Monday, March 10, 2014

Dow Theory Update for March 10: Stocks decline modestly

Primary bull market was re-confirmed last Friday, March 6th.

After last Friday’s re-confirmation of the primary bull market in stocks, today there is a paucity of news.

US Stocks

The SPY, Industrials and Transports closed down.

Last Friday, March 6th, the Transports finally broke above the January 23rd, 2013 closing highs, thereby confirming the SPY (which had repeatedly bettered its Dec 31 closing highs). Therefore, higher highs meant that:

1)     The primary bull market has been reconfirmed.
2)     The secondary trend is bullish.

Here you have an updated chart:

Primary bull market reconfirmed. I'd be happier if the Industrials would join the party soon

Thus, we can affirm that:

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

The primary trend was reconfirmed as bullish on October 17th, 2013, and November 13th, 2013 and March 6th, 2014, for the reasons given here, here and here.

 So the current primary bull market signal has survived three secondary reactions.

The unrealized profit amounts now to 11.42% (profits made since July 18th, 2013, date of the primary bull market signal). Please mind that I am talking of “unrealized” profits. If the market turned down, a chunk of these profits could suddenly vanish. However, if you look at the chart above, you can see that our exit point has been fixed according to the Dow Theory at the last recorded secondary reaction lows (red horizontal lines). Therefore, barring an overnight crash exceeding 11%, it is highly unlikely for the current position to end up in losses. More about the current Dow Theory stop here.

Gold and Silver

SLV closed down, and GLD closed up. For the reasons I explained here, and more recently here, and in spite of all the bullishness than now surrounds gold and silver, the primary trend remains bearish.

For the primary trend to turn bullish, SLV and GLD should jointly break above the secondary (bullish) reaction highs. As a reminder, the secondary reaction closing highs were made on August 27th, 2013. From such highs the market declined without jointly violating the June 27th, 2013 primary bear market lows.

By the way, I alerted that the secondary trend turned bullish long ago (on July 22, 2013), when most market pundits were solidly bearish, as you can read here. Now, those very pundits are very bullish as only the sky was the limit. I take the middle road based on the Dow Theory: Since July 22, 2013 there was technically good reason not to be so bearish; on February 14th, 2014, there is no reason to be long term so bullish.

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. In spite of short term bullish accomplishments, SIL and GLD are not in a primary bull market.

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:


Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
03/10/2014 188.16
Current stop level: Secondary reaction low


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

11.42% 19.80%   None

The Dow Theorist

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