Friday, May 31, 2013

Dow Theory Update for May 31: A Secondary reaction in the making?



Gold and silver unable to show strength


Let’s get started with our analysis of the markets under the prism of the Dow Theory

Stocks

The SPY, Industrials and Transports closed down. While it is still too early to declare a secondary reaction in existence, we should keep our eyes glued on the charts. The Transports have been declining for 9 days. The Industrials and SPY for just 3 and 7 days. Thus, it is still too early to declare a secondary reaction since the last recorded highs. However, little by little we approach our 10 trading days requirement. Thus, and in spite of our “gut feeling," we stick with the rules and keep classifying both the primary and secondary trend as bullish.

Here you have an updated chart. The blue rectangles signal market action since the last recorded highs.

Still too early to declare a secondary reaction, but keep an eye on the blue rectangles

 Today’s volume was the highest seen since 04/15/2013. Furthermore, today's volume was much higher than yesterday’s, which is bearish. To add insult to injury, today’s pivot low (see the chart below), was bearish as today’s volume clearly exceeded the volume seen at the preceding pivot low. Both pivots are highlighted with an ellipse, and both lows are connected with a red line. In my post of May 22, which you can find here, I stressed that the volume action seen on that day, negated any bullish volume reading. Thus, to recap, we have the following bearish volume signs:


1.      Today’s bearish volume day within an overall pattern of bearish volume days in the last 3 days.

2.      Today’s bearish pivot low.

3.      Very bearish action on May 22.


Volume is becoming bearish
Therefore, the overall pattern of volume has become bearish. If we couple this bearish volume reading with the lack of confirmation of the last highs made by the Industrials on May 28 (more details here), we can conclude that the odds favor the development of a secondary reaction. Let’s see what happens.


Gold and Silver

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

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

Yesterday, I wrote some comments concerning the relationship between the miners, gold and paper gold. You can read them here.

If I get some time, I plan to finish this weekend my study concerning the "classical/Rhea" Dow Theory record. You can find the first part of this study here.

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

 

Data for May 31, 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
05/31/2013 163.45
Current stop level: Bear mkt low

135.7




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




11.91% 20.45% 7.63%




Alternative Schannep's stoploss: 


Highest closing high
05/21/2013 167.17
16% stoploss from highest closing high

140.42


Max Pot Loss %


-3.86%




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




Thursday, May 30, 2013

Dow Theory Update for May 30: Stocks close up but fail again to better recent highs



 Gold seems to gain some strength on USD weakness



 

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

Stocks

The SPY, Transports and Industrials close up. However, no index has been able to better recent highs. The longer this situation persists, the higher the odds for a secondary reaction. The primary and secondary trend is bullish.

Today’s volume was lower than yesterday’s, which is bearish.

Gold and silver

GLD gained one tonne of inventory yesterday. This is a feat if we bear in mind more than five months of relentless inventory declines have elapsed.

GLD and SLV closed up. Gold seems to have gained some strength due to the USD recent weakness. However, as readers of this Dow Theory blog are well aware, I will not jump the gun until my Dow Theory patterns tell me to do so. Thus, the primary and secondary trend remains bearish.

GDX and SIL, the gold and silver miners ETFs, closed up. The primary and secondary trend remains bearish.

One observation about the precious metals' universe (including miners) bear market. Primary bear markets in stocks tend to last an average of ca. 6 months. Thus, primary bear markets last significantly less than bull markets. However, when it comes to the precious metals' universe, I lack the empirical record available to stocks indices. If I were dealing with stocks indices, I could confidently say that it is likely that the primary bear market is running out of gas, at least statistically. However, when it comes to precious metals, I lack such empirical record and all I can do is rely on the Dow Theory patterns I see on the charts. Therefore, until I see a primary bull market signal, I have to conclude that the primary trend remains bearish.

One more thought: I feel the action of the miners is vital to ascertain whether blogger FOFOA is right or wrong. His main tenet is that only physical gold will experience a monster revaluation, whereas silver and the gold and silver miners will be left behind. If gold is to experience a massive revaluation (i.e. USD 55000 in current purchasing power, as per FOFOA), I feel we will not see any traces of the coming revaluation on the GLD chart. If, once again, FOFOA is right, the price of paper gold will go down, markets will shut, and after such a hiatus, physical-only gold markets will reemerge.

