Thursday, December 26, 2013

Dow Theory Update for December 26: Stocks make higher highs and primary bull market remains unchallenged


More on the primary bear market anniversary in gold and silver

Last Tuesday 24th, I wrote about the first anniversary of the primary bear market signal in gold and silver. Today, I’d like to add a couple of random thoughts on this issue.

It is good to remember that many experts had been trying unsuccessfully to call a bottom and declare the bear market as extinguished. Even legendary Russell  (of the Dow Theory Letters fame), based on point and figure charts was confident on August 15, 2013 (when it looked like gold and silver were getting out of the doldrums) a bottom had been made (as you can read here). Armed with the Dow Theory rules I resisted all siren songs and stuck to my verdict: the primary bear market was not over and the rebound was merely a secondary reaction within the primary bear market. Now, more than 4 months later, after Russell’s call, subsequent price action has shown that the primary bear market was in good health.

Of course, things can change: when/if the secondary reaction highs made by SLV and GLD get broken out, then a primary bull market will be signaled. Nevertheless, until this happens, I stick to my guns and declare the primary bear market as still existing. The market action we see in GLD and SLV confirms one of the tenets of the Dow Theory, namely, that primary bull and bear markets tend to last several months and even years. We are not dealing with “swing trading” or minor trends, but with a long term one. Of course, in some instances, we will see short-lived primary trends, but, on average, primary trends last longer than many expect. Hence, fight them at your own peril.

US stocks

The Industrials, Transports and SPY closed up; all of them bettered, once again, the last recorded closing highs, which means that the primary bull market remains in good health.

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 up. 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.

As to the gold and silver miners ETFs, SIL, and GDX closed up. 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 26, 2013


Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
12/26/2013 183.85
Current stop level: Secondary reaction low

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

8.87% 17.06% 2.05%


The Dow Theorist

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