Dow Theory Update for Dec 5: Stocks up. No change in trends

Gold and silver modestly down.

Let’s see what the Dow Theory has in store for us today.

The SPY, Industrials and Transports closed up today. The primary trend remains bearish, the secondary one bullish.

Volume was higher than yesterday’s. Being an up day, it has a bullish connotation. In the last 6 days we have had 3 volume bullish days and 3 volume bearish days.

Gold and silver closed down today. I keep my eyes on the 11/02/2012 secondary reaction lows. If they are violated, we can kiss good-bye to the primary bull market. However, as things stand now, the primary trend remains bullish and the secondary trend bearish.

SIL and GDX (the gold and silver miners ETS) closed down today. The primary trend remains bullish and the secondary trend bearish.

Here you have the figures of the markets I monitor for today:

Data for December 5, 2012
DOW THEORY PRIMARY TREND MONITOR SPY
			SPY
Bear market started		09/14/2012	147,24
Bear market signaled		11/16/2012	136,37
Last close		12/05/2012	141,5
Current stop level: Bull market high			147,24
Price chg since bear mkt signaled	Tot decline since start bear mkt	Max Pot Loss %
3,76%	-3,90%	-7,38%
DOW THEORY PRIMARY TREND MONITOR GOLD (GLD)
			GLD
Bull market started		05/16/2012	149,46
Bull market signaled		08/22/2012	160,54
Last close		12/05/2012	164,12
Current stop level: Sec React low		11/02/2012	162,6
Unrlzd gain %	Tot advance since start bull mkt	Min Pot Gain %
2,23%	9,81%	1,28%
DOW THEORY PRIMARY TREND MONITOR SILVER (SLV)
			SLV
Bull market started		06/28/2012	25,63
Bull market signaled		08/22/2012	28,92
Last close		12/05/2012	31,82
Current stop level: Sec React low		11/02/2012	29,95
Unrlzd gain %	Tot advance since start bull mkt	Min Pot Gain %
10,03%	24,15%	3,56%
DOW THEORY PRIMARY TREND MONITOR ETF SIL
			SIL
Bull market started		07/24/2012	17,08
Bull market signaled		09/04/2012	21,83
Last close		12/05/2012	22,22
Current stop level: Bear mkt low			17,08
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
1,79%	30,09%	27,81%
DOW THEORY PRIMARY TREND MONITOR ETF GDX
			GDX
Bull market started		05/16/2012	39,56
Bull market signaled		09/04/2012	47,77
Last close		12/05/2012	45,32
Current stop level: Bear mkt low			39,56
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
-5,13%	14,56%	20,75%

Sincerely,

The Dow Theorist

Dow Theory special issue: Dissecting the current secondary reaction in the stock market

A secondary reaction within a primary bear market

  

As I promised in my yesterday’s post in this Dow Theory blog, I will provide you with additional information as to the ongoing secondary reaction.

As a recap, we know that the Dow Theory signaled a primary bear market on Nov 16. You have the details concerning such Dow Theory signal here and here.

 

The primary bear market lows were made on 11/15/2012 by the SPY and Industrials at 12542.38 and 135.70 respectively. The Transports bottomed next day, 11/16/2012 at 4891.27.

From that point until 11/30/2012 the SPY and the Industrials rallied to 142.15 and 13025.58. This amounts to a 4.75 % rally for the SPY and a 3.85% rally for Industrials. The Transports made their rally highs on 11/29/2012 at 5145.35 for a gain of 5.19%.

As I wrote in a previous post:

"There are three requirements that always must be met in order to qualify a movement contrary to the prevailing primary trend as a secondary correction:

1)     Firstly, it must last at least 10 trading days. This requirement has been met by the three indices I monitor (DJI, DJT and SPY).

2)     Secondly, it must at least be 3% movement. As per Dow Theory a rally or a decline to be meaningful must result in a net reversal of direction exceeding 3%.

3)     Two indices must confirm. The movement of one index unconfirmed by the other leads to deceptive conclusions.

There is a fourth requirement that comes in handy when appraising secondary reactions. A secondary reaction tends to retrace 1/3 to 2/3 of the previous primary up movement. However, this rule is to be interpreted with flexibility. If a reaction retraces just 20% of the previous primary movement, but it lasted three months, then I’d tend to label such a movement as a full secondary correction in spite of not having retraced 1/3 of the prior movement".