Accordingly, my real-life application of FOFOA’s insights is as follows:

·        GLD or COMEX gold will not give us any clue as to when the revaluation of gold is nigh.

·      On the contrary, it is very likely that shortly before the closure of the gold markets as we know them now, there will be a monster bear market in gold, which will reflect the demise of paper gold. This is not a certainty but a distinct possibility according to FOFOA.

·      Thus, paper gold charts will only let us know whether paper gold is to survive or is headed for disaster. Paper gold charts will never tell us that a huge revaluation for physical gold is coming.

·        However, if my understanding of FOFOA is right, there are two distinct scenarios:

1.      If paper gold survives, so will the miners. Gold will not experience a 30-bagger, but it will  be just another bull market. Maybe it will reach 2000, 3000, who knows, but no massive revaluation. Under such “normal” conditions, the miners will probably thrive and show it on the charts. Thus, if a primary bull market in gold and silver miners starts, I’ll see it as a signal that the “old normal” is going to continue, at least for the time being. No end of the world in sight, no reset.

2.      However, if paper gold dies and a physical only market for a revalued gold is to emerge, the miners are likely to be doomed (gold miners because gold will become too valuable to let the miners enjoy the booty; and silver miners because silver will not participate in the copious revaluation). If this is to occur, weakness (i.e. a primary bear market) should be visible on the charts. If there is a “reset," I feel we will find some clues by looking at the miners' weakness.

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



Data for May 30, 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
05/30/2013 165.83
Current stop level: Bear mkt low

135.7




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




13.54% 22.20% 7.63%




Alternative Schannep's stoploss: 


Highest closing high
05/21/2013 167.17
16% stoploss from highest closing high
140.42


Max Pot Loss %


-3.86%




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, May 29, 2013

Dow Theory Update for May 29: Yesterday’s higher high by the Industrials remains unconfirmed



 Trends remain unchanged





The secular bear market is not finished yet

Danielle Park of the “Juggling Dynamite” blog, echoing Vitaliy Katsenelson, is of the opinion that the secular bear market in stocks that began in the year 2000 is far from over. PER and profit margins (and record highs) speak against a new secular bull market. As a consequence, we should brace ourselves for, at least, one more cyclical bear market.


From a Dow Theory perspective or, at least, from a Rhea/Classical Dow Theory perspective, it is immaterial to us whether we are in a secular bull or bear market, as we are mainly interested in the cyclical bull and bear markets. Thus, on November24, 2012, I wrote:

I personally tend to ignore the secular trend and, like Schannep, I feel comfortable spotting cyclical bull and bear markets. This implies a time frame of ca. 1-2 years, which is long term enough not to be a short term trader but short term enough not to be a “buy and hope," sorry, “buy and hold” investor. The secular trend is important, though: It helps me determine the total amount of capital to be committed to stocks. In a secular bull market like the nineties, I'd feel comfortable with an 80% allocation to stocks. Under a secular bear market, I'd decrease my commitment even under a cyclical bull market.

Furthermore, my Dow Theory studies show that the investor is able to extract profits (albeit more modestly) from the market even under secular bear markets, as explained here.


Stocks

The SPY, Industrials and Transports closed down. The higher high made by the Industrials yesterday remains unconfirmed.

Today’s volume was slightly higher than yesterday’s. Accordingly, it has a bearish connotation as declining prices were confirmed by stronger volume. The overall pattern of volume is neutral, since, in spite of some bullish volume days, volume action was clearly bearish on 05/22/2013. Here you have an updated chart.

Volume is neutral.
 
Gold and Silver

GLD and SLV closed up. However, one “up” day is not enough to change trends. The primary and secondary trend remains bearish.

GDX and SIL closed up. The primary and secondary trend remains bearish.

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

 

Data for May 29, 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
05/29/2013 165.27
Current stop level: Bear mkt low

135.7




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




13.15% 21.79% 7.63%




Alternative Schannep's stoploss: 


Highest closing high
05/21/2013 167.17
16% stoploss from highest closing high

140.42


Max Pot Loss %


-3.86%




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