Thursday, March 6, 2014

Dow Theory Update for March 6: Transports fail to confirm SPY’s higher highs by a hair

A rare rant

Today I decided not to renew my subscription to one market advisory (whose name I'd rather not mention).

It’s been a hard decision to make, since one becomes accustomed to the daily “fix” on market commentaries. Anyhow, to realize that one’s time is better spent in minding my own business (or even writing on this Dow Theory blog) than reading a never-ending stream of contradictions, appeals to the subconscious (which, in my humble opinion, cannot be, at least for me, any basis for consistent investment), staled news (which I can find for free on Zero Hedge) and radical and ungrounded changes of mind as to the direction of the market. Of course, I have nothing against changing one’s mind (being flexible is vital in the markets). Nonetheless, I detest the lack of grounding (since dreams do not qualify as “grounding”). Being a good writer is not enough when it comes to determining the trend of the markets and past reputation (which was well deserved in times past) isn't enough to keep subscribers happy.

Something is wrong when the monetary component of the subscription pales in comparison with the real value of my time. Something is wrong when as a subscriber one realizes that the money spent not only does not bring any value at all but is counterproductive, since it deprives me of 20 minutes of my time a day.

In retrospective, I should have taken this decision many months ago. Old habits die hard.

It is very difficult to find market advisories that really add value, that really help you be consistently on the right side of the market.

Well, now let’s move onto the markets.

US Stocks

The SPY, Industrials and Transports and Industrials closed up. The SPY exceeded its last recorded closing highs once again, and, once again such higher highs have not been confirmed by the Industrials and/or Transports. The Transports have been very close to exceeding their December 31st, 2013 closing highs. The longer the non-confirmation persists, the more suspect the SPY’s higher highs become. 

Here you can see an updated chart:

The Transports (middle) were close to confirming the SPY's (bottom) higher highs
The market remains caught in a technically complicated juncture. If the February lows were violated a primary bear market would be signaled. On the other hand, if the last recorded confirmed closing highs (December 31, 2013) were broken out, the primary bull market would be reconfirmed. You can gather more information about the current juncture, here and here and here.

So days of price action go by, but technically nothing changes. The Industrials and/or the Transports need to close above the December 31, 2013 closing highs to re-confirm the primary bull market (and turn the secondary trend bullish, as well). The alternative is the violation of the secondary reaction lows (February lows), which would signal a primary bear market. All we are seeing is just noise. The last few days are a vivid example of the Dow Theory helping us to distinguish between relevant price action and just noise.

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 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 up. 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.

The Dow Theorist 

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