The Market Doesn't Believe Huge Volatility In Gold And Silver Markets Will Last [View article]
Good one! Maybe the market anticipated the end of the declines and accordingly priced lower volatility. Today's outside reversal bars in both gold and silver may prove the volatility thesis right. However, technically the primary trend remains bearish.
Record Physical Demand Will Begin New Gold Investment Cycle [View article]
It is worth mentioning that the secondary trend for GLD and SLV turned bullish on April 29. So while this is not a primary bull market, GLD and SLV setting themselves up for a primary bull market signal as explained here:
Gold Rallies Up Near Important Levels [View article]
Actually, gold latest rally together with that of silver has turned the secondary trend bullish and sets gold up for a primary bull market as explained here:
Dow Theory Special Issue: A New Answer To The New Low Observer (NLO) [View instapost]
Congrats. It clearly shows you are great investors, since most of the fund managers had a very hard time in outperforming the S&P during this time period. The final goal is not to get lost in endless discussions but in being able to protect capital and, with some luck and knowledge, outperform the markets. This has been achieved by the NLO.
Since you show 7 portfolios, I deduct:
a) it is not plain Dow Theory (of any flavor you take), as it is nimpossible o obtain 7 divergent results.
b) It has been made by picking up specific stocks (VERY well chosen) and not the indices, which is what I and most Dow Theorists of the “classical/Rhea” or Schannep persuasion follow for benchmarking.
The sentence you quote from Charles Dow refers to the general principle of buying value, which may prove profitable even under adverse conditions. Charles Dow distinguished between two ways of investing: (a) one based on values, as you rightly note; (b) another one based on trends using stops for pprotection,which later Rhea systematized and refined (or perverted according to Schaefer).
S.A. Nelson (Chapter VI of "The ABC of Stock Speculation) based on Charles Dow editorials makes this distinction between these two forms of investing.
What we have been debating here was the "classical/Rhea Dow theory," which is not concerned with values but with trends. Thus, with all due respect, NLO is mixing concepts.
I am not saying that finding good value stocks as per Dow's guidance is futile. I acknowledge NLO's investment acumen by achieving such outstanding results.
However, what we have been discussing here was the "classical/Rhea" version of the Dow Theory (based on trends) and not the writings of Charles Dow based on finding good values. To put in bluntly: It is like comparing the performance of a value investor against the performance of a trend follower.
Thus, an apples to apples comparison and elementary fair play require that:
a) We compare “equals” as to the method of investment (i.e. Dow Theory as trend following and not Dow's writings as a value investor).
b) We compare performance achieved with indices (i.e. SPY or DIA) in order to benchmark and not indices with stocks.
Dow Theory Update For Feb 22: Precious Metals And Stocks Up [View instapost]
Without prejudice to the full post that will follow further analyzing your observations, I feel it is necessary to clarify one thing:
Not even the best trader/investor in the world has significant and constant returns guaranteed in each position he takes. This is especially true when it comes to technical analysis (i.e. Dow Theory).
Thus, each trade/investment/position is unique. Some will result in small wins others will result in big gains (few of them), and some others will result in small losses (hopefully).
Furthermore, as I have written extensively, the Dow Theory (and in general, all market-timing systems) tend to underperform buy and hold in good times. The outperformance comes in bad times (by losing less). Thus, as it is explained here (http://bit.ly/13JMZcV ) the classical Dow Theory underperformed buy and hold during the 1982-1999 secular bull market. It must have been very trying to underperform most of the years during almost two decades. However, I would readily subscribe to such “underperformance” knowing that this is the price I pay to be protected when the going gets tough.
Thus, small gains are not to be ridiculed. Furthermore, even if all positions ended with small losses, this wouldn’t impair the validity of the two market calls I made (one for stocks, once for PMs). I insist even the classical/Rhea Dow Theory tends to underperform buy and hold most of the time, which implies that the investor is always entering and exiting the trade “too” late. Accordingly, even for the classical Dow Theory most of the trends lack sufficient magnitude to enable the build-up of sizeable gains. But there is nothing wrong with this. The beauty of any Dow Theory flavor (and even a modest moving average) is to change the risk profile. One wins less in good times but losses less in bad times.
