Today the Transports and the SPY
closed up. The Industrials closed down. So we had a mixed day with no
consequences. So there is nothing new under the Dow Theory.
Therefore, what I wrote
earlier today “Dissecting a secondary reaction under Dow Theory” about
the non existence of a secondary reaction remains valid and unchanged. You can
find this post here
Volume was down and since
overall I’d label the day as an “up” day (both the SPY and the Transports
closed up), I’d say that we had a mitigated bearish volume day. So we have had
6 bearish volume days in the last 8 days.While always of secondary importance volume seems to be saying that the odds favor a secondary reaction soon.
As to the precious metals
gold, silver and their respective miners ETFs closed down for the day. However,
all the action occurred near the latest recorded highs and no technical damage
has been made.
Bottom line: Both the primary
and even the secondary trend remain bullish.
As to bonds, it seems the
world is not ready to end yet. The long term bond (BLV) /gold (GLD) ratio
refuses to break down and give a primary bear signal. I keep monitoring this chart like a hawk. Here you have an updated chart. The green horizontal line is the significant level of the ratio to be violated in order to declare a bear market in bonds.
 |
| Bonds are not ready to collapse in spite of technical danger |
| Data for October 2, 2012 | |||||||||||||
| DOW THEORY PRIMARY TREND MONITOR SPY | |||||||||||||
| SPY | |||||||||||||
| Bull market started | 06/04/2012 | 128.1 | |||||||||||
| Bull market signaled | 06/29/2012 | 136.1 | |||||||||||
| Last close | 10/02/2012 | 144.5 | |||||||||||
| Current stop level: Bear mkt low | 128.1 | ||||||||||||
| Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |||||||||||
| 6.17% | 12.80% | 6.25% | |||||||||||
| DOW THEORY PRIMARY TREND MONITOR GOLD (GLD) | |||||||||||||
| GLD | |||||||||||||
| Bull market started | 05/16/2012 | 149.46 | |||||||||||
| Bull market signaled | 08/22/2012 | 160.54 | |||||||||||
| Last close | 10/02/2012 | 172.1 | |||||||||||
| Current stop level: Bear mkt low | 149.46 | ||||||||||||
| Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |||||||||||
| 7.20% | 15.15% | 7.41% | |||||||||||
| DOW THEORY PRIMARY TREND MONITOR SILVER (SLV) | |||||||||||||
| SLV | |||||||||||||
| Bull market started | 06/28/2012 | 25.63 | |||||||||||
| Bull market signaled | 08/22/2012 | 28.92 | |||||||||||
| Last close | 10/02/2012 | 33.5 | |||||||||||
| Current stop level: Bear mkt low | 25.63 | ||||||||||||
| Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |||||||||||
| 15.84% | 30.71% | 12.84% | |||||||||||
| DOW THEORY PRIMARY TREND MONITOR ETF SIL | |||||||||||||
| SIL | |||||||||||||
| Bull market started | 07/24/2012 | 17.08 | |||||||||||
| Bull market signaled | 09/04/2012 | 21.83 | |||||||||||
| Last close | 10/02/2012 | 25.01 | |||||||||||
| Current stop level: Bear mkt low | 17.08 | ||||||||||||
| Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |||||||||||
| 14.57% | 46.43% | 27.81% | |||||||||||
| DOW THEORY PRIMARY TREND MONITOR ETF GDX | |||||||||||||
| GDX | |||||||||||||
| Bull market started | 05/16/2012 | 39.56 | |||||||||||
| Bull market signaled | 09/04/2012 | 47.77 | |||||||||||
| Last close | 10/02/2012 | 53.59 | |||||||||||
| Current stop level: Bear mkt low | 39.56 | ||||||||||||
| Unrlzd gain % | Tot advance since start bull mkt | Max Pot Loss % | |||||||||||
| 12.18% | 35.47% | 20.75% | |||||||||||
does a secondary reaction signal the start of a pullback (meaning the market will go lower from there) or is it confirmation of a pullback already in progress, and the market will go higher from there? does a secondary reaction typically last a certain amount of time?
ReplyDeleteHi Kolpin,
ReplyDeleteI answer your questions from end to beginning:
The minimum time requirement for a secondary reaction to exist is ten trading days. The average duration of a secondary reaction is around 50 trading days, but they can reach even 8 months in extreme cases.
Of course, to be meaningful it needs to be confirmed by at least two indices.
The start of the pullback is independent of the existence of the secondary reaction.
Furthermore, under Dow Theory the pullback (or decline, as Rhea labels it) doesn’t have a minimum time requirement. It is just necessary 3% movements. This is why I some times label the pullback like a “tertiary” movement. First we have the primary trend, then the secondary trend which can be aligned with the primary trend or against it in which case is labeled “secondary reaction”. Finally, we have the minor rallies and declines which must exceed the 3% threshold to be meaningful.
So you can have pullbacks without having a secondary reaction but all secondary reactions are pullbacks (which usually are of greater magnitude, i.e. 6%, and last at least 10 trading days).
In one future post, I will attempt to clarify the meaning of the words used in order to have a precise framework to express our ideas.
Secondary reactions are very tricky and often create controversy among Dow Theorists. So it is the most difficult stuff in Dow Theory. In the future, I will devote one or two posts to this tricky issue.
You may find of interests the following post where I appraise the existence of a secondary reaction “life”.
http://www.dowtheoryinvestment.com/2012/10/dissecting-secondary-reaction-under-dow.html
Hope this is useful to you.
Regards
Thanks, very useful indeed! I appreciate you taking the time to explain this. is there a possible scenario where a secondary reaction never occurs, and instead, only smaller tertiary reactions occur?
ReplyDeleteYes. If the "pullback" fails to be confirmed by at least two indices. For a secondary reaction to exist it is necessary that it is confirmed by two indices. And don't forget the minimum 10 days requirement on two indices at least.
ReplyDeleteRegards