Thursday, February 28, 2013

Dow Theory Update for Feb 28: Two days of non confirmation



 Yesterday’s higher high of the Industrials unconfirmed yet.


Special note on gold

GLD lost yesterday (Feb 27) a whopping 12.04 tonnes of gold (0.947%). Thus, inventories have been declining for 7 days in a row. All in all, inventories have declined from 1322.97 tons to 1258.4 tonnes, that is 64.57 tonnes or 4.88%.

I have written extensively about the bullishness of such an event (contrary to conventional wisdom), as you can find here and here.
 
 
Today, I’d like to add that the appetite for physical gold must be truly enormous. If we look at the pattern of inventory losses, we can see that even with ascending prices (until February 26) the trickle down continued (which implies that the price advance was not enough in order to quench demand for physical). However, yesterday’s phenomenal loss (Feb 27) coupled with a down day, implies that as soon as the price declines (even slightly) demand for physical shoots up. Thus, the pattern I see of prices and inventory changes tells me that the market for physical gold is under strain and that the modest rally of the last few days was not enough to calm the market.

So something has to give in. Either we see a big rally in paper gold in the next few weeks, or some severe dislocation is likely to occur.  

Stocks

The SPY and the Industrials closed down. The Transports closed up. Yesterday’s higher high made by the Industrials has not been confirmed yet. The longer the non confirmation persists, the higher the odds of a secondary reaction. However, it is too soon to tell.

Today’s volume was higher than yesterday’s, which makes it a bearish volume day. Thus, today we had the eighth bearish volume day in a row.

Gold and silver

GLD and SLV closed down today. The primary and secondary trend remains bearish.

The gold and silver miners ETFs closed down. The primary and secondary trend remains bearish.

Here you have the figures of the markets I monitor for today:


Data for February 28, 2013





DOW THEORY PRIMARY TREND MONITOR SPY




SPY
Bull market started
11/15/2012 135.7
Bull market signaled
01/02/2013 146.06
Last close
02/28/2013 151.61
Current stop level: Bear mkt low

135.7




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




3.80% 11.72% 7.63%




DOW THEORY PRIMARY TREND MONITOR GOLD (GLD)



GLD
Bull market started
05/16/2012 149.46
Bull market signaled
08/22/2012 160.54
Exit December 20
12/20/2012 161.16
Current stop level: Sec React low
11/02/2012 162.6




Realized Loss % Tot advance since start bull mkt





0.39% 7.83%





DOW THEORY PRIMARY TREND MONITOR SILVER (SLV)



SLV
Bull market started
06/28/2012 25.63
Bull market signaled
08/22/2012 28.92
Exit December 20
12/20/2012 29
Current stop level: Sec React low
11/02/2012 29.95




Realized gain % Tot advance since start bull mkt





0.28% 13.15%





DOW THEORY PRIMARY TREND MONITOR ETF SIL



SIL
Bull market started
07/24/2012 17.08
Bull market signaled
09/04/2012 21.83
Exit January 23
01/24/2013 21.69
Current stop level: Sec React low
11/15/2012 21.87




Realized Loss % Tot advance since start bull mkt Max Pot Loss %




-0.64% 26.99% 27.81%




DOW THEORY PRIMARY TREND MONITOR ETF GDX



GDX
Bull market started
05/16/2012 39.56
Bull market signaled
09/04/2012 47.77
Exit January 23
01/24/2013 44.56
Current stop level: Sec React low
12/05/2012 45.35




Realized Loss % Tot advance since start bull mkt Max Pot Loss %




-6.72% 12.64% 20.75%









 

Sincerely,

The Dow Theorist

Wednesday, February 27, 2013

Dow Theory Update for Feb 27: Industrials make higher highs unconfirmed



 Lack of confirmation should not persist too long


Special note on gold

Jon Strebbler, Richard Russell’s new associate, is turning bullish on gold. He is of the opinion that is likely that a bottom has been made. I also think so, not so much because of the charts but because of the “puke” indicator. I order to become “technically” bullish on precious metals I need to see a primary bull market signal.
 
One off topic: Richard Russell’s description of the perfect business encapsulates lots of wisdom. You can find it for free in his Dow Theory Letters website.
 
GLD lost yesterday (Feb 26) 2.41 tonnes of gold. Thus, inventories have been declining for 6 days in a row. All in all, inventories have declined from 1322.97 tons to 1270.44 tonnes, that is 52.53 tonnes or 3.97%.

I have written extensively about the bullishness of such an event (contrary to conventional wisdom), as you can find here and here.


Stocks.