Any trader and seasoned investor worth his salt, knows that in the very moment one leaves buy and hold, the profile of the trades looks as follows: Many minor losses and minor gains (which allows the investor to stay on the game) and some isolated big gains. This also applies to the investments made according to the Dow Theory (be it the “classical/Rhea” or the “Schannep’s version).
If any Dow Theory amateur is deterred from adopting the Dow Theory because one transaction was not able to beat 1-year CD, then this amateur will remain an amateur for ever because he lacks the wits to understand (and the stomach to digest) the nature of long periods of underperformance, which is the price to pay for long term outperformance (both in absolute returns and risk-adjusted). If any single trade resulted in guaranteed money, then technical analysis and the Dow Theory would self destruct. Everybody would be following it. Precisely, what separates the winners from the quitters is the ability to understand the nature of underperformance, as merely the price to pay to reduce significantly risk and even outperform in the long run.
As to the duration of trends, and, more importantly, profits extracted from each trend as determined by the classical Dow Theory, please allow me some time to come up with the promised new post. Time is always in short supply. It can be a very interesting study.
The trend (more exactly:“position”) for gold and silver whose end was signaled on Dec 20, 2012 ended with modest gains for silver as can be found here:
Only gold ended up with modest losses. By the way, and bearing in mind the debacle for gold and silver in the last few weeks, it doesn’t seem so unwise to proclaim that a bear market was signaled for both precious metals on December 20, 2012.
As to the rest of the issues, you raise (which basically were already answered here: http://bit.ly/RMP9rk ), I will address them in a new post, as I feel it is a good exercise for us all to, once again, analyze your comments and discuss them accordingly.
addresses your remarks. A careful reading of that post explains your comments.
At the risk of being repetitive, it is worth insisting that in real time, no technical analysis system can call the turn of the trend. Thus, the existing trend is presumed to exist until negated by a new signal. Of course, the new signal will not come in real time and thus, by definition, the technical analyst (Dow Theorists of all “flavors” included) will always be “late” in spotting the first and last stages of a trend.
A “real time” example, may be helpful to illustrate what I try to convey.
Currently, the stock market is near its highs. In “real time” our Dow Theory readings tell us that the primary trend is bullish. However, let’s imagine that the last highs we have seen were the “top” of the primary bull market and that recent price weakness were the start of a primary bear market. Is there any way to know that the trend has changed? No, there isn’t. Under Dow Theory, we see a primary bull market and a modest pullback in the making. However, this is not enough to declare the onset of a new primary bear market.
So what I am supposed to do on February 25, 2013 (real time)? I am supposed to assume that the primary trend continues bullish until I get a primary bear market signal.
However, there is no written guarantee that the primary trend will hold. Maybe we experience a secondary reaction and after a minor rally, the secondary reaction lows get violated in which case a primary bear market will be signaled in the future. If such were the case, then we should say that the top of the primary bull market was made on Feb 19, 2013 and since that date a primary bear market was under way.
Would I have been wrong in applying the Dow Theory by writing on Feb 25, 2013 that the primary trend was bullish? No, I don’t think so. I real time, i.e. today, the only thing I can see on the charts is a primary bull market. If subsequent market action shows that the bull market was death as from February 19, so be it, then I will change and say that the primary trend turned bearish. However, I feel it would be unfair, to say that the Dow Theory or if it gets “ad hominem," this Dow Theorist was wrong because he was insisting that the trend was up whereas the trend had turned down. Of course, when there is a change in trend, there will always be some percentage points lost to the Dow Theorist. This is the nature of the game.
