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 May 10: SPY And Industrials Make Higher Highs  0 comments
    May 10, 2013 4:46 PM | about stocks: SPY, DIA, IYT, GLD, SLV, GDX, SIL

    Gold makes lower low unconfirmed by silver

    What lies behind gold's decline?

    One Bad Adder is another follower of FOFOA's blog whose comments, in my opinion, deserve to be heard. In this comment (posted on May 10 at 12:00 AM), he summarily explains the real cause behind gold's decline. Contrary to conventional wisdom, gold went down not because the owners of physical gold were eagerly selling but, rather, because, avid buying of physical endangered the physical/paper gold ratio of bullion banks. Thus, the run on GLD.

    In a similar vein, Casey Research has penned a very interesting article named "Why there may be a lot less gold than we realize," which displays hair-curling statistics. You can read the article here.


    The SPY, Industrials and Transports closed up. The SPY and Industrials made a higher high unconfirmed by the Transports. The primary and secondary trend is bullish.

    Today volume contracted as prices advanced, which is bearish. The overall pattern of volume is neutral, so I don't derive many clues about likely market direction from volume.

    Gold and Silver

    SLV closed up. GDX closed down. Neither GLD nor SLV has experienced a pullback from their recent highs that qualifies as a valid set up for a subsequent primary bull market signal. In other words, the rally that ended on 04/29/2013 (NYSEARCA:SLV) and 04/30/2013 (NYSEARCA:GLD) exceeded the minimum percentage requirements 6% (SLV) and 3% (GLD) to qualify as a secondary reaction and thus label the secondary trend as bullish. For more information, please read this post in this Dow Theory blog. However, what follows after that rally is important. Either gold or silver (or both) must experience a pullback of at least 3% (GLD) or 6% (SLV). Following such a pullback they must break above the rally highs (04/29 for SLV and 04/30 for GLD) for a primary bear market signal to be displayed.

    Therefore, GLD and SLV are caught in no man's land. They have not gone low enough to violate the last recorded primary bear market lows (04/15/2013), which would re-confirm the primary bear market and turn the secondary trend as bearish, nor have gone low enough to create the precondition for a subsequent primary bull market signal.

    Thus, we have to wait. Subsequent market action will tell us whether we get a primary bull market or whether the current primary bear market will be reconfirmed.

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


    The Dow Theorist

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