Monday, December 5, 2022

Dow Theory Update for December 5: Primary bull market for gold and silver signaled on December 1st

GDX and SIL in a primary bull market too

Executive summary:

·        A new primary bull market for gold and silver was signaled on 12/1/22

·        SIL and GDX (the precious metal miner’s ETFs) have been in a primary bull market since 11/10/22 (explained HERE).

·        In the past, when both the miners and the metals were in gear, performance increased. 

GOLD AND SILVER

A) Market situation if one appraises secondary reactions not bound by the three weeks dogma.

 

As I explained here, the primary and secondary trend was signaled as bearish on 6/30/22.

GLD made lower lows on 9/26/22 @ 151.23, unconfirmed by SLV, whose last lows were made on 9/1/22 @ 16.38. Lack of confirmation increased the odds of the onset of a bullish secondary reaction against the bearish trend. In real-time, I alerted my Subscribers of the high probability of a rally based on such non-confirmation of lower lows.

Following such lows, solid rally until 11/15/22 (GLD @65.6) and 11/14/22 (SLV @20.24) highs that qualify as a secondary reaction. Following such highs, GLD and SLV dropped for 4 and 5 days, respectively, completing the setup for a potential primary bull market signal. So, if the 11/15 (GLD) and 11/14 (SLV) highs were jointly broken topside, a primary bull market would be signaled. On 11/30/22, SLV broke topside unconfirmed its 11/14 highs, and GLD did likewise on 12/1/22 providing confirmation. So, now, the primary and secondary trends are bullish.

The Table below displays the price action from the bear market lows to the primary bull market signal.

 


The charts below display the most recent price action. The blue rectangles on the right side of the charts highlight the secondary (bullish) reaction that started off the primary bear market lows. The brown rectangles display the pullback that set up GLD and SLV for a primary bull market signal. The light blue horizontal lights highlight the secondary reaction closing highs, which was the relevant price level to be jointly broken up to signal a new bull market.

Please notice two horizontal deep blue lines on the charts highlighting the highs of the previously completed secondary reaction (violet rectangles). A confirmed breakup of such highs would have also resulted in a primary bull market. On 10/4/22, SLV broke topside its last completed secondary reaction highs unconfirmed by GLD, so no signal was triggered. I wrote profusely in the past about this alternative signal (HERE).

Absent this alternative signal, we got the “typical” one based on the current (not the previous one) secondary reaction (light blue rectangles on the right). 


 

B) Market situation if one sticks to the traditional interpretation demanding at least three weeks of movement to declare a secondary reaction.

As I explained here, the primary and secondary trend was signaled as bearish on 6/30/22.

In this specific instance, the price action that was explained above fully applies to the “longer term” rendering of the Dow Theory. In other words, look at the table and charts above, as they fully explain was has been going on when we take a longer view.

Hence, the primary and secondary trends are bullish.

Remark:

I explained HERE that:

“What would happen if we only bought and sold SIL and GDX when simultaneously the trend, as determined by applying the Dow Theory to SLV/GLD, is in gear with that of SIL/GDX? When analyzing GLD and SLV, we saw that seeking trend confirmation added value. Well, confirmation works. Instead of 6 round trades for our SIL/GDX system, we would have just had 4. However, our net profit over the period tested would have been 49.96% versus 22.16% for the SIL/GDX-only system. So, performance more than doubles. We must note that trades have been cut by 1/3 (4 instead of 6), implying that our accuracy has been boosted by demanding trend confirmation. We make more trading less.”

Since the miners are similar to a leveraged play on the precious metals, the new bull market in GLD/SLV is a clear tailwind for the stocks and the metals themselves. Multimarket confirmation matters and increases the odds of a nice bull run.

Sincerely,

Manuel Blay

Editor of thedowtheory.com