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Dow Theory Update For Oct 22: No Changes In Trends.

|Includes: DIA, GDX, GLD, IYT, SIL, SLV, SPDR S&P 500 Trust ETF (SPY)
Primary trend bullish and secondary trend bearish in stocks and precious metals.

Let's get started with our Dow Theory analysis for today in this blog.

The Industrials and the SPY closed minimally up today. The Transports taking a breather closed down today. Technically, nothing has changed.

We know that trends are made by sheer price action, and that volume merely serves to qualify them. Bearing this in mind, I'd like to say what follows about volume.

Today's volume was lower than Friday's. Since the SPY was up, this makes a bearish volume day. The up movement was not supported by expanding volume. So we have had three bearish volume days in a row.

Today I conduct an alternative volume analysis. One based on volume at significant pivot points. I am indebted to L.A. Little for his insights into this matter. While no strict Dow Theory, Little's insights concerning volume are worth considering.

I have put additional arrows in those pivot days. The lower arrow is the arrow you are already used to see: bearish or bullish volume day. The arrow on top represents the volume indication derived at those pivot points. Let's get started.

The first low in this correction was made on 09/26/2012. Volume at this low was higher than the volume made on the preceding pivot low of 09/10/2012. This has a bearish implication (short term) since the downward movement in the new pivot was stronger. This is why I placed a red arrow.

From that point, the market went up until 10/05/2012. At this pivot high, volume was much lower than at the preceding pivot high of 09/14/2012. This accounts for the red arrow. A second bearish sign.

On 10/12/2012 we see a new pivot low. Volume was lower than the volume of the prior pivot low of 09/26/2012. This is a bullish sign, so I placed a blue arrow.

The last pivot high was made on 10/17/2012. Volume on that day was higher than the volume made at the preceding pivot high 10/05/2012. So I placed a blue arrow.

As to the latest low made last Friday, it is too early to tell. If today had been a down day, then I could infer more definite conclusions.

However, we can infer the following conclusions:

The first two pivots were bearish.

The last two pivots were bullish.

So whereas the overall reading is neutral, the sequence of the pivots seems to show that pattern of volume is becoming bullish. Furthermore, the high reading of volume of last Friday 10/19/2012 could well be the final exhaustion volume burst. Pity that today was not a down day! I could have derived more definite conclusions.

Bottom line:

Long term volume is bullish, since volume went up along with the primary upswing until 09/14/2012.

Volume during the secondary reaction has been mixed. But volume at pivots seems to suggest that the secondary reaction may be nearing its end.

However, I insist volume may serve to increase our accuracy on the margin. Price action is king.

Here you have an updated chart:



Volume in pivots: slightly bullish

Gold, silver and their respective miners ETFs all of them closed up. Technically, there is no change. The secondary trend remains bearish and the primary trend bullish.


The Dow Theorist