The SPY, Industrials and Transports closed up today. The Industrials made a higher high unconfirmed by the SPY and Transports. Persistent lack of confirmation may be hinting the onset of a secondary reaction. The primary and secondary trend remains bullish.

Here you have an updated chart of the three indices I monitor displaying the lack of confirmation:

Industrials make higher highs unconfirmed by the Transports and SPY
 
Volume receded today as prices advanced, which has a bearish connotation. Thus, today we had the seventh bearish volume day in a row

Hence, the four bearish volume readings I aluded to here remain fully valid. In addition to them, we have to closely watch whether the SPY or Transports make new highs, thereby confirming the Industrials. Failure of confirmation would be another “minus”.

Here you have an updated chart depicting volume and price action. Even the untrained eye can see that rallies result in declining volume whereas volume develops activity during pullbacks.

Volume is bearish. Will market action prove volume right?


Gold and silver

Leaving aside the “puke” indicator or the analysis of Jon Strebbler, the fact is that the primary and secondary trend of the market remains bearish. If a bottom has been made, we shouldn’t rush. If a trend of sufficient magnitude develops we will be given ample warning by the Dow Theory, since it is better to miss the first 6-8% up movement and enter a trend with proven odds of survival than to try to call the exact bottom or top.

This is why I separate my musings about gold from market action. Today gold and silver closed down (which was due after 4 days of relentless advance). What happens next will be vital: Will the lows made last week hold or will they be violated? In the meantime, we will wait.

One thing is clear to me: According to the Dow Theory the last four days rally is not enough to qualify as a secondary reaction against the prevailing primary bear market. It does not fulfill the requirements of time (minimum 10 days) and extent (ca. 3% for gold and ca. 6% for silver). Why I require a higher volatility threshold for silver. Go here and you will know why.


SIL and GDX (the silver and gold ETFs) closed down. The primary and secondary trend remains bearish.

Here you have the figures of the markets I monitor for today.


 
Data for February 27, 2013





DOW THEORY PRIMARY TREND MONITOR SPY




SPY
Bull market started
11/15/2012 135.7
Bull market signaled
01/02/2013 146.1
Last close
02/27/2013 151.9
Current stop level: Bear mkt low

135.7




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




4.01% 11.95% 7.63%




DOW THEORY PRIMARY TREND MONITOR GOLD (GLD)



GLD
Bull market started
05/16/2012 149.5
Bull market signaled
08/22/2012 160.5
Exit December 20
12/20/2012 161.2
Current stop level: Sec React low
11/02/2012 162.6




Realized Loss % Tot advance since start bull mkt





0.39% 7.83%





DOW THEORY PRIMARY TREND MONITOR SILVER (SLV)



SLV
Bull market started
06/28/2012 25.63
Bull market signaled
08/22/2012 28.92
Exit December 20
12/20/2012 29
Current stop level: Sec React low
11/02/2012 29.95




Realized gain % Tot advance since start bull mkt





0.28% 13.15%





DOW THEORY PRIMARY TREND MONITOR ETF SIL



SIL
Bull market started
07/24/2012 17.08
Bull market signaled
09/04/2012 21.83
Exit January 23
01/24/2013 21.69
Current stop level: Sec React low
11/15/2012 21.87




Realized Loss % Tot advance since start bull mkt Max Pot Loss %




-0.64% 26.99% 27.81%




DOW THEORY PRIMARY TREND MONITOR ETF GDX



GDX
Bull market started
05/16/2012 39.56
Bull market signaled
09/04/2012 47.77
Exit January 23
01/24/2013 44.56
Current stop level: Sec React low
12/05/2012 45.35




Realized Loss % Tot advance since start bull mkt Max Pot Loss %




-6.72% 12.64% 20.75%



Sincerely,

The Dow Theorist.


Tuesday, February 26, 2013

Dow Theory Update for Feb 26: Another distribution day. Stocks up as volume recedes




 Gold and silver up. Has a bottom been made?


Let’s get started with our Dow Theory commentary in this blog today.

Special note on gold

GLD lost yesterday (Feb 25) 7.82 tonnes of gold. Thus, inventories have been declining for 5 days in a row. All in all, inventories have declined from 1322.97 tons to 1272.85 tonnes, that is 50.12 tonnes or 3.78%.

