Monday, September 16, 2013

Dow Theory Update for September 16: Gold and Silver set up for primary bull market signal



Secondary reaction for GDX and SIL signaled today


Well, today there relevant events under Dow Theory for the precious metals universe. Let’s get started.

US Stocks

The SPY, the Industrials and Transports closed up. However, and while not strictly Dow Theory, I saw today many stocks failing to follow the bullish indices. I’d say that weakness is building up in the very short term.

The primary trend is bullish, as explained here, and more in-depth here.

The secondary is bearish, which implies an ongoing secondary reaction against the primary bullish trend, as explained here.
 
Today’s volume was higher than Friday’s, which is bullish as higher prices were met by higher volume. The overall pattern of volume remains neutral, since bullish and bearish volume days alternate and I cannot discern a clear pattern.

Gold and Silver

SLV and GLD closed down. For the reasons I explained here, I feel the primary trend remains bearish. Here I analyzed the primary bear market signal given on December 20, 2012. The primary trend was reconfirmed bearish, as explained here. The secondary trend is bullish (secondary reaction against the primary bearish trend), as explained here.

Today SLV closed 11.23% below the secondary reaction closing high of 23.59 (made on August 27th). GLD closed 7.53% below the secondary reaction closing high of 136.75 (made on the same date). Here you have the detailed calculations:


SLV
GLD
Sec Reac high
23.59
136.75
Pullback low
20.94
126.45



Decline
-0.112335735
-0.07531993


Accordingly, the current pullback qualifies under Dow Theory to set up both precious metals for a primary bull market signal. As you know, according to the Dow Theory, the minimum pullback to be relevant must exceed 3%. However, given SLV and GLD’s higher volatility, we have to make the corresponding volatility adjustments. To this end, I have calculated the daily percentage change for our three markets (SPY, as benchmark, and SLV and GLD) and have averaged for the last 100 days. These are the results:

SPY
0.0053

SPY
0.0053
SLV
0.016792

GLD
0.0101
Mult
3.16830189

Mult
1.90566038
Min mov
9.50490566

Min mov
5.71698113

Thus, the 11.23% (SLV) and 7.53% (GLD) pullback clearly exceeds the minimum movement of 9.50% (SLV) and 5.71% (GLD).

Look at the chart below. The blue big rectangle shows the ongoing bullish secondary reaction against the still in force primary bear market. The orange rectangle shows the current pullback. 

Things get interesting: SLV and GLD set up for a primary bull market
 
So now things get interesting for silver and gold. If the secondary reaction closing highs were jointly broken (shown by the blue horizontal lines), then a primary bull market would be signaled.

If, on the other hand, the primary bear market lows (red horizontal lines at the bottom of each chart) were violated, then the primary bear market would be reconfirmed.

A moment of truth is approaching for GLD and SLV. Either the vicious bear market grip is broken, or let’s get prepared for the worst…

SIL and GDX closed down. SIL and GDX, unlike GLD and SLV, are unambiguously in a primary bull market under the Dow Theory, as explained here and here.

The secondary trend has turned bearish, as there is an ongoing secondary reaction against the primary bullish trend. The two requirements for a secondary reaction have been met:

a)     More than 10 days of declining prices. We have had 14 trading days of lower prices.
b)     The pullback exceeds the minimum volatility threshold.

Here you have the calculations I have performed to obtain the minimum volatility adjusted movement:

SPY
0.0053

SPY
0.0053
SIL
0.0233

GDX
0.0255
Mult
4.39622642

Mult
4.81132075
Min mov
13.1886792

Min mov
14.4339623

And here you have the amount lost during the current secondary reaction:


SIL
GDX
Bull market high
16.37
30.41
Sec react low
13.66
25.29



Decline
-0.16554673
-0.16836567

Thus, SIL’s decline of 16.5% exceeds the minimum amount of 13.18% whereas GLD’s decline of 16.83% exceeds the minimum amount of 14.43%.

Accordingly, today we label the secondary trend as bearish. 

Here you have un updated chart displaying the ongoing secondary reaction (orange rectangles):

Secondary reaction for SIL and GDX signaled today


Here you have the figures for the SPY, GDX and SIL which represents the only markets with suggested open long positions.

 

DOW THEORY PRIMARY TREND MONITOR SPY




SPY
Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
09/16/2013 170.31
Current stop level: Bear mkt low

157.06




Unrlzd gain % Tot advance since start bull mkt Max Pot Loss %




0.85% 8.44% 7.52%


 

DOW THEORY PRIMARY TREND MONITOR ETF SIL




SIL
Bull market started
06/26/2013 10.59
Bull market signaled
08/14/2013 15.36
Last close
09/16/2013 13.66
Current stop level: Primary bear mkt low
06/26/2013 10.59




Unrealized gain % Tot advance since start bull mkt Max Pot Loss %




-11.07% 28.99% 45.04%




DOW THEORY PRIMARY TREND MONITOR ETF GDX




GDX
Bull market started
06/26/2013 22.22
Bull market signaled
08/14/2013 28.7
Last close
09/16/2013 25.39
Current stop level: Primary bear mkt low
06/26/2013 22.22




Unrealized gain % Tot advance since start bull mkt Max Pot Loss %




-11.53% 14.27% 29.16%



Sincerely,
The Dow Theorist


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