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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 June 12: GDXJ Displays Bullishness For Gold Stocks And Gold  0 comments
    Jun 12, 2014 5:44 PM | about stocks: SPY, DIA, IYT, GLD, SLV, GDX, SIL

    Stocks close down

    US Stocks

    The SPY, Transports and Industrials closed down. Recent declines are healthy, as the market needed to digest its overbought status. It is too soon, though, to spot a secondary reaction against the primary bullish trend.

    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 strongly up. 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. However, the secondary bullish reaction against such old primary bear market is also getting quite old. Tie.

    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.

    I see that GDXJ (junior gold miners ETF) is displaying more strength than GDX (normal gold miners ETF); in past instances GDXJ greater strength lent credibility to a rally. In other words, when speculators believe good times are ahead, they tend to favor the more speculative GDXJ. On the other hand, when it is time to be defensive, GDXJ declines more than GDX. Look at the chart below. It plots GDXJ (top) and GDX (bottom). The red line displays the relative strength. An ascending line shows GDXJ being stronger. A declining line shows GDX being stronger (or at least less weak). The chart shows:

    1) GDXJ (and also GDX) bottomed on 05/28 (shown by the blue arrow). The relative strength line bottomed on 04/17 (pink arrow), this is a clear non-confirmation. Lower prices in GDXJ where not confirmed by a lower RS line.

    2) During the last decline GDXJ was declining less than GDX. This is usually bullish because the norm tends to be GDXJ declining in unison with the relative strength line, which means that declines affect more GDXJ than GDX. So the last decline was the exception to the rule: GDXJ declined less.

    3) The last rally has literally made the RS line to explode on the upside, which means that GDXJ is displaying great relative strength.

    4) Finally (not shown on the chart), GDXJ has experienced a surge in volume (not matched by GDX), which lends credence to the current rally. Please mind that I speak of "rally" (which means days to weeks). I am not talking of a new primary trend. Plot yourself a chart and judge for yourself.

    All in all, if we couple the non-confirmation, with a now ascending RS line, and supporting volume, we can conclude that technically the odds favor higher prices in the days or even weeks ahead for GDXJ and, by implication, for GDX and gold.

    (click to enlarge)
    GDXJ's action says that the gold miners may have bottomed (at least short term for the coming days and even weeks)

    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.


    The Dow Theorist

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