Friday, June 20, 2014

Dow Theory Update for June 20: Gold and Silver miners ETFs close to signaling primary bull market signal

Industrials make higher highs.

Yesterday, I couldn’t post. My apologies.

Readers of this Dow Theory blog know that I spare no punches when it comes to criticizing some market letters writers. However, Dave Moenning, of the “”, together with Schannep, of "", is worth of praise.


Yesterday, Dave posted his latest article entitled “2014: Macro Crowd Getting It Wrong, Again” which is a must-read piece ( I do mean it; please read it) in order to convince yourself about the deceptiveness of “macro” (which is a subset of “fundamental”) investing. While Dave doesn’t use the Dow Theory, he heavily tilts towards technical analysis, and, unsurprisingly, he tends to be on the right side of the market most of the time. I quote one of his paragraphs (which is no substitute for reading the whole article)

“For those keeping score at home, this is the second consecutive year in which the self-proclaimed masters of the universe have gotten it wrong – very wrong.
Recall that at the beginning of 2013, everybody and their brother was projecting doom and gloom. The "fiscal cliff" was going to kill the U.S. economy. Europe was going to collapse and ruin the global economy in the process. And China's growth rate was going to fall on its face. Therefore, all those experts, with all of their fancy Ivy League degrees, told us that the sky was definitely going to fall in 2013.
And how did the market react? Ms. Market apparently took offense at all the negativity being espoused and put up a gain of 30 percent. As a result, hedge funds had another year of particularly weak returns. “

So much for “grandiose” ego-filled fundamental predictions. Why not accept that we are not endowed with a crystal ball? Why not accept our own fallibility? This is why Soros, while not strictly a friend of technical analysis, is a successful investor. He’s humble enough to accept when his judgment was wrong. 

Please mind that I am keenly aware that the market is overbought, and it could well happen that it starts to decline in earnest. Thus, I am neither a bull nor a bear. When I criticise  bears, I do it not because they are "bears" per se, but, rather, because they are blinded by fundamentalism. The same criticism would apply to "bulls" if the technical tone of the market were bearish.

US Stocks

The SPY closed down, Transports and Industrials closed up. The Industrials confirmed the higher high made by the SPY two days ago.

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 closed up, and GLD closed down. 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. However, the secondary bullish reaction against such old primary bear market is also getting quite old. Tie. 

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 down.

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. The recent rally nears SIL and GDX to the level (blue horizontal line on the chart) where a primary bull market will be flashed. We are not there yet, but as you can see on the chart, SIL and GDX are not that far from the blue horizontal line (secondary bullish reaction against the primary bear market).

Will the blue horizontal lines be broken up and a primary bull market signaled?

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 GDX 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 GDX 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

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