Tuesday, February 4, 2014

Dow Theory Update for February 4: Stocks close up on shrinking volume

Secondary reaction in stocks continues

US stocks

The Transports, the Industrials and the SPY closed up. Volume, once again, was bearish as today’s volume was lower than yesterday’s. So the pattern I’ve signaling during the last few days of expanding volume on declines and contracting volume on rallies continues. I feel today’s rally was the “rebound” I was expecting due to the oversold condition of the markets (and also volume bearishness which tends to beget 1 or 2 up days to be followed by more bearish action). Therefore, even though I am not in the business of forecasting short term moves, what I see is an ongoing bearish secondary reaction and the likelihood of 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 17th 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 up, and GLD closed down. 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 up. 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 February 4 , 2014


Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
02/04/2014 175.38
Current stop level: Secondary reaction low


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

3.86% 11.66% 2.05%

The Dow Theorist

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