Please mind that I constantly use the words “flashed” or “signaled." I always write that a primary bull/bear market was “signaled” on date “XX”. By using these verbs, I am meaning that the trend started prior to the “signal” date, but it became first recognizable when the “signal” was flashed in the charts. Thus, there is a lag between the onset of a new trend and its signal and during such a lapse of time (between trend change and subsequent signal) any technical analyst will be “wrong” (“wrong” in the sense of not being aligned with the new trend, but very “right” in the sense of properly applying his technical tools).
However, the Dow Theory track record (http://bit.ly/15KgAH2 ) unmistakably shows that in spite of getting “late” or temporarily being out of tune when the trend changes, in the long term it is clearly a wonderful device for keeping investors safe and even slightly outperforming the stock market.
As to the final question, which I quote:
“Leaving aside the points that you've made regarding Dow Theory getting an investor out of the market in time to avoid major losses, is it customary for a primary trend to lead an investor to potential losses if they don't happen to catch every secondary trend for trading purposes?”
End of quote.
I don’t quite understand the question. Would you be so kind to reformulate it?
With my defective understanding of your question, I can say: I am not interested in trading the secondary trend (neither is Schannep, nor, for the most part, Russell). The secondary trend is only of interest in order to define the highs and lows to be penetrated or violated for a primary bull (bear) market signal to be signaled. However, the decision to be in or outside the market is made exclusively based on the primary trend. All “track record” figures I have posted are based exclusively in following the primary trend. As it is clear from the track record, by following the primary trend, the investor would have been well served in the past. The clearest example is the Dow Theory performance during the secular 1966-1981 bear market. (http://bit.ly/13JMZcV )
I hope that this information is useful to you and to all readers.
The so-called "puke" indicator for GLD flashed a buy signal on February 20. GLD lost 20.77 tones of gold on February 20. On Feb 21, and additional 9 tonnes of gold were lost. Contrary to conventional wisdom, declining inventory is bullish as it is explained here:
Sorry Bears, We're In A Secular Bull Market [View article]
I have my qualms as to whether we are in a secular bull market. However, if we narrow our time frame a bit, we are clearly in a primary bull market whose average duration is more than one year. Such primary bull market was clearly signaled on January 18 (classical Dow Theory) or January 2 (Schannep's Dow Theory flavor) as it is explained here in SA:
Gold And U.S. Government Debt: Highly Correlated [View article]
Maybe this instablog on SA can help you change your mind and realize that the Dow Theory is alive and well. Not only it outperformed buy and hold during the last +115 years but, more importantly, it did an excellent job keeping investors safe during bear markets.
Data Clashing With Traders' View Of U.S. Economy's Prospects [View article]
I quote:
“In my opinion, the way to navigate this divergence is to stay with the market trend but more aggressively manage risk”
End of quote.
I couldn’t agree more. One cannot fight the trend but at the same time one must be able to get out on a timely manner if need be. The tough question is determining the right time to run for the exits.
My two cents on the Dow Theory. There is debate about the proper interpretation of the Dow Theory because Russell suddenly changed his mind and said that the Industrials must exceed their all-time high to declare the primary trend as bullish. However, with all due respect to Russell, this is plain wrong. The highs to be exceeded are the last recorded secondary reaction highs and such highs were made by the Industrials on October 5, 2012.
It is true that nowadays there are two slightly different kinds of Dow Theorists. Some of them follow the “classical/Rhea” version, and others follow a more reactive slightly shorter term oriented “Schannep” version. However, under both Dow Theory “schools," a primary bull market was signaled. The Schannep’s version, more reactive, did it on January 2. The “classical” Dow Theory did it on January 18. You can fin more details as to each bull market signal in SA under these links:
Gold And U.S. Government Debt: Highly Correlated [View article]
Interesting article. One thing is clear: the charts don't lie, and a primary bear market for gold was signaled on 12/20/2012 according to the Dow Theory. Currently, gold, silver and their miners are showing long term weakness, which suggests that your last chart may be right.
