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 February 13: Gold, Silver, GDX And SIL Make Higher Closing Highs  0 comments
    Feb 13, 2014 5:16 PM | about stocks: SPY, DIA, IYT, GLD, SLV, GDX, SIL

    Stocks remain caught in nowhere's land

    Let's begin with our Dow Theory commentary for today.

    US stocks

    The Transports, the Industrials and the SPY closed up.

    Volume was bearish, as higher prices were not supported by expanding volume. The overall pattern of volume remains bearish. Furthermore, the high volume we saw when prices were declining could turn into supply as now prices advance and hence make the rally stall. In other words, if volume had shrunk when prices approached their early February lows, then we would have to fear less profit taking as prices rally.

    Furthermore (please mind that this bears significance only for the short-term, i.e. 2-10 days), I see one of my short-term pet indicators, namely, the ratio of SPY's volume to the total volume of the individual S&P 500 stocks has dramatically declined, showing that volume on the SPY has significantly contracted more than that in the underlying stocks (which tends to show that speculative fever is drying out as short term moves are fueled by speculators). Such divergence tends to signal a short-term top or, at best, range-bound price action. In addition to that the TRIN seems to be pointing at a short term top.

    Of course, all the above musings have nothing to do with the Dow Theory (except the observation that volume expanded on declines and contracted during the present rally). I feel almost embarrassed to clutter this blog with volume observations, which are not directly related to the Dow Theory and are only marginally (as volume qualifies but doesn't dictate price action) relevant. However, traders make money "on margin" (pun intended) and hence," marginal" information is significant for the short term trader.

    In any instance, the market remains caught in a technically complicated juncture. If the February lows were violated a primary bear market would be signaled. On the other hand, if the last recorded closing lows where broken out, the primary bull market would be reconfirmed. You can gather more information about the current juncture, here.

    Here you have an updated chart depicting the current stalemate. The blue and red horizontal lines say it all.

    (click to enlarge)
    Critical juncture: Soon should the primary bull market be reconfirmed or a new primary bear market be signaled

    Gold and Silver

    SLV and GLD closed up. For the reasons I explained here, and more recently here, the primary trend remains bearish. Here I analyzed the primary bear market signal given on December 20, 2012. The primary trend was reconfirmed bearish, as explained here. The secondary trend is bullish (secondary reaction against the primary bearish trend), as explained here.

    On a statistical basis the primary bear market for GLD and SLV is getting old. More than one year since the bear market signal was flashed has elapsed. However, I am extremely skeptical as to the predictive power of statistics. I prefer price action to guide me, and the Dow Theory tells me that the primary trend remains bearish until reversed.

    Furthermore, the June 27, 2013 lows remain untouched. The longer this situation lasts, the higher the odds that something might be changing. But I wait for the verdict of price action.

    As to the gold and silver miners ETFs, SIL and GDX closed up. The secondary trend is bullish, as explained here. In spite of short term bullish accomplishments, SIL and GLD are not in a primary bull market.

    The primary trend for SIL and GDX remains, nonetheless, bearish, as was profusely explained here and here.


    The Dow Theorist

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