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:
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