The 4 Totally Bad Bears: New Update [View article]
Good article. I agree with TP. Deprived of some kind of market timing (be it a modest 200 MA or the more sophisticated Dow Theory) investing in the markets is a losing game long term killing draw downs. Of course, if the investor doesn't need to touch his capital during such draw downs, then he can survive and even prosper in the long run. However, real investors have capital in order to "touch" it one day. And normally the need for tapping on one's capital is particularly acute when crisis and depressions strike. So most people will need to draw on their savings at the worst possible time. Hence the need to keep some powder dry (i.e. by timing the market and being in cash) when such killing bear markets occur.
The Market Doesn't Believe Huge Volatility In Gold And Silver Markets Will Last [View article]
Gold: Double Bottom Or Double Trouble? [View article]
http://seekingalpha.co...
Regards
Record Physical Demand Will Begin New Gold Investment Cycle [View article]
http://seekingalpha.co...
Gold Rallies Up Near Important Levels [View article]
http://seekingalpha.co...
Dow Theory Special Issue: A New Answer To The New Low Observer (NLO) [View instapost]
Since you show 7 portfolios, I deduct:
a) it is not plain Dow Theory (of any flavor you take), as it is nimpossible o obtain 7 divergent results.
b) It has been made by picking up specific stocks (VERY well chosen) and not the indices, which is what I and most Dow Theorists of the “classical/Rhea” or Schannep persuasion follow for benchmarking.
The sentence you quote from Charles Dow refers to the general principle of buying value, which may prove profitable even under adverse conditions. Charles Dow distinguished between two ways of investing: (a) one based on values, as you rightly note; (b) another one based on trends using stops for pprotection,which later Rhea systematized and refined (or perverted according to Schaefer).
S.A. Nelson (Chapter VI of "The ABC of Stock Speculation) based on Charles Dow editorials makes this distinction between these two forms of investing.
What we have been debating here was the "classical/Rhea Dow theory," which is not concerned with values but with trends. Thus, with all due respect, NLO is mixing concepts.
I am not saying that finding good value stocks as per Dow's guidance is futile. I acknowledge NLO's investment acumen by achieving such outstanding results.
However, what we have been discussing here was the "classical/Rhea" version of the Dow Theory (based on trends) and not the writings of Charles Dow based on finding good values. To put in bluntly: It is like comparing the performance of a value investor against the performance of a trend follower.
Thus, an apples to apples comparison and elementary fair play require that:
a) We compare “equals” as to the method of investment (i.e. Dow Theory as trend following and not Dow's writings as a value investor).
b) We compare performance achieved with indices (i.e. SPY or DIA) in order to benchmark and not indices with stocks.
Regards.
Dow Theory Update For Feb 22: Precious Metals And Stocks Up [View instapost]
The promised in-depth analysis concerning the observations made by the NLO is to be found here:
http://bit.ly/Y6jazP
and here:
http://bit.ly/VW82ZA
Have a nice weekend.
Dow Theory Update For Feb 22: Precious Metals And Stocks Up [View instapost]
Not even the best trader/investor in the world has significant and constant returns guaranteed in each position he takes. This is especially true when it comes to technical analysis (i.e. Dow Theory).
Thus, each trade/investment/position is unique. Some will result in small wins others will result in big gains (few of them), and some others will result in small losses (hopefully).
Furthermore, as I have written extensively, the Dow Theory (and in general, all market-timing systems) tend to underperform buy and hold in good times. The outperformance comes in bad times (by losing less). Thus, as it is explained here (http://bit.ly/13JMZcV ) the classical Dow Theory underperformed buy and hold during the 1982-1999 secular bull market. It must have been very trying to underperform most of the years during almost two decades. However, I would readily subscribe to such “underperformance” knowing that this is the price I pay to be protected when the going gets tough.
