Dow Theory Update for May 28: Manipulation and the Dow Theory.

Transports make higher closing high unconfirmed.

Recently, one comment on one post of mine on Seeking Alpha raised the point of manipulation and how it can affect the Dow Theory.

 

Here you have the question and my answer:

Sharpe_Spectator

Lets say the fundamentals are messed up and a group of fund managers get together and dress up the trades that triggers a technical signal which you are used to looking out for, aren't you bothered?

Hi Sharpe_Spectator,

You raise a valid point. One of the tenets of the Dow Theory is that the daily movements and even secondary trends may be manipulated. Most technical signals belong in this shorter term timeframe. However, the primary trend, like a powerful tide, cannot be manipulated. This is why Dow Theorists invest along the primary trend (which lasts on average 1-2 years) and dismiss the secondary trend for investment purposes (to avoid the manipulation you are mentioning). Of course, this is not a “dogma," and things may have changed, and maybe nowadays even the primary trend might be subject to some influence by the Fed. Nevertheless, I’d rather run this risk than blindly believing my own ego-filled fundamental assumptions about the economy, the health of stocks, etc. Now it is often made the point that the Fed is manipulating upwards stocks. I tend to believe it. However, whatever the underlying reason, what I see (and if you follow my blog you will see that I have been bullish amidst a sea of bearishness) is that the primary trend is “up." Even if the Fed started to monetize all stocks (and this would be manipulation) the fact would remain that stocks would be going up. Here the time-tested adage “don’t fight the trend” comes in handy.

US Stocks

The SPY, and Industrials closed down. The Transports closed up.

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

The primary trend was reconfirmed as bullish on October 17^th, 2013, and November 13th, 2013 and March 7th, 2014, for the reasons given here, here and here.

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

The secondary trend is bullish too, as explained here and here.

Gold and Silver

SLV, and GLD closed down. For the reasons I explained here, and more recently here 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 27^th, 2013. From such highs the market declined without jointly violating the June 27^th, 2013 primary bear market lows.

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. However, the secondary bullish reaction against such old primary bear market is also getting quite old. Tie. 

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 closed and GDX closed down.

I profusely explained that SIL and GDX set up for a primary bull market signal. You can find all the relevant information from a Dow Theory standpoint here.

Please mind that a setup is not the real thing. So the primary trend has not turned bullish yet (or maybe “never”).

The secondary trend is bullish, as explained here. In spite of short term bullish accomplishments, SIL and GDX 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 secondary trend is bullish, as explained here. In spite of short term bullish accomplishments, SIL and GDX are not in a primary bull market.

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

General note for both GLD/SLV and GDX/SIL: Unless it is a “fake out”, the “coiling” seems to evolve into a breakdown for the precious metals. If it is a “fake out” precious metals should snap back into the range soon or else…. More about the “coiling” here and here.

Sincerely,

The Dow Theorist