Friday, November 22, 2013

Dow Theory Update for November 22: Stocks make higher highs

Fundamentalist investor Hugh Hendry acknowledges the importance of trends

Zero Hedge quotes Hugh Hendry’s latest statement:

“[e]verything I believed in I have had to reject. This environment only makes sense through the prism of trends”

I am not going to pick on him because it is legitimate to be a value investor. Furthermore, Hendry’s concession attests to his honesty and intelligence. However, it is worth mentioning that proper trend following, by humbly admitting that nobody really knows anything, is, at least, as honorable and effective (more effective if we are to be guided by empirical track records) than just trusting one’s value-based opinions.

Of course, there are many ways to be a trend follower. In my opinion, one of the best ways is to determine trends armed with the rules of the Dow Theory. Future posts of this Dow Theory blog will show the net superiority of the Dow Theory, of any "flavor" whatsoever, over moving averages.

US stocks

The SPY, Industrials and Transports closed up. The Industrials made a higher closing confirmed by the SPY.

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

The primary trend was reconfirmed as bullish on October 17th and November 13th, for the reasons given here and here.

Today’s volume was lower than Thursday’s. This is bearish, as higher prices were not met by stronger volume. I’d label volume as neutral for the reasons given here.

Gold and Silver

SLV, and GLD closed down. Today and yesterday, GLD and SLV made lower lows, which is bearish (even though it doesn’t change our verdict as to the secondary trend)

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.

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.

As to the gold and silver miners ETFs, SIL closed unchanged, 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 beleaguered sector.

Here you have the figures for the SPY which represents the only market with a suggested open long position:


Data for November 22, 2013


Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
11/22/2013 180.81
Current stop level: Secondary reaction low


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

7.07% 15.12% 2.05%

The Dow Theorist

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