Thus, small gains are not to be ridiculed. Furthermore, even if all positions ended with small losses, this wouldn’t impair the validity of the two market calls I made (one for stocks, once for PMs). I insist even the classical/Rhea Dow Theory tends to underperform buy and hold most of the time, which implies that the investor is always entering and exiting the trade “too” late. Accordingly, even for the classical Dow Theory most of the trends lack sufficient magnitude to enable the build-up of sizeable gains. But there is nothing wrong with this. The beauty of any Dow Theory flavor (and even a modest moving average) is to change the risk profile. One wins less in good times but losses less in bad times.
Any trader and seasoned investor worth his salt, knows that in the very moment one leaves buy and hold, the profile of the trades looks as follows: Many minor losses and minor gains (which allows the investor to stay on the game) and some isolated big gains. This also applies to the investments made according to the Dow Theory (be it the “classical/Rhea” or the “Schannep’s version).
If any Dow Theory amateur is deterred from adopting the Dow Theory because one transaction was not able to beat 1-year CD, then this amateur will remain an amateur for ever because he lacks the wits to understand (and the stomach to digest) the nature of long periods of underperformance, which is the price to pay for long term outperformance (both in absolute returns and risk-adjusted). If any single trade resulted in guaranteed money, then technical analysis and the Dow Theory would self destruct. Everybody would be following it. Precisely, what separates the winners from the quitters is the ability to understand the nature of underperformance, as merely the price to pay to reduce significantly risk and even outperform in the long run.
As to the duration of trends, and, more importantly, profits extracted from each trend as determined by the classical Dow Theory, please allow me some time to come up with the promised new post. Time is always in short supply. It can be a very interesting study.
Thx for bearing with me.
Best Regards
Dow Theory Update For Feb 22: Precious Metals And Stocks Up [View instapost]
Contrary to your statement not all trends signaled ended up in losses. Facts are:
The trend (more exactly: “position”) for stocks whose end was signaled in Nov 2012 ended with modest gains, as any reader can see here:
http://bit.ly/ZGreOD
The trend (more exactly:“position”) for gold and silver whose end was signaled on Dec 20, 2012 ended with modest gains for silver as can be found here:
http://bit.ly/YxXDQD
Only gold ended up with modest losses. By the way, and bearing in mind the debacle for gold and silver in the last few weeks, it doesn’t seem so unwise to proclaim that a bear market was signaled for both precious metals on December 20, 2012.
As to the rest of the issues, you raise (which basically were already answered here: http://bit.ly/RMP9rk ), I will address them in a new post, as I feel it is a good exercise for us all to, once again, analyze your comments and discuss them accordingly.
So readers of this blog stay tuned.
Best Regards
Dow Theory Update For Feb 22: Precious Metals And Stocks Up [View instapost]
I feel that my post http://bit.ly/RMP9rk
addresses your remarks. A careful reading of that post explains your comments.
At the risk of being repetitive, it is worth insisting that in real time, no technical analysis system can call the turn of the trend. Thus, the existing trend is presumed to exist until negated by a new signal. Of course, the new signal will not come in real time and thus, by definition, the technical analyst (Dow Theorists of all “flavors” included) will always be “late” in spotting the first and last stages of a trend.
A “real time” example, may be helpful to illustrate what I try to convey.
Currently, the stock market is near its highs. In “real time” our Dow Theory readings tell us that the primary trend is bullish. However, let’s imagine that the last highs we have seen were the “top” of the primary bull market and that recent price weakness were the start of a primary bear market. Is there any way to know that the trend has changed? No, there isn’t. Under Dow Theory, we see a primary bull market and a modest pullback in the making. However, this is not enough to declare the onset of a new primary bear market.
So what I am supposed to do on February 25, 2013 (real time)? I am supposed to assume that the primary trend continues bullish until I get a primary bear market signal.
However, there is no written guarantee that the primary trend will hold. Maybe we experience a secondary reaction and after a minor rally, the secondary reaction lows get violated in which case a primary bear market will be signaled in the future. If such were the case, then we should say that the top of the primary bull market was made on Feb 19, 2013 and since that date a primary bear market was under way.
