Dow Theory Update for January 31: Stocks close down on increasing volume

Gold and silver should rally soon or else….

Let’s begin our Dow Theory commentary for today.

US stocks

The Transports, the Industrials and the SPY closed down. Volume, once again, was bearish as today’s volume was higher than yesterday’s (when stocks closed up). So, we are seeing expanding volume on declines and contracting volume on rallies…not a nice picture. While excessive bearish volume usually sets up stocks for a short rally (as volume becomes “oversold”), it tends to portray lower prices in the days ahead. The only thing that could change the volume picture would be a down day on lower volume followed by an up day on surging volume. Hitherto we haven’t seen this and, accordingly, I feel that the odds for the ongoing secondary reaction to continue remain quite high. Here you have the an updated chart displaying volume:

 

Bearish volume increases the odds for lower prices in the days ahead

 

The primary trend remains bullish, as explained here, and more in-depth here.

The primary trend was reconfirmed as bullish on October 17^th and November 13th, for the reasons given here and here.

The secondary trend is bearish (secondary reaction against primary bull market), as explained here.

Gold and Silver

SLV closed down and GLD closed up. For the reasons I explained here, and more recently here, 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.

On a statistical basis the primary bear market for GLD and SLV is getting old. More than one year since the bear market signal was flashed has elapsed. However, I am extremely skeptical as to the predictive power of statistics. I prefer price action to guide me, and the Dow Theory tells me that the primary trend remains bearish until reversed.

Furthermore, the June 27, 2013 lows remain untouched. The longer this situation lasts, the higher the odds that something might be changing. But I wait for the verdict of price action.

As to the gold and silver miners ETFs, SIL and GDX closed down. The secondary trend is bullish, as explained here.

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 31 , 2014
DOW THEORY PRIMARY TREND MONITOR SPY
			SPY
Bull market started		06/24/2013	157.06
Bull market signaled		07/18/2013	168.87
Last close		01/31/2014	178.18
Current stop level: Secondary reaction low			165.48
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
5.51%	13.45%	2.05%

Sincerely,

The Dow Theorist