Friday, August 29, 2014

Dow Theory Update for August 29: What does GDXJ (gold junior miners ETFs) know?

Non confirmation persists. The longer it takes the more dubious the current rally

Well today, I could find some more time. I think this is a juicy Dow Theory update. Keep your eyes on the precious metals miners, which are clearly more bullish (within their primary bear markets) than gold and silver (more below).


The SPY, Industrials and Transports closed up. However, only the SPY has managed (already several days ago) to better the primary bull market highs. The Transports and Industrials remain below the primary bull market highs (blue horizontal lines), and hence the primary bull market has not been reconfirmed. 

 Here you have an updated chart:

Only the SPY keeps making higher closing highs

The longer it takes for the confirmation to occur, the greater the likelihood of a trend reversal. If the secondary reaction lows (red horizontal lines) were to be violated a primary bear market would be signaled. Volume is dismal and speaks ill of the current rally. Any volume analyses I take (including my own tools) are bearish. However, given August doldrums, I take volume readings with an even higher dose of skepticism as I usually do. More about my usual dose of skepticism concerning volume here.

What I wrote here remains fully valid.

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. Will it survive the fourth one? Confirmed higher highs will let us know.

The secondary trend is bearish, as explained here and here.

Gold and Silver

SLV 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 up.

I repeat what I have been writing through August:

“Do the ETFs miners know something about their underlying precious metals? I ask this because they are much stronger than silver and gold. Normally, the miners tend to lead the metals. While the primary bull market signal has not been flashed yet (more about the setup here) and the miners remain caught in a primary bear market, they look much better on the charts. “

Here you have an updated chart as a reminder:

When will the current consolidation end? Bullish breakout?

I also ask myself: Do the junior gold miners (GDXJ) know something about the prospects for paper gold that their seniors (GDX) don’t know? I ask this, because GDXJ has witnessed a volume explosion not seen in its senior peer. GDXJ’s last rally was supported by really bullish volume (see chart below and see how volume bars literally explode above the 50-days average of volume –yellow line-). Furthermore, the rising red line at the bottom of the chart (ratio of bullish average volume versus bearish average volume) also shows not only a volume explosion, but a surge of the ratio of the bullish volume versus the bearish volume. If you pay attention to the red line, you will see that the last minor lows have not been confirmed by an expansion of bearish volume, as the red line is slowly but firmly rising (which speaks of bullish volume prevailing over bearish volume). As of this writing, the 20-day ratio stands at 1.13, which means that bullish volume has been 13% larger than bearish volume. Thus, if we bear in mind that the last rally was supported by extremely bullish volume (both in quantity –total reading- and in quality –bullish/bearish volume ratio-), and the current consolidation shows bullish volume winning the upper hand, I’d tend to conclude that, at least GDXJ, knows even more things than GDX and SIL. Here you have the relevant chart:

Volume shows a distinct bullish bias....but wait for price action to confirm volume.

Although, I do not show the relevant charts, the bullish/bearish volume ratio stands at 1.087 for GDX, which means that during the present consolidation there is more buying pressure (albeit not so intense as in GDXJ). SIL has had dismal volume ratio readings for many months (see the declining red line on the chart below). However, the current rising (albeit timidly) ratio might give some hope to the bulls. 

SIL is not so bullish (both technically and according to volume)

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

No comments:

Post a Comment