesterday. The Transports and the SPY still have some breathing room before violating such dangerous levels. In any instance, I will monitor price action, as any joint violation of the secondary reaction lows would entail a new primary bear market.

As you can see the ongoing secondary reaction (right side orange rectangles) against the primary bull market continues to run its course.

In the meantime, 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.

Today’s volume was higher than yesterday’s, which is bullish, as (slightly) higher prices were met by expanding volume. I still see the overall pattern of volume as neutral, as I explained here. It irks me not to be able to change my stand on volume readings, but I cannot invent patterns when I am not able to see them. In any instance, you know I give secondary importance to volume, since I am mainly interested in spotting primary bull and bear markets, and I can do this without the volume’s crutch. 

Volume remains undecisive. I miss climax volume.
Gold and Silver

Let’s recall the big picture.

In August 2013, many market observers were getting excited with gold and silver, and many even said that the primary trend had turned bullish. My reading of the market based on strict Dow Theory patterns, prevented me from doing so. I just considered that the secondary trend had turned bullish (secondary reaction against the ongoing primary bear market). Currently, I still see the secondary trend as bullish in spite of the current pullback. The secondary trend will remain bullish until the primary bear market lows of 06/27/2013 get jointly violated (red horizontal lines on the chart). This has not happened yet and may not happen at all. On the other hand, if  prices broke above the horizontal blue lines (secondary reaction highs), a primary bull market would be signaled. So we are at crossroads now. Time will tell.

Precious metals at crossroads: approaching the moment of truth
SLV 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 down, 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.

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
10/09/2013 165.6
Current stop level: Secondary reaction low


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

-1.94% 5.44% 3.39%


Bull market started
06/26/2013 10.59
Bull market signaled
08/14/2013 15.36
Last close
10/09/2013 12.34
Current stop level: Primary bear mkt low
06/26/2013 10.59

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

-19.66% 16.53% 45.04%


Bull market started
06/26/2013 22.22
Bull market signaled
08/14/2013 28.7
Last close
10/09/2013 23.92
Current stop level: Primary bear mkt low
06/26/2013 22.22

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

-16.66% 7.65% 29.16%


The Dow Theorist

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