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 Feb 1: Bonds Falling Out Of Bed  0 comments
    Feb 1, 2013 7:09 PM | about stocks: SPY, DIA, IYT, GLD, SLV, GDX, SIL

    Stocks and precious metals up

    I've been mentioning frequently the BLV (long-term bond term bond) / GLD (gold) ratio of late (red line on the chart). I am doing this because I feel this is the chart to see, and that we are seeing an epic battle in front of our eyes. Here you have an updated chart. As you can see the ratio continues to decline after breaking the green horizontal line (the last secondary reaction lows of the ratio). This is especially worrisome for bondholders, as the ratio declines with gold under the spell of a primary bear market. How would the ratio look like if gold was moderately strong? As I have written before, a declining ratio (stronger gold) plus the violation of an important trend line (purple ascending line) is not a good omen for bonds.



    (click to enlarge)
    Bonds: A bearish chart a bearish ratio

    The straw that will break the camel's back is likely to be a violation of the horizontal pink line (the major secondary reaction lows). If such level is violated something nasty may happen to bonds. You can find more information as to the importance of this ratio here and here.

    Well, let's turn our eyes to stocks.

    The SPY, Industrials and Transports closed up. The Industrials and the SPY made higher highs. The primary and secondary trend remains bullish.

    Today's volume was lower than yesterday's, which makes it a bearish volume day.

    Gold and silver (GLD and SLV) closed up. The primary and secondary trend remains bearish.

    SIL and GDX closed up. The primary and secondary trend remains bearish.

    Have a nice weekend.


    The Dow Theorist

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