Therefore, if we apply the preceding rules to current market action, we can see:

1)     10 trading days elapsed between the lows of 11/15/2012 and the highs of 11/30/2012 for  the SPY and the Industrials.

2)     Both indices exceeded the minimum threshold of 3%.

Accordingly, the rally that started on 11/15/2012 must be labeled as a bullish secondary reaction against the primary bear market trend.

Here you have a chart that helps you visualize the ongoing secondary reaction (highlighted with blue rectangles). 

The rally contained in the blue rectangles qualifies as a secondary reaction under Dow Theory

  

What about the Transports? As we can see, the Transports only rallied for 8 days.  However, as you know if you are a follower of this blog, given that the Industrials and the SPY have rallied for a minimum of 10 days, we may safely declare the market as undergoing a secondary reaction. Confirmation merely means two indices confirming, not three.

Let’s have a look at the retracements from the latest highs. The retracements are measured taking into account the percentage “lost” from the latest highs (09/14/2012 for the SPY and 10/05/2012 for the Industrials) to the latest lows (primary bear market lows 11/15/2012) and the percentage “retraced” or gained since such lows until the rally highs of 11/30/2012.

SPY: ca. 55% retracement of the prior bear market swing.

Industrials: ca. 46% retracement of the prior bear market swing.

So roughly ½ of the previous primary bear market decline has been recovered. This is fully in line with the typical retracement of a secondary reaction.

So, we can safely conclude that the stock market is undergoing a secondary reaction. If this secondary reaction is followed by a new decline (in at least one index) exceeding 3% (which seems likely according to today’s market action), and such decline is followed by a new upward thrust jointly breaking the 11/30/2012 highs, then we would have a new primary bull market signal.

If, conversely, the markets fail to break the 11/30/2012 secondary reaction highs and violate the 11/15/2012 primary bear market lows, then the primary bear market will be reconfirmed.

I’d like to finish this post by stressing that the issue of appraising secondary reactions is a tricky one. For those of you willing to learn more about them, I suggest you read my post in this Dow Theory blog “A primer on secondary reactions under Dow Theory” which you can read here.

Sincerely,

The Dow Theorist

Dow Theory Update for Dec 4: Stocks down. No changes in trends

Gold and silver down.

 

Let’s get started with our Dow Theory commentary for today in this blog.

The SPY and Industrials closed down today. The Transports closed up. Technically, nothing has been accomplished. The primary trend remains bearish, and the secondary trend remains bullish.

Volume was higher than yesterday’s, since the SPY closed down, I consider it a down day and hence lower prices confirmed by higher volume have a bearish connotation; again. As you can see in the chart below the red arrows dominate. 

Volume continues bearish. Red bearish arrows dominate

Gold and silver closed down today. It is good to remember that now is the moment of truth for gold and silver. If they violate their 11/02/2012 secondary reaction lows, a new primary bear market will be signaled, if, conversely, they break their 10/04/2012 highs, the primary bear market will be reconfirmed and the secondary trend will be declared as bullish. In the meantime, we have to wait. Here you have an updated chart. The red lines may not be violated or else….The pink lines merely reflect the entry price and, thus, the distance between both lines is the profit that is likely to be locked in.

If the red line is violated a new primary bear market will be signaled for gold and silver

SIL and GDX closed up today. No technical changes. The primary trend remains up. The secondary trend remains bearish.

Later, today, I’ll post a special issue in this Dow Theory blog concerning the new bullish secondary reaction against the primary bullish trend in stocks.

Here you have the figures of the markets I monitor for today:

 

