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 12: Indecisive Day For Stocks 0 comments
    Dec 12, 2012 5:10 PM | about stocks: SPY, DIA, IYT, GLD, SLV, GDX, SIL

    Gold, silver and their miners up

    Let's try to gauge the pulse of the markets armed with our Dow Theory tools in this blog.

    Today the SPY closed up (barely) whereas the Industrials and Transports closed down. The primary trend remains bearish and the secondary trend bullish.

    As to volume, I consider it a neutral day. Even though the SPY closed up by some cents, given the action of the Industrials, Transports and the Nasdaq, I feel I cannot consider it an "up" day but neither a clear down day. Overall, the pattern of volume remains bearish.

    Gold (NYSEARCA:GLD) and Silver (NYSEARCA:SLV) closed up today. The dreaded Nov 2 secondary reaction lows have not been violated yet. Gold and silver seem caught between the Oct 4 highs and the Nov 2 lows and this range is lasting too long. I fear that the move that will follow either the breaking out of the Oct 4 highs (which would re-confirm the primary bull market) or the violation of the Nov 2 lows (which would trigger a primary bear market signal) will be quite explosive. I also feel that if gold (and by proxy silver) are to go up really in earnest, this will not happen until the BLV/GLD ratio (long-term bond term bond /gold) turns decisively bearish in favor of gold. This is why that ratio in spite of technically flirting with disaster (bear market signal) since September, hasn't hitherto refused to break down. It goes without saying that the breaking of the Oct 4 highs by gold and silver together with a bearish signal of the BLV/GLD ratio would provide significant technical tailwind to gold and silver.

    Here you have an updated chart of gold and silver with the relevant lows (Nov 2) marked in red. The pink line is the entry price (August 22 as per the Dow Theory primary bull market signal. More about such signal here)



    (click to enlarge)
    If the November 2 lows are violated a primary bear market will be signaled by the Dow Theory

    As always, I am not in the business of forecasting (one doesn't need it to be a successful investor) but merely of going with the flow, that is following the trend. Price action will deliver its verdict.

    In the meantime, the primary trend for gold and silver remains bullish and the secondary trend bearish.

    SIL made again new minor highs and for the second time such new highs went unconfirmed by GDX. This non confirmation makes the current rally off the secondary reaction lows suspect. The primary trend remains bullish and the secondary trend bearish.


    The Dow Theorist

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