Monday, January 27, 2014

Dow Theory Update for January 27: Stocks caught in a secondary reaction

Precious metals should rally soon or else…

US stocks

The Transports, the Industrials and the SPY closed down. Today I can affirm that a secondary reaction has been signaled. Even though it is necessary that at least two of the three indices, we monitor a decline by more than 3% from the latest recorded closing highs, today we can see that all 3 indices have declined more than 3%. Here you have the spreadsheet that says it all.:

Highest closing high
Pullback low

Pct decline

Here you have an updated chart so that you see it by yourself. The orange rectangles depict the ongoing secondary reaction (which can grow larger if prices continue to decline with no intervening +3% rally in at least one index):

Orange rectangles highlight the ongoing secondary reaction against the primary bull market
As you know, I have been warning that the Transports’ strengths making higher highs unconfirmed by the other indices was a warning sign of a developing secondary reaction. Well, today it is no longer a suspicion but a certainty.

Now we have to pay close attention to subsequent price action. If at least one index were to rally by more than 3%, and the last recorded secondary reaction lows were to be violated, then a new primary bear market would be signaled.

So today we label the secondary trend as bearish. The primary trend remains 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.

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.

As to the gold and silver miners ETFs, SIL and GDX closed down. The secondary trend is bullish, as explained here.

The primary trend for SIL and GDX remains, nonetheless, bearish, as was profusely explained here and here.

Here you have the figures for the SPY which represents the only market with a suggested open long position:

Data for January 27 , 2014


Bull market started
06/24/2013 157.06
Bull market signaled
07/18/2013 168.87
Last close
01/27/2014 178.01
Current stop level: Secondary reaction low


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

5.41% 13.34% 2.05%


The Dow Theorist

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