Wednesday, January 15, 2014

Dow Theory Update for January 15: Transports make higher closing high unconfirmed

 Can we properly value stocks?

Dave Moenning, of the “” has penned a brief and insightful article titled “The Market Math of Valuations” which clearly explains why traditional metrics of valuation are more often than not misguiding. You can read his article here:

Of course, if valuation is a very elusive subject, then we are mostly left with trend following. Hence, we'd better become proficient at determining nascent trends and, more importantly, dying trends.To this end the Dow Theory excels.

 US stocks

The SPY, the Industrials and the Transports closed up. The Transports managed to better the last recorded closing highs (December 31). However, the SPY and Industrials failed to confirm. The longer price action remains below such highs for the SPY and Transports, the higher the odds for a secondary reaction to develop.

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.

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. The Dow Theory is close to signaling a secondary reaction against the primary bearish trend. However, we still need some more bullish action so that our minimum volatility requirements are met.

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


Data for January 15 , 2014


Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
01/15/2014 184.66
Current stop level: Secondary reaction low


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

9.35% 17.57% 2.05%


The Dow Theorist

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