Dow Theory Update for October 7: Stocks extend secondary reaction by making lower lows

Formidable article concerning the secular condition of the market

Zero Hedge nailed again by posting an article featured by Ed Easterling of Crestmont Research via dshort.com .

The article makes clear that current valuations are far from those seen at the start of secular bull markets. Furthermore, the authors conclusively show that the “hangover” from the preceding secular bull market (and its corresponding extreme valuations) is far from healed.

Thus, according to Ed Easterling, it is very likely that we are still in the midst of a secular bear market and that the ordeal will last some more years.

It goes without saying that spotting in real time the end of the secular bear market, and the start of the next secular bull market is not an easy feat, as secular bear markets, unlike cyclical bull and bear markets which are determined by market patterns, rely mainly on valuation and valuations are slippery, as I explained here when talking about Richard Russell of the Dow Theory Letters.

However, having read Ed Easterling’s books “Probable Outcomes” and “Unexpected Returns”, I can only say that he knows his trade, and, hence, we should adapt our expectations when trading cyclical bull markets to the performances likely to be seen when there is a secular bear market (which implies headwind, and a lower, albeit positive performance).

US Stocks

The SPY, the Industrials and the Transports closed down.

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

The secondary trend is bearish (secondary reaction against the primary bull market) for the reasons explained here.

 

Today’s volume was lower than Fridays’s, which is bullish, as lower prices were not joined by expanding volume. I still see the overall pattern of volume as neutral, as I explained here.

Gold and Silver

SLV and GLD closed up. 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.

Here, I explained that GLD and SLV set up for a primary bull market signal. However, a setup is not the same as the “real thing," namely the primary bull market; thus, many “setups” do not materialize and until the secondary reaction closing highs are jointly broken up, no primary bull market will be signaled.

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

The secondary trend is bearish, which is tantamount to saying that there is an ongoing secondary reaction against the primary bullish trend, for the reasons given here.

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		10/07/2013	167.43
Current stop level: Secondary reaction low			163.33
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
-0.85%	6.60%	3.39%

 

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		10/07/2013	12.83
Current stop level: Primary bear mkt low		06/26/2013	10.59
Unrealized gain %	Tot advance since start bull mkt	Max Pot Loss %
-16.47%	21.15%	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		10/07/2013	24.59
Current stop level: Primary bear mkt low		06/26/2013	22.22
Unrealized gain %	Tot advance since start bull mkt	Max Pot Loss %

-14.32%

10.67%

29.16%

Sincerely,

The Dow Theorist