Tuesday, December 17, 2013

Dow Theory Update for December 17: Deflationary day, albeit trends remain unchanged

Dow Theory Letters and daily noise.

In the latest “Dow Theory Letter”, Mark Kerkhoff, has stated that they have a tough job at the Dow Theory Letters because they must analyze the markets daily whereas their focus is the Primary Trend. I understand Mr. Kerkhoff, since daily movements tend to be mere noise. However, one cannot avoid keeping an eye on them, since one never knows for sure when the trend will change. As  readers of this Dow Theory blog know, most of the days are plainly irrelevant as far as the primary, and even the secondary trend, is concerned. However, since one never knows for sure what the markets have in store for us, we have to keep an eye daily  on the markets, while resisting the urge of trying to make poor predictions based on daily activity.

This is why some days I almost copy and paste previous posts on this Dow Theory blog. When trends don’t change, it doesn’t make any sense to pretend that the markets are telling us something when, in fact, they are silent. I feel readers will be best served by merely giving them links to the relevant posts (“relevant posts” are those when there is a change of trend, where I try to produce an in-depth Dow Theory based analysis).

Of course, readers looking for a thrill will be disappointed, as most of the days are dull by definition. However, those investors really intend on protecting their capital are unconcerned by daily clutter and emotions. They just want to get an answer to the most difficult question: Tell me when to buy, not what to buy.

Experience has shown me that the more bells and whistles, the more “excitement” a financial writer offers to her readership, the more likely his analysis is to be wrong. I have some names on my head, which I keep to myself. Of course, dismissing daily noise, as I do, is not a guarantee for sound analysis, but, at least to me, this is a good start.

US stocks

The SPY, Industrials, and Transports closed down.

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.

Gold and Silver

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.

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. However, such set up will be nullified if GLD and SLV jointly violate the last recorded primary bear market lows, as I explained here.

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.

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


Data for December 17, 2013


Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
12/17/2013 178.65
Current stop level: Secondary reaction low

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

5.79% 13.75% 2.05%

The Dow Theorist

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