Thursday, August 30, 2012

August 22, 2012. Dow Theory signals a new primary bull movement in gold and silver? II

Yesterday we discussed that a new primary bull market in gold and silver was born as per my interpretation of the Dow Theory.

Today, we are going to look into the details of the Dow Theory signal.

For the purposes of this post I will use GLD and SLV (the most popular gold and silver ETFs) as proxies for the prices of gold and silver.

In 5/16/12 we had the last leg down (primary movement) in both indices that established new lows for the move. These are the prices to note:

149.46 GLD
26.37 SLV

Thereafter, there was a rally, namely:

11 days rally in gold. End of rally: 06/01/2012 at 157.5. This amounts to a rally exceeding 5.3% from the lows (at 149.46).

14 days rally in silver. End of rally: 6/6/2012 at 28.51. This amounts to a rally exceeding 8% from the lows (at 26.37).

Thus, both rallies qualify as a correction of the previous primary down move, since both movements exceeded 3% and lasted more than 10 trading days. Three percent (3%) is the minimum magnitude under Dow Theory of a movement to be considered as significant. Under Dow Theory a rally (or decline) must last at least 10 trading days to be considered as a correction of the primary move.

From that point on, both markets staged a new leg down. However, gold refused to make a lower low (that is that the lows of June at 149.46 were not violated).

However, silver made new lower lows on 6/21, 6/22 and 6/28/2012. Such new lows were not confirmed by GLD. Under Dow Theory this lack of confirmation by GLD hinted that the primary bear market movement was likely getting exhausted.

Little by little both markets staged a new rally and:

On 8/21/2012 the previous HIGH at 157.5 was bettered by GLD
On 8/22/2012 the previous HIGH at 28.51 bettered by SLV.

So with one day delay (also bullish sign, the shorter the delay for the confirmation, the better) both GLD and SLV have bettered their previous secondary correction highs.

Under Dow Theory we got a primary bull market movement signal.

Furthermore, it is noteworthy that we are seeing higher highs and lows. In each rally gold and silver are establishing higher highs and lows. Under Dow Theory higher highs and lows hint at a bull movement of secondary nature at least.

In other words, the primary tide of the market has turned bullish for both metals and the secondary tide of the market seems, for the time being, also bullishly aligned with it.

The only negative note, however, is the mining indices. Hitherto they have refused to better their previous highs. 

The Dow Theorist


  1. The lack of a gold miner rally is the opportunity we need as investors. I am following B2Gold ( BTO) as an example . This junior has announced a 200,000 ounce acquisition ans the stock has struggled to stay above $ 4.00 link

  2. On September 5, the Dow Theory also signaled a primary bull market in the gold and silver miners ETFs. Here are the details:

    As you imply, when the primary bull market was announced on Sept 5, many gold miners well already a bit overbought.


  3. Based on your notes and chart of DJT of I interpret the SLV behavior differently. Is the following analysis right?

    1. 5/16/12 - 26.37 SLV low
    2. Reaction to 6/6/12 - 28.51 - higher than 3%, 10 trading days
    3. From there expect pullback and move to higher highs
    - Instead 6/28/12 25.63 new lower lows (primary bear continues)
    4. new reaction to 06/30/12 - 27.36 (3%, 10 trading days)
    5. Expect pullback, 08/02 - 26.31 above lower lows
    6. bull signal given 08/16/12 - 27.37 - this was also confirmed by GLD new bull movement

    Thanks for your valuable feedback,

    1. Hi bstart,

      Point 1: OK

      POint 2: OK, but in silver you have to adjust for higher volatility (while not carved in stone, ca. 6% -double than GLD or SPY. More info here: )But movement exceeded 6% OK.

      Point 3: OK

      Point 4: Not OK. 06/30 was not a trading day. No days in the vicinity closed at 25.63.

      And here I get lost....with 06/30...I cannot make sense of it....maybe its too late now...and it's my fault. Could you provide further explanation?



  4. Sorry, Dow theorist wrong month. Please reread my analysis:

    1. 5/16/12 - 26.37 SLV low
    2. Reaction to 6/6/12 - 28.51 - higher than 6%, 10 trading days
    3. From there expect pullback and move to higher highs
    - Instead 6/28/12 25.63 new lower lows (primary bear continues)
    - this is new leg in bear market
    - look for a new secondary reaction retracing 6%, 10 trading days

    4. new reaction on 7/30/12 - 27.36 (sorry for the wrong month !), 6.74%, nearly 1 month

    5. pullback to 08/02/12 - 26.31

    6. signal 08/16/12 - 27.37 - new bull market signal

    Is the analysis right?
    In step 5. should i consider a pullback of >3% (or 6% for silver) to authenticate correct pullback (Schannep assumes this in his signals)>


    1. Hi bstart,

      You made me think. I feel honored to have such an inquisitive reader. Great analysis.

      Point 1 to 4 again OK.

      Where it gets tricky and thorny is from point 5 onwards.

      The answer is so dense that I'll publish a new post today. Stay tuned.