Dow Theory Update for September 9: Second step for primary bear market signal completed today

However, until proven otherwise, stocks remain in a primary bull market

Last Friday I posted a new episode of the saga "Face off: Schannep versus classical Dow Theory," which you can find here.

Let’s get started with our Dow Theory commentary for today.

Stocks

The SPY, the Industrials and Transports closed up.

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, the Transports, which closed at 6460.43, managed to rally more than 3% from the August 30^th lows (6249.88). Thus, stocks have completed the second step required for a primary bear market signal. Let’s recap:

1.      The three indices we monitor underwent a secondary reaction, since they lost more than 3% from the last recorded bull market highs. More info about the ongoing secondary reaction here.

2.      One index has rallied more than 3% from the secondary reaction lows.

This post on this Dow Theory blog explains why the setup is completed with just one index rallying from the secondary reaction lows. While the secondary reaction must be “confirmed” (that is at least two indices participating), the rally that follows the secondary reaction lows need not occur in two indices.

You can see on the chart below the current setup. The red rectangles display the ongoing secondary reaction against the primary bullish trend. The ellipse (middle of the chart) displays the current +3% rally in the Transports. The red horizontal lines display the relevant levels to be violated (secondary reaction lows) for a primary bear market signal to be signaled. Take your time and study the chart.

Setup for primary bear market signal progresses: Trasnports rallied more than 3% from secondary reaction lows

Please mind that a primary bear market setup, is not the real thing, namely, the bear market itself, but merely, a setup. Thus, if stocks break above the primary bull market highs, the primary bull market will be reconfirmed and the primary bear market will be avoided.

Today’s volume was lower than Friday’s. Since stocks closed up, contracting volume has a bearish connotation, as higher prices were not confirmed by volume. The overall pattern of volume remains neutral.

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.

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 is bullish as well.

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		09/09/2013	167.63
Current stop level: Bear mkt low			157.06
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
-0.73%	6.73%	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		09/09/2013	15.24
Current stop level: Primary bear mkt low		06/26/2013	10.59
Unrealized gain %	Tot advance since start bull mkt	Max Pot Loss %
-0.78%	43.91%	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		09/09/2013	27.65
Current stop level: Primary bear mkt low		06/26/2013	22.22
Unrealized gain %	Tot advance since start bull mkt	Max Pot Loss %
-3.66%	24.44%	29.16%

Sincerely,

The Dow Theorist