If my reading of my data is correct, the last time (from 05/03/2011 to 05/09/2011) we encountered five days of declining inventories in a row, GLD made an intermediate bottom (5/5/2011 at 143.47), and a powerful rally ensued in the next three months which brought GLD to 174.58 on 08/10/2011 (a gain of 21.68%)., Furthermore, the 5 days in a row inventory “puke” experienced from 05/03/2011 to 05/09/2011 only involved 22.54 tonnes, whereas the current drain exceeds 50 tonnes. Thus, the severity of the current “puke” is not to be underestimated. Here you have a chart depicting those vital 3 months of market action for GLD (the blue rectangle highlights the five consecutive days of inventory losses):

GLD's performance after five days of consecutive "pukes"
 
The severity of the current “puke” is noteworthy. Either a decent rally (let’s say +10%) is staged in the next weeks or things can get serious.  

If you want to know why inventory drawdowns, contrary to conventional wisdom, are bullish for gold, you are advised to go here and especially, here (Victor the Cleaner's blog)

 
You can monitor by yourself GLD inventories by going here.


Speaking about gold, Martin Sibileau has written an excellent article explaining the way the price of gold is suppressed through gold loans. His post relates to current GLD inventory losses, and astute readers can make the connection between too much “paper” gold (i.e. gold loans not 100% backed by gold) and inventory losses (those who want their gold “physical” akin to a run on the bank).


Readers of this blog may wonder why I have been writing so much about gold of late. The reason is simple: The edifice of “paper” not fully allocated gold is likely to collapse. Nobody can time it, not even the Dow Theorists (at best we will be able to see in the charts that paper gold is going down, but as you should be well aware if you follow this Dow Theory blog, no timing system can spot the change of a trend in real time. Some lag is unavoidable). If such a collapse occurs, it might have dire consequences to the USD and for the whole world. Thus, and in spite of my “technical” inclinations, I keep a close eye on the gold markets.  

Stocks

The SPY, Industrials and Transports closed up. The primary and secondary trend remains bullish.

Today we had the seventh bearish volume day in a row, as today’s volume was lower than yesterday’s. Thus, advancing prices were met with receding volume.

Thus, the four bearish volume readings I alluded to yesterday remain fully valid.


Gold and silver

In my February 21 post, I was wondering whether gold was making a bottom based on the loss of inventory of GLD. 


Today’s action seems to confirm that it is likely that a bottom has been made, as gold and silver closed strongly up. Furthermore, they closed up for four days in a row. This is bullish action, even though they are getting ready for a respite. Although I shed lots of credence to the “puke” indicator (because it makes aprioristic sense), we must bear in mind that the primary and secondary trend of GLD and SLV remains bearish. If the primary bear market is really over we will soon be able to spot a trend change in the charts.

SIL and GDX (the gold and silver miners ETFs) closed up. Volume readings of some mining stocks seem to denote that a bottom has been made. However, once again, we must bear in mind that the primary and secondary trend remains bearish.

Here you have the figures of the markets I monitor for today:

 

Data for February 26, 2013





DOW THEORY PRIMARY TREND MONITOR SPY



SPY
Bull market started
11/15/2012 135.7
Bull market signaled
01/02/2013 146.06
Last close
02/26/2013 150.02
Current stop level: Bear mkt low
135.7




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




2.71% 10.55% 7.63%




DOW THEORY PRIMARY TREND MONITOR GOLD (GLD)



GLD
Bull market started
05/16/2012 149.46
Bull market signaled
08/22/2012 160.54
Exit December 20
12/20/2012 161.16
Current stop level: Sec React low 11/02/2012 162.6




Realized Loss % Tot advance since start bull mkt





0.39% 7.83%





DOW THEORY PRIMARY TREND MONITOR SILVER (SLV)



SLV
Bull market started
06/28/2012 25.63
Bull market signaled
08/22/2012 28.92
Exit December 20
12/20/2012 29
Current stop level: Sec React low 11/02/2012 29.95




Realized gain % Tot advance since start bull mkt





0.28% 13.15%





DOW THEORY PRIMARY TREND MONITOR ETF SIL



SIL
Bull market started
07/24/2012 17.08
Bull market signaled
09/04/2012 21.83
Exit January 23
01/24/2013 21.69
Current stop level: Sec React low 11/15/2012 21.87




Realized Loss % Tot advance since start bull mkt Max Pot Loss %




-0.64% 26.99% 27.81%




DOW THEORY PRIMARY TREND MONITOR ETF GDX



GDX
Bull market started
05/16/2012 39.56
Bull market signaled
09/04/2012 47.77
Exit January 23
01/24/2013 44.56
Current stop level: Sec React low 12/05/2012 45.35




Realized Loss % Tot advance since start bull mkt Max Pot Loss %




-6.72% 12.64% 20.75%























Sincerely,

The Dow Theorist