Friday, April 25, 2014

Dow Theory Update for April 25: Are markets setting up for an explosive move?


Gold and Silver miners ETFs display remarkable strength

I see the markets coiled. While this is not strict Dow Theory, and you know I am very adamant about departing from the Dow Theory, I see that many markets are in a no-man’s land and getting ready to make a big move (the issue is: which side?)

In other words, I see huge accumulation/distribution patterns on many charts. I don’t know which way they will break up/down, but I get the eerie feeling that something big will happen when markets finally start moving again.

I see these patterns in stocks (in spite of their primary bull market), gold and silver (which remain caught in an eternal secondary bullish reaction against a still primary bearish trend) and their corresponding mining ETFs (SIL and GDX), which, by the same token remain unable to either break above the last recorded secondary reaction highs (which would be a primary bull market signal according to the Dow Theory) or violate the last recorded primary bear market lows (which would reconfirm the primary bear market).

Ditto for TLT and IEF, the 20+ years and 7-10 years bonds ETFs, respectively. Both remain caught in a narrow range since September 2013 unable to either rally (lower interest rates) or breakdown (higher interest rates, and quite likely, weaker dollar).

It is queer that both precious metals and their nemesis, interest rates are showing similar patterns on the charts: Unable to move either way. It seems as if somebody/something is trying to prevent something from happening. It seems that nobody likes to high paper gold, but at the same time not too low. The same applies to interests rates. Let’s see what happens when all unravels.

Thus, I see that vital markets such as stocks, interest rates and precious metals, are caught between opposing forces, unable to decide which way to turn (either up or down).

Since this consolidation is during almost an eternity (the longer the consolidation, the stronger tends to be the subsequent move), and it is being “confirmed” (here I borrow from the Dow Theory), as many markets are acting in similar fashion, I feel that the breakup or breakdown can be of monstrous proportions. This is like a coiled spring that is about to be released. If the breakup or breakdown occurs, and more importantly, if the breakdown or breakup is confirmed across several asset classes, the markets will be displaying a powerful signal.

If I find time, which is uncertain,  I will try to address what I see in each market and provide you with some charts.

Let’s move on to our daily Dow Theory commentary.

US Stocks

The SPY, Industrials and Transports closed down. Now it seems that the higher highs made by the Transports will remain unconfirmed for some time. Remember that a couple of days ago I noted that I saw not only lack of confirmation but also divergence (which tends to be a red flag). Thus, and unless stocks begin to rally soon, a secondary reaction might be in the making.

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

The primary trend was reconfirmed as bullish on October 17th, 2013, and November 13th, 2013 and March 7th, 2014, for the reasons given here, here and here.

So the current primary bull market signal has survived three secondary reactions.

The secondary trend is bullish too, as explained here and here.

Gold and Silver

SLV, and GLD closed up. For the reasons I explained here, and more recently here the primary trend remains bearish.

For the primary trend to turn bullish, SLV and GLD should jointly break above the secondary (bullish) reaction highs. As a reminder, the secondary reaction closing highs were made on August 27th, 2013. From such highs the market declined without jointly violating the June 27th, 2013 primary bear market lows.

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.

On a statistical basis the primary bear market for GLD and SLV is getting old. More than one year since the bear market signal was flashed has elapsed. However, I am extremely skeptical as to the predictive power of statistics. I prefer price action to guide me, and the Dow Theory tells me that the primary trend remains bearish until reversed.

Furthermore, the June 27, 2013 lows remain untouched. The longer this situation lasts, the higher the odds that something might be changing. But I wait for the verdict of price action.

As to the gold and silver miners ETFs, SIL and GDX closed up. I consider this a short term bullish accomplishment given that the gravitational pull that dragged stocks today. However, under the Dow Theory, we still have to wait and see, and no trends have changed.

I profusely explained that SIL and GDX set up for a primary bull market signal. You can find all the relevant information from a Dow Theory standpoint here.

Please mind that a setup is not the real thing. So the primary trend has not turned bullish yet (or maybe “never”).

The secondary trend is bullish, as explained here. In spite of short term bullish accomplishments, SIL and GLD are not in a primary bull market.

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

The secondary trend is bullish, as explained here. In spite of short term bullish accomplishments, SIL and GLD are not in a primary bull market.

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

The Dow Theorist


  1. Have to say how much I appreciate your sharing your thoughts with us!.

  2. yes i will second that ..i hope you have time to show those charts of the very interested in the coiling you are talking about

    warmest regaards

  3. thx Cache and Travis for your comments. I will try to oblige a provide you with a short study on interest rates.