metals weak (as usual)
a day without any Dow Theory relevant event. However, it is a good day to think
about the current long position in SPY, its unrealized profits and, more
importantly, the likelihood for these profits to be erased or locked in by
subsequent market action.
bull market was signaled on July 18, 2013. From our entry price at a theoretical
168.87 the SPY has climbed to 180.68 for an unrealized gain of 6.99% in ca. 4
months. Here you have a chart which contains the last four months of price action:
|Anatomy of the last primary bull market signal|
We also know
that our Dow Theory trailing stop lies at the last recorded secondary reaction
lows, which stand at 165.48 (such lows were made on Oct 8). More on this stop
and the corresponding chart, here.
Thus, if the
markets were to reverse and start heading south, then we could lose 2.05%
(approximately, since we never know the exact level at which confirmation by two
indices occurs). However, such loss is unlikely to be realized because as you
can see from the spreadsheet below the total advance since the start of the
current primary bull market amounts to 15.04%. It is not likely for the markets
to decline 15.04% without any
intervening secondary reaction (which would raise our Dow Theory stop, as has occurred
two times within the current primary bull market swing) . Hence, if we had a secondary
reaction, our stoploss would be further raised, and, accordingly, our likely
loss would be diminished.
we know that Schannep’s stoploss is placed 16% below the highest closing high.
More about this vital stop and the
thoughts behind it here.
So, if prices
were to jump just by a mere 1%, we would reach price level which would allow
for the placing of a stop of 16% (Schannep’s stop). Such stop would be at a
higher level than our current stop which is placed at the last recorded
secondary reaction lows, as explained above.
Thus, we have
three scenarios (and no other one):
Either markets go up before
undergoing a secondary reaction. In such a case, Schannep’s stop loss will be
Or markets go down in a secondary
reaction whose lows are, by necessity, above the last recorded secondary
reaction lows (I write, “by necessity," since lower lows imply a primary
bear market signal and, hence our exit point). In such case, a Dow Theory
trailing stop would be raised.
Or the markets go down in earnest
without any intervening secondary reactions, and we get stopped out at the current
Dow Theory trailing stop (which would be our worst-case scenario).
while anything may happen, the most probable outcome is a higher stop. Let’s
see what subsequent market action has in store for us, as I was just trying to
engage my readership into Dow Theory-based thinking.
Industrials and SPY closed up. The Transports closed down.
trend is bullish, as explained here, and more
trend was reconfirmed as bullish on October 17th and November 13th,
for the reasons given here and here.
volume was higher than yesterday’s. This is bullish, as higher prices were met
by stronger volume. I’d label volume as neutral for the reasons given here.
SLV, and GLD
closed down. For the reasons I explained here, and more
recently 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.
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.
As to the
gold and silver miners ETFs, SIL and GDX closed down. The primary trend is
bearish, as was profusely explained here and here. Likewise, the secondary trend is bearish.
All in all,
the last shoe to drop for the precious metals sector would be GLD and SLV
reconfirming the ongoing primary bear market. Until this happens, the secondary
trend is bullish, and this is the only “bullishness” to be found in this
Here you have
the figures for the SPY which represents the only market with a suggested open
November 26, 2013
THEORY PRIMARY TREND MONITOR SPY
|Bull market started
|Bull market signaled
stop level: Secondary reaction low
|Unrlzd gain %
||Tot advance since start bull mkt
||Max Pot Loss %