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 Dec 7: Stocks And Precious Metals Up 0 comments
    Dec 7, 2012 5:09 PM | about stocks: SPY, DIA, IYT, GLD, SLV, GDX, SIL

    No changes in trends.

    What are other Dow Theorists saying? Richard Russell, of the Dow Theory Letters fame, is mixed (as far as I can conclude). He says that as long as the 11/15/2012 lows are not violated there is hope for the bulls. However, until the October highs are not broken out, he will not be a convinced bull, since in his opinion the market has been bearish for a long time. So, as far as I understand, he is ambiguous about the market. On a longer time frame, and applying Schaefer's 50% principle, he says there is hope for the bulls. I'd tend to say that on a secular basis (50% principle), he finds the trend bullish, on a longer term (1-2 years) he finds the trend bearish and on the short term, he is agnostic.

    What is my take on Russell's opinion? Well, as you may know I am quite skeptical as to forecasting the secular trend. In a future post on this Dow Theory blog, I will explain why. As to the long-term trend (1-2 years) my Dow Theory "flavor," says that the market is in a primary bear market, and it seems there is agreement on this time frame across the Dow Theory fraternity (see my post "Dow Theory recap: What are other Dow Theorists saying?" which you can find here).

    The SPY, Industrials and Transports closed up. Under Dow Theory, the primary trend remains bearish and the secondary trend bullish. The SPY and the Industrials have broken above the secondary reaction 11/30/2012 highs. This merely means that we have to change the meaningful highs of the secondary reaction. Now our new reference point is 13155.13 for the Industrials and for the SPY 142.41. It goes without saying that if this rally further continues; we'll have to adjust the relevant secondary reaction highs.

    Volume declined again. As it was an up day, this has a bearish tone. Overall, this rally has not been supported by volume. So we have two minuses: On the longer term (i.e. six months) we are under a primary bear market, so the odds favor declining prices irrespective of volume; on the shorter term (i.e. two weeks) advancing prices have been negated by declining volume, which is also bearish. Let's see what happens.

    Here you have an updated chart containing volume:

     

     

    (click to enlarge)
    Volume with a bearish bias

    As to gold, silver and their respective ETF miners (SIL and GDX) all of them closed up. Technically, however, nothing has been accomplished and their primary trend remains bullish while the secondary trend remains bearish.

    The Dow Theorist

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