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 July 19: SPY And Transports Make Higher Highs  0 comments
    Jul 20, 2013 7:56 AM | about stocks: SPY, DIA, IYT, GLD, SLV, GDX, SIL

    GDX and SIL extend secondary reaction against primary bear market

    I have just posted an in-depth explanation of the entrails of yesterday's primary bull market signal for stocks. You can find it here.

    Richard Russell noticed the Transports new high (and all-time high)

    Richard Russell, of the Dow Theory Letters, described yesterday's action by the Transports as "sensational." While he has not expressly mentioned that such higher high is bullish as it re-confirms the ongoing primary bull market, it seems he is turning less bearish on stocks. He advised his subscribers to stick to the DIA (Industrials ETF), and gold.

    My two cents:

    · I agree with a long position in stocks, as the primary trend turned bullish yesterday. My nuance: Such long commitment is on a cyclical bull market basis, not on a secular one.

    · As to gold, I agree with Russell provided such gold is held on a secular basis, and for very fundamental (which may be proven wrong) reasons. Those with a cyclical market inclination, should trade paper gold and know that currently the primary trend of gold is bearish.


    The SPY and Transports closed up. The Industrials closed down.

    The primary and secondary trend is bullish, as explained here, and more in-depth here.

    Today's volume was markedly higher than yesterday's, which has a bullish connotation. As you can see on the chart below, we have seen bullish volume days for the last three days. Furthermore, the latest rally has been supported by expanding volume (blue ascending trend line for volume at the bottom of the chart). This makes me qualify the volume situation as neutral. I don't dare to qualify it as bullish, since I am mindful of the bearish volume situation, which was evident until three days ago, which was explained here. Recent volume action merely serves me to adopt a neutral stand.



    (click to enlarge)
    Volume is slowly becoming neutral

    Gold and Silver

    SLV and GLD closed up. The primary trend is bearish, as explained here and reconfirmed bearish here. Furthermore, the secondary trend remains bearish too.

    GDX and SIL, the gold and silver miners ETFs closed up, and jointly bettered their 07/16 secondary reaction highs. Such breakout of the last recorded secondary reaction highs, doesn't qualify as a primary bull market signal, since the two days pullback didn't reach the minimum volatility threshold to be considered meaningful under the Dow Theory (more about the minimum threshold here). Thus, GDX only lost -3.3% and SIL -2.77% from the 07/16 highs, which is not enough to qualify as a relevant pullback given their high daily volatility. All in all, the secondary reaction against the primary bearish trend continues running its course.

    The primary trend is bearish, as explained here and reconfirmed bearish here.

    The secondary trend for GDX and SIL is bullish, as explained here.

    Here you have a chart updating the extent (blue rectangles) of the ongoing secondary reaction.



    (click to enlarge)
    A beautiful bullish secondary reaction against the primary bearish trend for both SIL and GDX.


    The Dow Theorist

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