Wednesday, January 22, 2014

Dow Theory Update for January 22: Transports make higher high unconfirmed

Russell says next bear market will come unannounced. I beg to disagree.

In yesterday’s “Dow Theory Letter”, Richard Russell, of the “Dow Theory Letters”, warned his readership that the next bear market “will not provide us with early technical of fundamental signs of trouble” and that it will come “out of the blue”. It is difficult for me to argue against Mr. Russell given his past accomplishments. However, barring an earthquake that would bury the West Coast under the ocean or a meteorite hitting the Earth, or something like that (which would result in the market gapping down 30, 40 or maybe 70% overnight, in which case the stock market would be of no concern to me but my own survival), I remain fairly confident that the Dow Theory will signal early enough a new primary bear market. The Dow Theory rules and patterns will see to it. Furthermore, Schannep’s version of the Dow Theory, which is even more finely attuned to changes of trend (as explained here), is unlikely to fail. 

I fear Mr. Russell is paying too much attention to fundamentals (of course, the bearish ones, since there are all flavors of fundamentals) and too little attention to his forte, namely, the Dow Theory, which accounts for his missing much of the roaring 2013 stock market. Time will prove all things.

US stocks

The Transports and the SPY closed up. The Industrials closed down. The Transports made a new higher closing high, which has been unconfirmed. The longer this pattern of higher highs by the Transports remains unconfirmed, the higher the odds of a secondary reaction.

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 down, which is normal after four consecutive days of torrid action. I see uncommon strength in the gold and silver miners’ ETFs. This is why, last Friday January 17th, and in accordance with the Dow Theory, the secondary trend was labeled as bullish, as explained here. The volume picture for SIL is also bullish as explained yesterday. On the other hand, the volume picture for GDX, while bullish, is not so extremely bullish.

The primary trend for SIL and GDX remains, nonetheless, bearish, as was profusely explained here and here.

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

Data for January 22 , 2014


Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
01/22/2014 184.3
Current stop level: Secondary reaction low


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

9.14% 17.34% 2.05%


The Dow Theorist

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