Friday, November 1, 2013

Dow Theory Update for November 1: GDX and SIL close to signaling a primary bear market signal




Gold and silver remain in secondary reaction against primary bear market



Let’s see what the Dow Theory has in store for us today.

US stocks


The SPY, Industrials and Transports closed up.

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


The primary trend was reconfirmed as bullish on October 17th, for the reasons given here.

Today’s volume was lower than yesterday’s, which is bearish, as higher prices were not met by stronger volume. I consider volume to be bearish for the reasons given here and here. Furthermore, the trendline of volume of the last few days is ominously bearish, as volume has steadily contracted as prices advanced and has expanded as prices declined.

Gold and Silver


SLV and GLD closed down. For the reasons I explained here, and more recently 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 down. 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.


Furthermore, today’s action puts SIL and GDX in a difficult juncture. As you can see from the chart below, SIL and GDX underwent a full-fledged secondary reaction which ended on 10/16 (SIL) and 10/11 (GDX). From the secondary reaction lows, a rally ensued which brought SIL to 13.83 (10/25) and GDX to 26.54 (10/26). 

If the red horizontal line got violated, a primary bear market would be signaled


As you can see from the spreadsheet below, SIL rallied 14.2% and GDX 15.14%.


            SIL
           GDX
Rally high
13.83
26.54
Sec react low
12.11
23.05



Pct rally
0.14203138
0.15140998


Both rallies exceed the minimum volatility threshold to be meaningful under the Dow Theory. As you know, for any movement to be meaningful, it must exceed 3% when dealing with stock indices. Since SIL and GDX have a much larger volatility than the Industrials, or the SPY, we adjust the volatility, as shown in the spreadsheet below:

SPY
0.005298

SPY
0.005298
SIL
0.0221

GDX
0.0243
Mult
4.17138543

Mult
4.58663647
Min mov
12.5141563

Min mov
13.7599094

(Volatility calculated as daily average percentage change averaged during the last 30 days)

Thus, both SIL and GDX have exceeded the minimum volatility threshold of 12.51% (SIL) and 13.75% (GDX).

Thus, the setup for a primary bear market signal is completed. Therefore, if the secondary reaction lows of 12.11 (SIL) and 23.05 (GDX) were violated, a primary bear market for SIL and GDX would be signaled. The vital secondary reaction lows are shown on the chart with a red horizontal line.

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
11/01/2013 176.21
Current stop level: Secondary reaction low

165.48




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




4.35% 12.19% 2.05%

 
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
11/01/2013 12.52
Current stop level: Primary bear mkt low
06/26/2013 10.59




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




-18.49% 18.22% 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
11/01/2013 24.08
Current stop level: Primary bear mkt low
06/26/2013 22.22




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




-16.10% 8.37% 29.16%


Sincerely,
The Dow Theorist

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