Wednesday, December 18, 2013

Dow Theory Update for December 18: Industrials and SPY make higher highs. Primary Bull market reconfirmed


Gold and silver plummet but fail to make lower lows

Yesterday, I observed that most of the days were not relevant under a Dow Theory standpoint. Well, today it is a relevant day. The SPY and the Industrials pierced their last recorded closing highs and by doing this the primary bull market has been reconfirmed.

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 and November 13th, for the reasons given here and here. Today, as explained above, it has been newly confirmed.

Today volume surged. It has been the highest volume reading since November 7th, which adds to the bullish case. Furthermore, today’s volume exceeded the volume we saw at the last recorded highs, as you can see on the chart below. This constitutes a so called “bullish pivot”. Finally, today’s volume was higher than yesterday’s and since it was an up day, it has the usual bullish inference. All in all, I’d label that volume is now bullish and increases the odds for higher prices in the days and few weeks ahead. However, as I have explained in past posts, too much volume bullishness tends to beget a short term counter movement (1-3 days), as the bulls get run temporarily out of was. 

Volume turned bullish

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 18, 2013


Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
12/18/2013 181.7
Current stop level: Secondary reaction low

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

7.60% 15.69% 2.05%

The Dow Theory

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