Manuel Blay's  Instablog

Manuel Blay
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Trader and investor. My trading is short-term based (avg trade duration 4-5 days). As investor I'm deeply influenced by Dow Theory
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Dow Theory Investment
  • Dow Theory Update For Nov 10: Stocks On Thin Ice.  0 comments
    Nov 11, 2012 12:37 PM | about stocks: SPY, DIA, IYT, GLD, SLV, GDX, SIL

    Primary trend for stocks might change to bearish very soon.

    Nov 10 was one of these days that are relevant under Dow Theory.

    The Industrials and the SPY closed mildly up. The Transports closed clearly down displaying for the first time in the last few weeks less strength than its peers.

    Volume was lower than yesterday's, which has a bearish connotation since it was an up day for the SPY and the Industrials. So the short term pattern of volume remains mixed with a slightly bearish bias.

    If we study volume action at short term pivots, we derive a clearer bearish picture. The last pivot low was bearish (since its volume was higher than the volume at the preceding pivot low). The latest pivot high was also bearish since its volume was lower than at the preceding pivot high. While such bearish implication is quite short term (let's say 2-3 weeks) it clearly isn't a bullish sign. But, again, I'd like to stress that volume qualifies trends, doesn't make them.

    Here you have an updated volume chart. As you can see the blue (volume bullish) and red (volume bearish) arrows are quite evenly distributed. On pivot days the second arrow denotes whether volume was bullish or bearish at the pivot point.

    (click to enlarge)
    Volume bearish at the last two pivots

    So why was it a relevant day for stocks under Dow Theory? Because the Transports by closing down are approaching the "danger zone"; namely the breaking point where a primary bear market is signaled under Dow Theory.

    Later today or at the latest before the open on Monday, I will post a special Dow Theory issue commenting the Dow Theory set up that may lead soon to a primary bear market signal. This post is going to be well thought-out and its taking time to make it.

    Gold closed mildly down. Silver up and their respective ETF miners closed down. Technically, under Dow Theory, nothing changed. The primary trend continues bullish.


    The Dow Theorist

    Stocks: SPY, DIA, IYT, GLD, SLV, GDX, SIL
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