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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 May 9: Industrials Made A Higher Closing High Unconfirmed  0 comments
    May 9, 2014 5:03 PM | about stocks: SPY, DIA, IYT, GLD, SLV, GDX, G
    Speaking the Unspeakable

    This is the title of the article penned by John Rekenthaler, Vice President of Research of Morningstar. So, what's the Unspeakable? Answer: The validity of technical analysis as a legitimate investment tool. The article makes clear that technical investing, and particularily, momentum investing definitely tends to put investors on the right side of the market. Being the Dow Theory a subset of technical analysis (and a very brilliant subset, indeed), investors should humble themselves, and heed the signals displayed by the markets, which boils down to: "Don't fight the trend"

    Of course, relying on technical analysis implies relinquishing our ego; something which is too much to bear for most investors.

    US Stocks

    The SPY and Industrials, and Transports closed up, and the Industrials made a higher high (unconfirmed). While today's higher high by the Industrials confirms the higher high made some days ago by the Transports (see here and here), and this is a good sign, as higher highs have been confirmed by at least one index, I don't like that:

    a) It took a good deal of days for the Industrials to confirm.

    b) Today's higher high by the Industrials hasn't been confirmed by either the SPY or the Transports.

    Take a look at the chart below, which says it all:

    (click to enlarge)
    Industrials made a higher closing high unconfirmed

    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, 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 GDX 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 GDX 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, G
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