Would I have been wrong in applying the Dow Theory by writing on Feb 25, 2013 that the primary trend was bullish? No, I don’t think so. I real time, i.e. today, the only thing I can see on the charts is a primary bull market. If subsequent market action shows that the bull market was death as from February 19, so be it, then I will change and say that the primary trend turned bearish. However, I feel it would be unfair, to say that the Dow Theory or if it gets “ad hominem," this Dow Theorist was wrong because he was insisting that the trend was up whereas the trend had turned down. Of course, when there is a change in trend, there will always be some percentage points lost to the Dow Theorist. This is the nature of the game.
Please mind that I constantly use the words “flashed” or “signaled." I always write that a primary bull/bear market was “signaled” on date “XX”. By using these verbs, I am meaning that the trend started prior to the “signal” date, but it became first recognizable when the “signal” was flashed in the charts. Thus, there is a lag between the onset of a new trend and its signal and during such a lapse of time (between trend change and subsequent signal) any technical analyst will be “wrong” (“wrong” in the sense of not being aligned with the new trend, but very “right” in the sense of properly applying his technical tools).
However, the Dow Theory track record (http://bit.ly/15KgAH2 ) unmistakably shows that in spite of getting “late” or temporarily being out of tune when the trend changes, in the long term it is clearly a wonderful device for keeping investors safe and even slightly outperforming the stock market.
As to the final question, which I quote:
“Leaving aside the points that you've made regarding Dow Theory getting an investor out of the market in time to avoid major losses, is it customary for a primary trend to lead an investor to potential losses if they don't happen to catch every secondary trend for trading purposes?”
End of quote.
I don’t quite understand the question. Would you be so kind to reformulate it?
With my defective understanding of your question, I can say: I am not interested in trading the secondary trend (neither is Schannep, nor, for the most part, Russell). The secondary trend is only of interest in order to define the highs and lows to be penetrated or violated for a primary bull (bear) market signal to be signaled. However, the decision to be in or outside the market is made exclusively based on the primary trend. All “track record” figures I have posted are based exclusively in following the primary trend. As it is clear from the track record, by following the primary trend, the investor would have been well served in the past. The clearest example is the Dow Theory performance during the secular 1966-1981 bear market. (http://bit.ly/13JMZcV )
I hope that this information is useful to you and to all readers.
Best regards.
Is Gold Finished? [View article]
http://seekingalpha.co...
So it is likely that, at least temporarirly, a bottom is in the making
Sorry Bears, We're In A Secular Bull Market [View article]
http://seekingalpha.co...
Thus, the benefit of doubt is to be given to bullish action.
Gold And U.S. Government Debt: Highly Correlated [View article]
http://seekingalpha.co...
Regards
Data Clashing With Traders' View Of U.S. Economy's Prospects [View article]
“In my opinion, the way to navigate this divergence is to stay with the market trend but more aggressively manage risk”
End of quote.
I couldn’t agree more. One cannot fight the trend but at the same time one must be able to get out on a timely manner if need be. The tough question is determining the right time to run for the exits.
My two cents on the Dow Theory. There is debate about the proper interpretation of the Dow Theory because Russell suddenly changed his mind and said that the Industrials must exceed their all-time high to declare the primary trend as bullish. However, with all due respect to Russell, this is plain wrong. The highs to be exceeded are the last recorded secondary reaction highs and such highs were made by the Industrials on October 5, 2012.
It is true that nowadays there are two slightly different kinds of Dow Theorists. Some of them follow the “classical/Rhea” version, and others follow a more reactive slightly shorter term oriented “Schannep” version. However, under both Dow Theory “schools," a primary bull market was signaled. The Schannep’s version, more reactive, did it on January 2. The “classical” Dow Theory did it on January 18. You can fin more details as to each bull market signal in SA under these links:
http://seekingalpha.co...
http://seekingalpha.co...
So, IMHO, according to the Dow Theory the primary trend is unambiguously bullish.
Regads.
Gold And U.S. Government Debt: Highly Correlated [View article]
The 4 Totally Bad Bears: New Update [View article]