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 April 1: Silver Makes Lower Lows Unconfirmed By Gold  0 comments
    Apr 1, 2013 4:51 PM | about stocks: SPY, DIA, IYT, GLD, SLV, GDX, SIL

    Stocks weak

    "Least loved bull market in modern history."

    The systematic relative strength blog quoting USA Today reminds us that the current bull market is the least loved bull market in modern history. Here you have the details. If we take a contrarian view, this implies that it is still far from topping.

    From a Dow Theory perspective, we know that the "buy signal" was given on January 2, 2013 (Schannep's version) or January 18, 2013 (Classic/Rhea version). We also know that primary bull markets tend to last ca. 1-2 years according to Dow Theory signals. Thus, if the empirical record is to serve us as a guide, the current primary bull market is still "young" and, hence, while nothing is carved in stone, the odds favor the continuance of the primary bull market. However, we should distinguish between a primary bull market and a secondary reaction within a primary bull market. Thus, while it is probable that a secondary reaction may be developing, the youth of the current primary bull market advocates for continuance of the primary bull market.


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

    Today's volume was higher than Thursday's (last trading day), which makes it a bullish volume day. While the overall patter of volume is bearish, the last two days have witnessed bullish volume.

    Gold and silver

    Silver made a lower low unconfirmed by GLD which closed up. Lower lows unconfirmed tend to be deceptive. Thus, for the primary bear market in SLV and GLD to be reconfirmed, it is necessary that GLD makes lower lows. Here you have an updated chart of SLV and GLD.



    (click to enlarge)
    New low in silver unconfirmed by gold

    Please mind that the SLV/GLD ratio (purple line) shows that gold is stronger than silver. Normally, healthy bull markets in the precious metals entail strength in silver, which, until now, is clearly absent. So silver is acting like a drag on gold.

    According to the Dow Theory, we have to stick to the existing trends until a new signal makes us change our mind. Thus, the primary and secondary trend for SLV and GLD remains bearish.

    GDX and SIL, the gold and silver miners ETFs, closed down. The primary and secondary trend remains bearish.


    The Dow Theorist

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