Wednesday, November 20, 2013

Dow Theory Update for November 20: Primary bear market for SIL and GDX signaled today

GLD and SLV remain in primary bear market

As followers of this Dow Theory blog know most days are irrelevant from a Dow Theory perspective, as neither the primary nor the secondary trend are changed. This fact does not exempt us, though, from monitoring the markets on a daily basis, since we never know which day will be the “relevant” day. Furthermore, important setups evolve from daily action, which, even though are not the “signal” are harbingers of the “signal”.

Today has been a relevant day: A primary trend change has been signaled today for the precious metals miners ETFs. More on this below.

US stocks

The SPY, Industrials and Transports closed down. The Industrials closed up a couple of days ago and made a higher closing high unconfirmed. The higher the non confirmation persists, the higher the odds for a new secondary reaction. Let’s wait and see.

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

The primary trend was reconfirmed as bullish on October 17th and November 13th, for the reasons given here and here.

Today’s volume was lower than Tuesday’s. This is bullish, as lower prices were not met by stronger volume. I consider volume to be bearish for the reasons given here and here. However, if current volume actions continues, I could soon label volume as neutral. I note volume has contracted as prices receded in the last few days, which is bullish, as shown in the chart below:

Volume is neutral and it could change to modestly bullish soon

Gold and Silver

SLV and GLD closed strongly down. GLD and SLV are making lower lows, which is bearish.

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, in spite of today’s lower lows, 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 were flirting with a primary bear market signal, as was explained here and here. Today the flirt is over: GDX by violating the secondary reaction lows (Oct 11 for GLD), finally confirmed SIL. Accordingly, a primary bear market has been signaled for SIL and GDX. This implies that the whole movement from the last recorded closing highs (08/26 for SIL and 08/15 for GDX) is to be reclassified as the first swing of the primary bear market whose signal has been flashed today.

Here you have an updated chart:

Primary bear market signaled for SIL and GDX today


Thus, as per the Dow Theory, long positions should be exited. As I explained here, I don’t recommend shorting because:

• Primary bear markets last less than primary bull markets.

• Primary bear markets decline percentage wise less than bull markets.

• Hence, the amount likely to be made is lower than in primary bull markets, whereas the potential loss is higher (market reversal).
• Furthermore, shorting costs money: dividends have to be paid, and most brokers charge expensive shorting fees, which grow higher the longer the trade (it is like paying interest on the amount shorted).

• Shorting forces you to use a margin account. This is not the most suitable account for a long-term investor concerned with safety because it also implies that, when being long, shares can be loaned out.
• Thus, I don’t favor a short position along the primary bear market.

More thoughts about this primary bear market signal tomorrow.

The secondary trend for SIL and GDX is bearish too.

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


Data for November 20, 2013


Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
11/20/2013 178.47
Current stop level: Secondary reaction low


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

5.68% 13.63% 2.05%


Bull market started
06/26/2013 10.59
Bull market signaled
08/14/2013 15.36
Last close
11/20/2013 11.6

Realized loss Tot advance since start bull mkt

-24.48% 9.54%


Bull market started
06/26/2013 22.22
Bull market signaled
08/14/2013 28.7
Last close
11/20/2013 22.85

Realized loss Tot advance since start bull mkt

-20.38% 2.84%

The Dow Theorist

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