Monday, October 28, 2013

Dow Theory Update for October 28: Trends remain unchanged

Great article on “The Reformed Broker” debunking pet indicators

Joshua M Brown’s article “Margin Debt: Another Bogeyman Slain” has done a good job in debunking “doom” indicators, which after careful analyses are proven to be worthless because of the faulty assumptions inherent in them.

Thus, Joshua Brown analyses, one by one, the insider selling, the Baltic Dry Index, the moving average “death crosses," the Hindenburg Omen, and the currently in vogue “margin debt total." You are encouraged to read the article.

The article makes clear to me that most of the “tools” we use to time the markets are pretty close to worthless and reaffirms my faith in the Dow Theory because of:

·       1)  Its simplicity (the rules are simple to understand and the fewer rules the more robust).

·       2) It makes aprioristic sense (i.e. the principle of confirmation makes rationally sense).

     3) It has the proper time frame. Neither too long (with the concomitant risk of getting devastated by bear markets); nor too short (which results in frantic trading that will deplete you financially and mentally).

·           4) It has a sufficiently proven track record spanning more than 110 years.

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 stronger volume. I consider volume to be bearish for the reasons given here and here. Furthermore, the trendline of volume of the last few days is ominously bearish, as volume has steadily contracted as prices advanced.

Gold and Silver

SLV closed down, and GLD closed up. For the reasons I explained here, and more recently here, I feel the primary trend remains bearish, all the recent strong action notwithstanding. 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.

Data for October 25, 2013


Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
10/28/2013 176.23
Current stop level: Secondary reaction low


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

4.36% 12.21% 2.05%


Bull market started
06/26/2013 10.59
Bull market signaled
08/14/2013 15.36
Last close
10/28/2013 13.74
Current stop level: Primary bear mkt low
06/26/2013 10.59

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

-10.55% 29.75% 45.04%


Bull market started
06/26/2013 22.22
Bull market signaled
08/14/2013 28.7
Last close
10/28/2013 26.54
Current stop level: Primary bear mkt low
06/26/2013 22.22

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

-7.53% 19.44% 29.16%

The Dow Theorist

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