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
My blog:
Dow Theory Investment
  • Dow Theory Update For Feb 20: Precious Metals Debacle  0 comments
    Feb 20, 2013 5:22 PM | about stocks: SPY, DIA, IYT, GLD, SLV, GDX, SIL

    Stocks also down.

    Once again, Barry Ritholtz of "The Big Picture" has posted a very interesting article concerning "timing" in his blog. In a nutshell, Barry's system works as follows:

    1. A 10 month moving is used a timing device.

    2. When the price closes below the 10 month moving average sell your stocks and go to cash or to 10 year bonds.

    3. When the price closes above the 10 month moving average get fully invested in stocks.

    The conclusions are as follows:

    1. Timing indicators do not per se increase returns but reduce volatility (risk) and drawdowns.

    2. Timing indicators coupled with relative strength or momentum techniques outperform the market.

    I encourage you to read the full article as it is worth your time.

    Of course, this is nothing new to the readers of this Dow Theory blog. As I explained with hard figures here and here the Dow Theory is king when it comes to timing the market with a medium /long-term perspective term perspective (let's say 6 months-2 years). Furthermore, and in contrast with a more modest moving average, the Dow Theory not only reduces risk (and by a greater measure than a moving average) but also manages to outperform buy and hold significantly (2% for the "classic/Rhea" version and ca. 4% if one follows Schannep).

    Empirical evidence is so strong in favor of timing through some sort of technical device that it is hard to me to conceive strict adherence to unmitigated fundamental analysis. This is why we can read in the "ReformedBroker" blog that Soros has quietly hired a well-known technician. Soros is too intelligent to just trust his intelligence.

    The SPY, Industrials and Transports closed down today. The primary and secondary trend remains bullish.

    Today's volume was significantly higher than yesterday's. Since the stocks closed down, this has a bearish connotation. We have had three bearish volume days in a row. It seems that volume is little by little turning bearish short term. Here you have an updated chart.



    (click to enlarge)
    Is volume giving bearish hints?

    Gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) closed down. Well, we are seeing primary bear market action in full gear. It seems that the primary bear market signal that was signaled on December 20, 2012 was not so misguided after all.

    As to the gold and silver miners ETF (GDX and SIL), we have seen, once again, bearish action. Both closed down. The primary and secondary trend remains bearish.


    The Dow Theorist

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