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Manuel Blay
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Investor and Trader As investor I'm deeply influenced by Dow Theory. I focus on the primary trend (1-2 years). My trading is short-term based (avg trade duration 4-5 days).
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Dow Theory Investment
  • Dow Theory Update For April 17: Russell, Of The Dow Theory Letters, Allegedly Ignoring The Dow Theory  0 comments
    Apr 17, 2014 5:52 PM | about stocks: SPY, DIA, IYT, GLD, SLV, GDX
    Dow Theory Update for April 17: Russell, of the Dow Theory Letters, allegedly ignoring the Dow TheoryTrends for stocks and precious metals remain unchanged

    It's been a long time, I didn't write about Richard Russell, of the Dow Theory Letters, as I am busy enough minding my own business and trying to determine the primary trend of the market.

    However, recently Russell wrote that there is "no way of knowing whether the market is hiccupping or whether it is preparing to create the mother of bear markets." He goes on to say, "I feel the safest position is to own physical silver and gold "

    I respectfully disagree.

    We know that the primary trend for stocks is bullish, and it has been so for a very long time (during which Russell vacillated between bullish and bearish opinions not based, of course, on the Dow Theory). We know that even under the classical Dow Theory he is supposed to follow, not even a secondary reaction has been signaled yet (it was under Schannep's flavor). We also know that China (see here) is not under a primary bear market, all the bad news notwithstanding.

    So, while nobody has a crystal ball, we reasonably know that the primary trend for stocks is bullish (and has been so for a considerable long time) and hence being "all in" in gold (while maybe being fundamentally sound), it is not technically sound if we are to believe that Russell is following the Dow Theory. Why catching a falling knife like gold (whose trend under the Dow Theory is bearish)? Personally, I like gold for fundamental reasons and I agree with a substantial stake in physical gold, but from a Dow Theory standpoint I see that gold is in a primary bear market, and stocks are in a primary bull market. And hence, Russell's advice, while maybe eventually sound (even broken clocks are right twice a day) has nothing to do with trend following, technical analysis or the Dow Theory which names his advisory.

    Please mind that I have no objection to a big position in physical gold. However, Russell should clearly state: "Look I feel the Dow Theory has become irrelevant because I expect Armaggedon very soon. Furthermore, I agree with Fofoa's thesis which says that eventually the US will undergo severe or even hyperinflation, and thus I recommend gold, and forget stocks and the Dow Theory." I wouldn't deride such a statement, really, since I see it as a distinct (and maybe distant) possibility. However, even me, ardent follower of Fofoa and, hence, friend of physical gold, cannot deny that the trend for stocks has been up for quite a long time (and during this time, Russell was praising a declining gold while shunning ascending stocks) and hence, I find it risky to have a 100% position in precious metals. If stocks enter a primary bear market (even the "mother of bear markets" one as Russell suspects, the Dow Theory will manage to get us out early enough. If history is to serve us a guide (a very rough one, granted, with no forward assurances) we shouldn't lose more than 10% from the market top.

    US Stocks

    The SPY, Industrials and Transports closed up on increasing volume, which has (at long last) a bullish connotation.

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

    The primary trend was reconfirmed as bullish on October 17th, 2013, and November 13th, 2013 and March 7th, 2014, for the reasons given here, here and here.

    So the current primary bull market signal has survived three secondary reactions.

    The secondary trend is bullish too, as explained here and here.

    Gold and Silver

    SLV closed unchanged, and GLD closed down. For the reasons I explained here, and more recently here the primary trend remains bearish.

    For the primary trend to turn bullish, SLV and GLD should jointly break above the secondary (bullish) reaction highs. As a reminder, the secondary reaction closing highs were made on August 27th, 2013. From such highs the market declined without jointly violating the June 27th, 2013 primary bear market lows.

    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 down. I profusely explained that SIL and GDX set up for a primary bull market signal. You can find all the relevant information from a Dow Theory standpoint here.

    Please mind that a setup is not the real thing. So the primary trend has not turned bullish yet (or maybe "never").

    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 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.

    Sincerely,

    The Dow Theorist

    Themes: Dow Theory Stocks: SPY, DIA, IYT, GLD, SLV, GDX
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