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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 26: Another Distribution Day. Stocks Up As Volume Recedes  0 comments
    Feb 26, 2013 4:40 PM | about stocks: SPY, DIA, IYT, GLD, SLV, GDX, SIL

    Gold and silver up. Has a bottom been made?

    Let's get started with our Dow Theory commentary in this blog today.

    Special note on gold

    GLD lost yesterday (Feb 25) 7.82 tonnes of gold. Thus, inventories have been declining for 5 days in a row. All in all, inventories have declined from 1322.97 tons to 1272.85 tonnes, that is 50.12 tonnes or 3.78%.

    If my reading of my data is correct, the last time (from 05/03/2011 to 05/09/2011) we encountered five days of declining inventories in a row, GLD made an intermediate bottom (5/5/2011 at 143.47), and a powerful rally ensued in the next three months which brought GLD to 174.58 on 08/10/2011 (a gain of 21.68%)., Furthermore, the 5 days in a row inventory "puke" experienced from 05/03/2011 to 05/09/2011 only involved 22.54 tonnes, whereas the current drain exceeds 50 tonnes. Thus, the severity of the current "puke" is not to be underestimated. Here you have a chart depicting those vital 3 months of market action for GLD (the blue rectangle highlights the five consecutive days of inventory losses):



    (click to enlarge)
    GLD's performance after five days of consecutive "pukes"

    The severity of the current "puke" is noteworthy. Either a decent rally (let's say +10%) is staged in the next weeks or things can get serious.

    If you want to know why inventory drawdowns, contrary to conventional wisdom, are bullish for gold, you are advised to go here and especially,here (Victor the Cleaner's blog)

    You can monitor by yourself GLD inventories by going here.

    Speaking about gold, Martin Sibileau has written an excellent article explaining the way the price of gold is suppressed through gold loans. His post relates to current GLD inventory losses, and astute readers can make the connection between too much "paper" gold (i.e. gold loans not 100% backed by gold) and inventory losses (those who want their gold "physical" akin to a run on the bank).

    Readers of this blog may wonder why I have been writing so much about gold of late. The reason is simple: The edifice of "paper" not fully allocated gold is likely to collapse. Nobody can time it, not even the Dow Theorists (at best we will be able to see in the charts that paper gold is going down, but as you should be well aware if you follow this Dow Theory blog, no timing system can spot the change of a trend in real time. Some lag is unavoidable). If such a collapse occurs, it might have dire consequences to the USD and for the whole world. Thus, and in spite of my "technical" inclinations, I keep a close eye on the gold markets.


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

    Today we had the seventh bearish volume day in a row, as today's volume was lower than yesterday's. Thus, advancing prices were met with receding volume.

    Thus, the four bearish volume readings I alluded to yesterday remain fully valid.

    Gold and silver

    In my February 21 post, I was wondering whether gold was making a bottom based on the loss of inventory of GLD.

    Today's action seems to confirm that it is likely that a bottom has been made, as gold and silver closed strongly up. Furthermore, they closed up for four days in a row. This is bullish action, even though they are getting ready for a respite. Although I shed lots of credence to the "puke" indicator (because it makes aprioristic sense), we must bear in mind that the primary and secondary trend of GLD and SLV remains bearish. If the primary bear market is really over we will soon be able to spot a trend change in the charts.

    SIL and GDX (the gold and silver miners ETFs) closed up. Volume readings of some mining stocks seem to denote that a bottom has been made. However, once again, we must bear in mind that the primary and secondary trend remains bearish.


    The Dow Theorist

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