Data for December 4, 2012
DOW THEORY PRIMARY TREND MONITOR SPY
			SPY
Bear market started		09/14/2012	147,24
Bear market signaled		11/16/2012	136,37
Last close		12/04/2012	138,75
Current stop level: Bull market high			147,24
Price chg since bear mkt signaled	Tot decline since start bear mkt	Max Pot Loss %
1,75%	-5,77%	-7,38%
DOW THEORY PRIMARY TREND MONITOR GOLD (GLD)
			GLD
Bull market started		05/16/2012	149,46
Bull market signaled		08/22/2012	160,54
Last close		12/04/2012	164,42
Current stop level: Sec React low		11/02/2012	162,6
Unrlzd gain %	Tot advance since start bull mkt	Min Pot Gain %
2,42%	10,01%	1,28%
DOW THEORY PRIMARY TREND MONITOR SILVER (SLV)
			SLV
Bull market started		06/28/2012	25,63
Bull market signaled		08/22/2012	28,92
Last close		12/04/2012	31,9
Current stop level: Sec React low		11/02/2012	29,95
Unrlzd gain %	Tot advance since start bull mkt	Min Pot Gain %
10,30%	24,46%	3,56%
DOW THEORY PRIMARY TREND MONITOR ETF SIL
			SIL
Bull market started		07/24/2012	17,08
Bull market signaled		09/04/2012	21,83
Last close		12/04/2012	22,64
Current stop level: Bear mkt low			17,08
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
3,71%	32,55%	27,81%
DOW THEORY PRIMARY TREND MONITOR ETF GDX
			GDX
Bull market started		05/16/2012	39,56
Bull market signaled		09/04/2012	47,77
Last close		12/04/2012	46,65
Current stop level: Bear mkt low			39,56
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
-2,34%	17,92%	20,75%

Sincerely,

The Dow Theorist

Dow Theory Update for Dec 3: Stocks under secondary reaction

Stocks down. Gold and silver up.

Let’s analyze the markets under the prism of the Dow Theory.

The SPY, the Industrials and the Transports closed down today. The secondary trend has turned bullish, which means that the current rally now qualifies as a secondary reaction against the primary bearish trend.  Since the lows of 11/15/2012 (11/16/2012) eleven trading days have elapsed. As you know, for a secondary reaction to exist, it is necessary to have a rally (in a bear market)  or a pullback (in a bull market) of at least 10 days. A second requirement is that the movement against the primary trend should have an extent in at least two indices of at least 3%.  Both requirements have been met. Stay tuned as soon I will post a special issue on this Dow Theory blog concerning the details of the current secondary reaction. It goes without saying that the primary trend of stocks remains bearish.

Today’s volume was lower than yesterday’s, since today was a down day, it has a bullish implication.  Since the current rally started we have had only 3 volume bullish days.  So overall the patter of volume is bearish.

As to gold and silver, both closed up today. The primary trend remains bullish and the secondary trend bearish.

SIL and GDX, the gold and silver miners ETFs, closed down today. Technically, nothing changed. The primary trend remains bullish, and the secondary trend remains bearish.

Here you have the figures of the markets I monitor for today:

 

Data for December 3, 2012
DOW THEORY PRIMARY TREND MONITOR SPY
			SPY
Bear market started		09/14/2012	147,24
Bear market signaled		11/16/2012	136,37
Last close		12/03/2012	141,45
Current stop level: Bull market high			147,24
Price chg since bear mkt signaled	Tot decline since start bear mkt	Max Pot Loss %
3,73%	-3,93%	-7,38%
DOW THEORY PRIMARY TREND MONITOR GOLD (GLD)
			GLD
Bull market started		05/16/2012	149,46
Bull market signaled		08/22/2012	160,54
Last close		12/03/2012	166,13
Current stop level: Sec React low		11/02/2012	162,6
Unrlzd gain %	Tot advance since start bull mkt	Min Pot Gain %
3,48%	11,15%	1,28%
DOW THEORY PRIMARY TREND MONITOR SILVER (SLV)
			SLV
Bull market started		06/28/2012	25,63
Bull market signaled		08/22/2012	28,92
Last close		12/03/2012	32,52
Current stop level: Sec React low		11/02/2012	29,95
Unrlzd gain %	Tot advance since start bull mkt	Min Pot Gain %
12,45%	26,88%	3,56%
DOW THEORY PRIMARY TREND MONITOR ETF SIL
			SIL
Bull market started		07/24/2012	17,08
Bull market signaled		09/04/2012	21,83
Last close		12/03/2012	22,58
Current stop level: Bear mkt low			17,08
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
3,44%	32,20%	27,81%
DOW THEORY PRIMARY TREND MONITOR ETF GDX
			GDX
Bull market started		05/16/2012	39,56
Bull market signaled		09/04/2012	47,77
Last close		12/03/2012	46,48
Current stop level: Bear mkt low			39,56
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
-2,70%	17,49%	20,75%

Sincerely,

The Dow Theorist.