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Dow Theory Update For March 27: Precious Metals Seems To Awake

Mar. 27, 2013 4:41 PM ETSPY, DIA, IYT, GLD, SLV, GDX, SIL
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Manuel Blay's Blog
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Seeking Alpha Analyst Since 2012

Co-Editor of the top-ranked investment  Letter  thedowtheory.com

Investor and Trader As an investor I'm deeply influenced by Dow Theory, especially by the book "The Dow Theory for the 21st Century". I focus on the primary trend (1-2 years). My trading is short-term based (avg trade duration 4-5 days).

In addition to US stock indexes, I have successfully expanded the application of the Dow Theory to precious metals, their miners, and US interest rates. The Dow Theory is a more accurate timing device that moving averages, breakout systems, etc.

Stocks meandering

Zero Hedge highlights bearish volume

In a post entitled "Autopsy of a Death Market", Zero Hedge made clear today that volume in the last few days has been ominously bearish.

We have taken a similar stand in this Dow Theory blog.


The SPY closed unchanged. The Transports closed up, but failed to make higher highs (thus remaining the higher high made yesterday by the Industrials unconfirmed), and the Industrials closed down. This kind of market action, coupled with bearish volume readings (more on this below) tells us that technically this primary swing is losing steam.

Yesterday's stock market action reminded me what happened on October 5, 2012 when the Industrials made a higher high and the other indices refused to confirm. Such unconfirmed high was the "high-water mark" mark" and from such point, a secondary reaction began. Are we seeing a repeat of the October 5, 2012 action? The odds for a secondary reaction are high because:

1. The pattern of volume has been bearish for more than one month as shown here and here.

2. The primary bull swing has been uncorrected for more than 4 months (since the 11/15/2012 lows). If past experience is to serve us as a guide, the primary swing is "old."

However, I insist that I am not interested in "timing" secondary reactions, as I recently explained here. I monitor, though, secondary reactions or their likely inception, because I feel that the more I understand markets, the better. Knowledge is never useless, even though I may personally decide not to trade secondary reactions.

Today's volume was neutral. The SPY closed unchanged and volume was almost identical with the one we saw yesterday.

Gold and silver

GLD, once again, didn't either win or lose inventory yesterday.

GLD and SLV closed up. While it seems that a bottom has been made, if we apply Dow Theory patterns to GLD and SLV, it is too early to declare a change in trends. Not even the secondary trend has turned bullish as silver has barely budged from its February 28 lows at 27.54. I have to see silver rally by at least 5% to become convinced that the secondary trend has turned bullish. Hence, the primary and secondary trend remains bearish.

As to the gold and silver miners ETF (GDX and SIL) both closed up. The primary and secondary trend remains bearish, though.


The Dow Theorist

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